Should you jump on a plane to look for money on the west coast?

Last Friday David Bell (from Fenwick & West), Sarah Reed (Charles River Ventures), Lizette Perez-Deisboeck (Battery Ventures) and I were the panel for a Dow Jones sponsored Webinar on the subject of "The Evolving Venture Term Sheet: What VCs & Execs Must Do To Secure the Best Deal." This Webinar was built around the deal statistics published by Fenwick (a west coast law firm) and Foley (an east coast law firm). As you might expect, the numbers appear to confirm that there are some identifiable differences in practices between the west and the east.

David Bell summed it up better than I can, and I know I can’t now recreate his exact words, but the gist of what he said was that activity and valuations are picking up on the west coast sooner than on the east coast and that deal terms are slightly better on the west coast than on the east coast. In essence, the east coast lags the west coast a little bit in good times and bad. So, in bad times terms are a little less draconian on the west coast than on the east coast, and in good times terms are a little better on the west coast than on the east coast.

This observation is, I think consistent with the statistics gathered by Fenwick and by Foley. It is also consistent with anecdotal information. On the west coast there are more deals with stronger valuations than on the east coast. Also, one the west coast there are relatively fewer deals with terms like a 1x preference and full participation. It is not that there are wildly different practices, but there does seem to be a small but consistent difference.

This persistent difference seems all the more odd because the VCs (who presumably drive all this) do deals on both coasts. Battery and Charles River both have offices in Waltham and Palo Alto. It is hard to account for this difference. One facile answer is to say that it is cultural. But, that seems too easy. Also, I would think that if this were the case, west coast firms would bring their attitudes east and grab lots of good deals. Perhaps it has to do with the relative mix of industries – the east having a relatively higher percentage of biotech and life science. Biotech being relatively more expensive and requiring a relatively longer investment horizon than, say, IT, might breed more conservative practices.

While I don’t really know, I am guessing that the explanation is more along the lines of some economic factor than a purely cultural one. I think getting a west coast VC into your mix is probably a good thing, but I would not stop looking for investors in Boston.