Copyright November, 2000 by Brian Hill and Dee Power. Permission is given to quote from this document or to reproduce the document in its entirety as long as the following credit is included: Dee Power and Brian Hill, Profit Dynamics Inc., www.capital-connection.com.

In late October, 2000, 200 venture capital firms were sent the following survey by e-mail. The VCs were randomly selected from the Profit Dynamics' database. As always the venture capital firms were promised that their responses would not be attributed to them or that they had participated in the survey. A quick check showed that the firms were geographically dispersed. 97 firms responded or 49% of those sent the survey.

This survey was not meant to be a scientific survey but to provide general answers to the survey questions. Selected comments by the venture capitalists are below each category in italics.

The survey questions:

1. Would you invest in a company located in Arizona, if it met all your other investment qualifications?

2. If the answer is no, what is the major reason you would not invest in an Arizona company?

3. What do you think is the biggest hurdle for companies in Arizona in attracting venture capital?

Investing in Arizona -- The Good News

76% (74 firms) of the VCs responded that they would invest in a company located in Arizona . Only 24% responded that they would not. This result holds steady, within a few percentage points, for the same question asked in the 1998 venture capital survey.

Of the companies that responded negatively the results are roughly evenly split between:

" We only invest in a certain geographic location."

and

"AZ is too far away for us to assist the companies we invest in."

Selected comments are below.

"We only invest in the Pacific Northwest or CA."

"We only invest in the Midwest."

"Too far away for us to assist the company. Therefore, an inefficient use of our biggest asset- our time."

"We do not have the manpower to focus on companies out west, we like to be as "hands on" as possible & we can only achieve that by being close to our portfolio companies, like we currently are."

"We don't have anything against Arizona, it's just hard for us to add value to an early stage company that is far away."

What do you think is the biggest hurdle for companies in Arizona in attracting venture capital?

About half of the VCs did not answer the above question, but the results of the 41 who took the time to respond are interesting. Please keep in mind, we do not necessarily agree that the VCs are correct. In most cases, we feel that the Venture Capitalist's perception of Arizona may not be realistic. However it's still valuable to recognize these barriers.

What do VCs feel are the greatest stumbling blocks for companies in Arizona seeking venture capital?

The most common reason given, 32%, was geography, that Arizona was too remote, or too difficult to get to. Many of the VCs added that distance was important, because it is difficult to provide the assistance or attention to their investee companies when those companies are so far away.

"We generally take board seats when we invest in companies, and the travel time outside of the Bay Area becomes problematic for monthly board meetings. Takes too much time for most VCs to travel there."

In second place, 22%, is that Arizona lacks talented management, or doesn't have the infrastructure in place that lends itself to generating top talent.

" Lack of infrastructure, talent, and senior management support."

"Arizona is not known to have abundant senior executive talent, dynamic proven high tech entrepreneurs, nor an infrastructure that supports the type of technology start-up companies that venture capitalists would invest in."

"Not a tech hub; unlike Austin or Denver, there are not many successful tech companies or tech-centric universities spinning off talent"

Tied for third place, 17%, were two reasons:

1. Being located in Arizona is not a hurdle if the company has a valid business model.

"All you need is a great idea positioned in an attractive and growing market space and a quality management team with domain expertise. If you've got these, it doesn't matter where you are. The money will find you." " With regard to attracting capital, companies simply have to have good businesses. Good businesses attract capital - no matter where they are located."

2. There is little local seed money or venture capital available in Arizona.

"Probably the lack of a local venture capital industry."

"No Seed/angel capital: network of high net worth individuals that will seed startups (angels).

"It is not one of the big hubs where VC money is located. It's off the beaten track."

"not enough local capital, especially early stage"

"No access to a wealth of venture capital firms. If you are in Silicon Valley, you get on the freeway and drive 15 minutes and you can visit 50 different VCs."

Finally 10% of the VCs responded that Arizona faces a lack of high tech companies, or alack of good ideas.

"No critical mass of high tech companies and labor pool with the right skills and general infrastructure to support high tech activities."

" You need to have the entrepreneurs with good ideas in order to attract venture capital."

Conclusion -- So now what?

It would seem that there are a number of venture capital companies that will not invest in companies located in Arizona, simply because their charter prohibits or discourages investment outside a certain geographic location. It doesn't make sense to expend time and energy trying to recruit these firms.

A Problem of Perception

However the perception that Arizona is remote or difficult to get to can be overcome. Arizona has a well established resort industry. Many business meetings and smaller conventions take place here. Obviously the hotel industry has been able to convince businesses that Arizona isn't remote.

The other hurdles of lack of management talent, lack of ideas, no high tech industry, no venture capital or seed funding may take a concerted effort to overcome. But again these hurdles may be more of a perception than a reality.

As one venture capitalist commented:

"I do not see hurdles with investing in Arizona, other than it will mostly be new economy businesses ........ I perceive it to be a growth area/ state with a reasonable cost of living."

Arizona Entrepreneurs you can find:

Alternatives to traditional venture capital/private investors financing

Angel Networks

Arizona Entrepreneurs: Critical Factors To Success What do entrepreneurs in Arizona need from the business community in order to be successful? Find out here.

Business Accelerators

Business or Technology Incubators

Organizations for networking and information

Publications that are business or entrepreneur oriented

Small Business Development Centers

Survey of Venture Capital companies and why they do or don't invest in Arizona.

Venture Capital Conferences

Venture Capital firms located in Arizona