The Steph Curry Fallacy


tl;dr In the same way that Steph Curry is “hurting the game of basketball”, Silicon Valley’s success is “hurting” nascent venture ecosystems around the globe.

Early in the 2015/16 NBA season, ESPN Analyst (and former player and coach) Mark Jackson commented that reigning MVP Stephen Curry was “hurting the game of basketball”, something that seems ridiculous at first glance. Curry was (and is) playing at an unmatched level on a historically great and entertaining team. On top of that, he seems to be a genuinely nice and relatable person.

“Understand what I’m saying when I say this. He’s hurting the game. And what I mean by that is that I go into these high school gyms, I watch these kids, and the first thing they do is they run to the 3-point line. You are not Steph Curry. Work on the other aspects of the game.

While the phrase “hurting the game” is an incorrect way of putting it, I understand the point Jackson was trying to make.

Kids look at Steph Curry — small, skinny, doesn’t dunk on a regular basis — and see themselves in him. They think they can pattern their game after him. The reality? Steph Curry is nothing like 99.999999% of the kids heaving up the long-range 3-pointers Mark Jackson was talking about. He is the son of a former (and very good) NBA player who grew up in arenas learning from the best players in the world. He plays for a coach and on a team that support him to an unprecedented degree — through their style of play and their complementary skill sets. He has unworldly hand eye coordination and matches it with insane quickness.

In a funny way, it reminds me of the how regions who are not Silicon Valley often go about trying to become “the next Silicon Valley”.

To paraphrase Mark Jackson, “Silicon Valley is killing venture ecosystems around the world.” People across the globe are inspired by the innovation, notoriety, and financial success of the Bay Area and think that a copy/paste approach will work in bringing the Silicon Valley secret sauce to their home town.

Building “Deep” Venture Communities

As YCombinator’s Sam Altman points out here, one of the main reasons Silicon Valley succeeds is the extremely high density of people in the region working to build startups. Someone building a venture community in a nascent market could easily take that at face value and think that adding more coworking spaces, throwing more events, or working to attract non-focused capital is the right place to start to get more people working on startups.

It happens all the time. People focus on the superficial traits present in Silicon Valley (or Steph Curry), think they can replicate them, and then wonder what happened when they inevitably fall short of their aim.

The only way for a venture community to leverage the power of Metcalfe’s law and increase the density of people working to build startups is to increase the chances that startups in their region succeed. That is what happened in Silicon Valley, it is what happened in successful venture communities like Seattle, it is the blueprint (I know…building Apples and Amazons is not easy, we’ll get into that). In building product, a good feedback loop is crucial in preventing churn. The same thing goes — on a more long term scale — when building a venture community.

People in the region (and those people the region wants to attract) need to see success from others to know that it is possible for them.

Sourcing “Permanent” Capital

Companies, especially at the early stages, are mobile. They not only go where capital is available — which despite much VC handwringing, still seems to be quite a lot of places around the globe — they go where that capital will provide value that goes beyond just the dollar figure.

For capital to be effective in providing value for companies in a region it has care about being a part of the economy in that region, building companies in that region, and supporting the growth of the talent pool in that region over the long term. People and institutions with economic power in Silicon Valley care more about startups than the powerful people and institutions in every other region in the world. And it isn’t even close.

When a market does not have focused, relevant capital to support the types of companies that should be succeeding in that region, they fall victim to the early exit disease. The best companies leave for greener pastures and the second tier of companies have a hard time finding long term financial partners to support their growth.

Who Powers the Regional Economy?

If we subscribe to the idea that what has worked in Silicon Valley can’t simply be copy/pasted into existence in markets across the world — Black Swans, Steph Currys, true Unicorns can’t be replicated or predicted — then it is possible that the type of capital partners required to make new markets a success don’t look like the traditional Sand Hill Road VC firm.

In January, I wrote a piece on the Mattermark blog and noted that, according to a survey we conducted at Visible, early stage investors in the Midwest were more bullish on the present and future of the venture market in their region than their peers in other geographies.


The main reason cited was the region’s focus on “building upon its strength in historically important industries.” That idea — building on strengths — is core to the way community builders should approach this problem.

