Key Takeaways

  • Roughly 90% of venture capital remains concentrated in three coastal states: California, New York, and Massachusetts.
  • Jack Selby, who has worked alongside Peter Thiel for 27 years, argues Silicon Valley's edge is a financial network effect rather than a human capital monopoly.
  • Through his fund Copper Sky, Selby invests in founders across Phoenix, Milwaukee, and Cincinnati at roughly one-tenth the Series A valuations seen in Palo Alto.
  • Building capital-intensive, operationally heavy businesses like Carvana in Palo Alto makes little economic sense given the coastal overhead and real estate expenses.
  • Investors outside the coasts win by providing interior founders with bridges back to Sand Hill Road capital networks without forcing relocations.

The Silicon Valley Financial Network Effect

Silicon Valley defenders still preach the doctrine of local talent density. Selby views that narrative as fundamentally flawed. While foundation model developers like OpenAI or Anthropic require Palo Alto lab concentration, the broader software and industrial tech base does not.

“It is a network effect, but it's a different type of network effect,” (play from 10:27) Selby said. “It is not a human capital network effect. There are plenty of smart people that live in these other places. What is the network effect is a financial network effect cuz that's where the money is.” (play from 10:30)

Coastal allocators confuse proximity to checkbooks with proximity to intelligence. Because 90% of venture dollars stay inside California, New York, and Massachusetts, coastal seed rounds price in local hype and bidding wars rather than structural execution advantages. Founders in the interior build with the same technical discipline, but they face a localized capital desert that depresses entry multiples.

Arbitraging the Series A Multiple

That capital disparity creates a clear pricing mismatch. Through Copper Sky, Selby targets secondary markets across the American interior, writing checks where competition is sparse and founder valuations remain grounded.

“What we saw with our first fund is that we could usually invest at about between let's see, about 1/10 of the average Series A valuation of what you would see in Silicon Valley,” (play from 18:55) Selby noted. "1/10."

A 90% discount on entry valuation dramatically recalibrates the underwriting math. Coastal venture models require massive exits to return a fund because Series A post-money valuations frequently start inflated. Selby's playbook strips out that valuation froth while selectively giving interior founders access to Sand Hill Road syndicates when later-stage scale demands it.

“So, I bring the optionality to bridge back to Silicon Valley, but again without actually having to live there,” (play from 12:10) Selby explained. The founder gets non-coastal burn rates alongside coastal liquidity channels.

The Physical Reality of Scale

The current tech cycle continues to reward operational and distribution complexity over pure software plays. For those models, coastal cost structures act as a tax rather than an advantage.

“The next Carvana should come out of a place like Phoenix or Milwaukee or Cincinnati or one of these non-coastal places,” (play from 9:07) Selby said. “And in fact, with emphasis, the next Carvana should absolutely not be built in Palo Alto. That would be a very illogical place to build a company like Carvana.” (play from 9:13)

High-volume distribution, physical asset management, and customer logistics require cheap space, accessible labor, and operational grit. Palo Alto offers none of those things. As capital continues chasing coastal artificial intelligence rounds, non-coastal operators can build asset-heavy cash generators with significantly longer runways.

Why It Matters

The coastal concentration of venture capital creates structural mispricings across the American interior. When early-stage entry multiples differ by a factor of ten for identical human talent, the excess returns belong to funds that can unbundle capital syndication from geographic presence. As coastal AI valuations stretch risk profiles to extremes, geographic valuation arbitrage offers LPs downside protection without sacrificing upside scale.