Georgia-based BIP Capital conducted a recent study to see if Out-of-State capital was truly “greener”; offering better business outcomes and more attractive valuations for founders embarking on a capital raise. Named, “Is all Investment Capital the Same Shade of Green?”, the study concludes that there are clear benefits to taking In-State capital, while Out-of-State capital required founders give up more of their companies with greater risks of failure while offerng no average upside.
Their data came from the Atlanta Technology Development Center (“ATDC”), seeking to understand deal dynamics and outcomes for companies within the ATDC incubator and those outside of it from 2014 to 2019.
Within the study, “In-State” represents companies with investors residing in the state of Georgia, and “Out-of-State” refers to companies raising capital from investors entirely outside of Georgia.
Eight key factors were analyzed, and the study found that, compared to Out-of-State investors, founders accepting local capital:
- Saw a greater expected equity value
- Attained similar enterprise values over time
- Went out of business with less frequency, while achieving exits more frequently
- Raised successful capital rounds more often
- Executed at a slower cash burn pace
- Received initial valuations at approximately half the valuation
- Had initial check sizes roughly half the size
- Experiences less initial dilution, with the last two points together
According to BIP Capital, Out-of-State capital follows a “scattershot” approach with initial allocation, isn’t close to progress beyond standard metrics, and won’t follow on if a business struggles to scale early. In-State capital, by comparison, is more measured. It is invested in smaller rounds, the investors stay close to their investments, and follow on as progress mounts.
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