Accel Believes The Future of Investing Is Outside of Silicon Valley

In 2018, prolific investor Accel saw a number of its portfolio companies go public, including Dropbox, DocuSign, Spotify, and Tenable. In total, it had more than 25 exits with a near-even split between enterprise and consumer companies. Seven of those exits had multi-billion dollar valuations.

Several Accel-backed companies also experienced non-IPO exits, including Pillpack being acquired by Amazon at a $1 billion valuation; Walmart taking a majority stake in India’s Flipkart; Heptio was bought out by VMware; and Qualtrics—which Accel was “very much expecting to go public,” according to Accel General Partner Rich Wong—got picked up by SAP in an $8 billion deal.

But perhaps the most notable market move the venture firm witnessed over the year, according to Wong, is that 2018 marked the first time the firm saw so many high-profile exits of companies that were not based in Silicon Valley.

For example, Tenable is based in Maryland, Qualtrics calls Provo, Utah, home, and Spotify is in Sweden. This is somewhat ironic considering the firm has its offices in Palo Alto and San Francisco. In fact, the firm said one-third of all its U.S. investments in 2018 were made outside of Silicon Valley. In 2018, Accel invested across a total of 98 deals, with 32 of those being new investments.

“We’re quite proud of how much we’ve invested in outside of Silicon Valley. We consider that a really positive trend, in addition to being happy about the exits in of themselves,” Wong told Crunchbase News in an exclusive interview. “I think it will be an ongoing theme in the years ahead.”

Indeed, Accel founding partner James “Jim” Swartz himself is a graduate of Carnegie Mellon University in Pittsburgh, and the entrepreneurship center is actually named after him.

“He’s a local Pittsburgh kid, and we are there multiple times a year,” Wong said. “Plus, there’s a lot of great work being done out of Georgia Tech in Atlanta.”

Wong said, for many years, there was this widespread belief in Silicon Valley that VCs had to invest only in companies they could drive to.

“I think that’s an archaic view of the world,” he told Crunchbase News. “There’s so much opportunity coming from geographies outside of the coasts and internationally as well. If you open up your eyes to see outside of the U.S. coasts, there’s tons more investment opportunity.”

For example, one of Accel’s biggest investments is Sydney, Australia-based Atlassian, which opened a large office in Austin, Texas in 2014.

“More than a lower cost of living, the ability to recruit talent is so much easier than what you see in Seattle, San Francisco, Boston and New York these days,” Wong added. “We’ve known this for a while, but I think others are waking up to it.”

Looking Ahead

As for what else is ahead for 2019, Wong expects a number of companies are headed toward being public.

“There’s the big consumer companies like Uber and Lyft but also rumors about Slack and CrowdStrike,” he said. “As for the companies in our portfolio that we’re on the boards of, we can’t officially comment, but I’d predict that you’re generally going to have a lot of enterprise and consumer activity.”

When asked about the potential of a funding slowdown in the face of all the public market upheaval as of late, Wong believes the megarounds will likely be the most impacted.

“Certainly, looking up at at the screen and seeing the Dow down… if that continues, it can’t be ignored by the private markets,” he said. “But companies like Qualtrics, that are very cash flow positive businesses with durable value propositions, will be less impacted.”

Generally, Wong thinks various sectors will be affected differently.

“The weather is going to be a lot different depending on exactly where you stand,” he told Crunchbase News. “If you’re a durable enterprise security company or fast software company, you’ll have what a lot of investors view as solid fundamentals. But I do believe that some valuations are based more on stories or narratives, and there’s going to be more scrutiny on investments.”

The choppiness in the public markets aside, Wong predicts the exit markets are going to continue in “a really healthy way.”

And internally, Wong said Accel will continue to operate under the adage that “Silicon Valley is no longer a physical place.”

“It’s a mindset and belief of how to build disruptive companies that can take on the incumbent,” he said. “In some cases, the best examples of that scrappy attitude is definitely not exclusive to the physical geography of Silicon Valley anymore… and we’re going to try and find them and encourage them as much as we can.”

iStockPhoto / sorbetto