“Growth trumps all at this point, but in the Midwest it can’t come with negative gross margins and terrible unit economics. That might raise a couple rounds but doesn’t build a business. As a whole, in the Midwest a rising tide lifts all boats and I think we have a rising tide of entrepreneurs, ideas, funders, and willing + knowledgeable ecosystem partners.”

The Midwest, for example, is home to over a quarter of the Fortune 500 and many, including myself, have at times seen the high density of those multinational companies as a white knight of sorts for the region’s venture communities. The trouble with this, however, is that multinational companies — despite their origins or current headquarters — have no real loyalty to any country, let alone a state or city.

Instead, it makes sense to look beyond the Fortune 500 for capital partners who have not only significant reserves of cash burning a hole in their pockets but also ones who have skin in the game (and power) in the regional economy. In the Midwest, Upper Middle Market businesses — ones with revenues between $100MM and $1B — in those “historically important industries” fit this profile well. Many of their employees and customers come from the regions where they are based and most of these companies have not yet figured out how to take advantage of technology to positively impact their business.

In today’s economy, all industries are rapidly becoming technology industries and every business is being forced to become a technology business. Executives at Middle Market firms understand this — according to the National Center for the Middle Market, 72% of Upper Middle Market companies strongly believe in the importance of digitization to their business. Despite this sentiment, most leaders of these businesses feel that a lack of internal knowledge and difficulty attracting the right talent hinder their ability to thrive going forward.

via the National Center for the Middle Market

Bridging the Gap

As a result of lukewarm management support and lack of internal expertise, an increasing portion of these companies are electing to hold excess cash instead of investing in either internal or external projects to grow their businesses.

Venture Community builders in the Midwest can tap into this uncertainty (as well as these growing cash reserves) to build vehicles that connect startups and established businesses in a mutually beneficial way.

Upper Middle Market businesses have the size and cachet to be key early customers for startups looking to gain traction and social validation. In addition, at the upper bounds of the market, these businesses represent potential acquirers of startups in the region. These would necessarily be small acquisitions and would not be the types of wins that would cure the aforementioned early exit disease. Still, small wins are wins and feed into the virtuous cycle of positive feedback that is required to build a great venture community.

As more people gain experience in companies that see positive outcomes — either through these smaller acquisitions or by seeing businesses grow to sustainability — they “stay in the game”, joining other startups or founding their own. This increases the density of people working on startups in the region, increases the shared learnings, and increases the changes that the next Amazon finds the right mix of factors to start and stay in the region.

On the other side of the table, as this great piece from Ventech explains, startups help “create a window on disruptive innovation by exposing internal resources (R+D, Product Marketing, Sales) to the challenging strategies of portfolio companies”. This is key in helping align everyone in the company behind the idea of the digital future. In addition, by co-investing with VC firms, they gain exposure to companies outside of their market and can glean on the ground insight into how the M&A market is playing out.

Chicago alone has over 5,000 Middle Market businesses — 2nd only to New York — with a significant subset of that group bringing in over $100MM in annual revenue. Without structures in place to allow these companies to deploy capital effectively into the early stage market, everyone misses out on the potential benefit.

If Upper Middle Market businesses in the Midwest can be convinced of the potential in partnering with early stage companies, then the “shortest putt” to getting started is simply making direct investments straight from their own balance sheets with the help (at least initially) of outside parties who can advise the internal team responsible for making investment decisions on the proper way to structure the three pillars of the venture process — deal flow, diligence, and portfolio company support.

This setup would give the internal team direct access to the companies they are vetting and investing in and is the best way to quickly derive learnings from the early stage businesses that can be applied to their own. In order for these types of initiatives to succeed over the long-term, the Middle Market business participating must value strategic and operational insight over financial considerations.

As the practice matures, vehicles that even the balance between strategic and financial returns — like a dedicated internal fund or through participation as an LP in other funds — can be employed.

Whatever form those investment vehicles take, the opportunity exists for the Midwest to double down on its strengths as it searches for the same “new economy” success it had as the driving force behind America’s growth in the first half of the early 20th century.

What remains to be seen — in Chicago, the Midwest and in other venture communities with yet to be exploited competitive advantages — is whether there is a will to back up the way.

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