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How to Break Through When Your Startup Is Outside of New York and San Francisco

By Eliza Haverstock

Last updated: Feb 15, 2023

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New CB Insights data shows that Q1 funding dropped across the U.S. — except in three unexpected, mid-size cities. What can startup investors outside major tech hubs do to raise capital?

Funding for Philadelphia startups soared 71% in the first quarter of 2022, new data shows. (Source: Mike Kline / Getty Images)
Funding for Philadelphia startups soared 71% in the first quarter of 2022, new data shows. (Source: Mike Kline / Getty Images)

In 2013, Tristan Handy did something that now seems crazy to him: He packed up his life in Durham, North Carolina and moved some 400 miles to Philadelphia, where he’d landed an (in-person) job as the VP of marketing at a business analytics firm. He dove into entrepreneurship a few years later, founding a software startup called Fishtown Analytics — named after the historically working class northeastern Philadelphia neighborhood.

Even as his company, renamed to dbt Labs in early 2021, grew precipitously, Handy said he never considered relocating to New York or the Bay Area, where venture capital dollars can sometimes seem to flow like water. He had settled in Philadelphia for the long haul, and his wife worked at the city’s renowned children’s hospital. Staying put hasn’t been an issue: In February, dbt Labs closed a $222 million Series D round at a $4.2 billion valuation from investors including Andreessen Horowitz and Sequoia. (The company, which today is focused on helping users transform “massive” amounts of data into usable parcels, became a remote-first workplace in 2018. Today, only about 10% of its employees live in Philadelphia, where an office remains for annual on-site gatherings and other sporadic events.)

“There probably is a higher bar to demonstrate. Investors are looking for pattern recognition and so your resume might not fit these patterns quite as well,” Handy told The Org. “But that means you have to use your advantages to build that bridge to investors, and a lot of times you have time and cost of living on your side.”

New data shows that founders like Handy have found fundraising success, even as the broader venture capital market cools.

Only three mid-sized American cities saw VC funding grow last quarter

Though funding dropped this quarter for startups headquartered in nearly every corner of the U.S. including startup hubs New York and San Francisco, three mid-sized cities bucked the trend, according to a new report from data provider CB Insights. Philadelphia-based upstarts, like dbt Labs, led the pack with a 71% jump in funding between January 1 and March 31, compared to the previous quarter (October 1 through December 31). Funding jumped 30% for Atlanta-based startups on a quarterly basis, while Dallas-based entrepreneurs saw funding rise by 18%.

A handful of outsized rounds drove the fundraising results in these three metropolises, and it shouldn’t be interpreted as a long-term trend, CB Insights analyst Victoria Hume said. Philadelphia’s largest round was a $350 million fundraise for a biotech upstart called Center for Breakthrough Medicines; Atlanta counted two separate $150 million rounds; Dallas-based cybersecurity startup Securonix closed a whopping $1 billion Series D backed by Vista Equity Partners. But put in context, “what makes up 44% of Dallas’ funding would only account for 3% of Silicon Valley's funding,” Hume told The Org.

Nonetheless, the capital influx underlines the success that promising startups can find — even thousands of miles away from major tech hubs crawling with well-connected founders and investors clad in fleece vests.

“Mega rounds in smaller areas are less common...and are not reflective of every venture that's raising money in the area,” Hume explained. “But it is a bright spot, to say that you can raise a mega round in a small area.”

Using data to make your startup’s case

The startup world has long relied on personal connections and warm introductions, which can lead to all-important pitch meetings — and, hopefully, funding. But, Blair Silverberg, a founder and CEO based in Austin, Texas, maintains that financial data such as revenue growth and active user counts can help founders who can’t rely on geographical proximity to investors.

Silverberg’s belief in data as a funding draw prompted him to make a career out of it. In 2016, the Stanford-educated entrepreneur left his job at a traditional VC firm and ran a private credit fund for a few years before starting Hum Capital — a platform that helps other startups present audited financial data to investors looking for their next big portfolio company. Though Hum was originally based in New York, Silverberg now resides with his family in Austin, Texas, and his 60-person workforce is scattered across the U.S. and Mexico.

Hum promotes the idea that performance data can help entrepreneurs clinch favorable term sheets, reducing bias in the VC world against those without brand recognition or a rolodex of industry connections. Silverberg said Hum has roughly 2,500 businesses using the platform and about 250 investors including Revtek Capital and SG Credit Partners; about half of the connections that Hum has fostered turn into deals, which run $10 million on average. Hum itself has raised more than $35 million from Invesco Private Capital and other investors.

“You just have to find a way to break through, and there's basically only two can get lucky and have a friend, someone who is a San Franciscan investor, maybe they went to your high school or college...or a whole series of privileged transactions that might lead you to be friends,” Silverberg told The Org. “Or you can break through with your data, and you can just say, ‘look, I'm based in Minneapolis, but my revenue growth is twice what some other company in the Bay that's being valued at $2 billion is.’”

Advice for founders living outside of major tech hubs

For dbt Labs' Handy, living and working in Philadelphia — and not in Silicon Valley or New York City — was essential to dbt Labs’ evolution. “In tier one tech markets, you can get caught up in this conversation, where there's accepted trends, like, ‘this is how things are done,’” he said. “We saw the ecosystem moving really differently than those folks did, and I think that we needed our own space to evolve our own thinking without having the pressures of conventional wisdom and dinner party conversation.”

Handy was fortunate to have investors actively pursuing Dbt Labs, and he said he didn’t take a single in-person meeting in the lead-up to his company’s recent Series D round. But he still thinks founders can find success in smaller cities, regardless of overt investor interest. His words of advice for other founders: “Build something great with the knowledge that your rent is not obscenely high, and then let your work speak for you.”

Hum’s Silverberg said founders living outside of big tech hubs can break into investor circles by combining strong performance data with a bit of creativity.

But if you’re not able to do that, Silverberg said, “unfortunately, it goes back to ‘who you know,’ and all of the things that we hate about how capital allocation works. There are ways to hack that somewhat,’s a pretty dire state of affairs.”

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