The Power of Presence

Why is economic growth so geographically clustered?

Economic map of the US. Source: WeForum.org, Bureau of Economic Analysis

Almost 20% of the US economy is concentrated in the Boston-Washington corridor. Another 10% comes from California, between San Francisco and San Diego. In an era of teleconferencing and Skype, where almost everyone has continual access to web-based presentations, virtual reality, and equivalent of the Library of Alexandria, why is economic growth so clustered?

One explanation is the power of presence and the importance of capital. If venture capitalists fund a new startup, they’ll want to have a seat on the Board. A VC doesn’t want to fly 6,000 miles for every Board meeting if they’ve got four meetings per year in 10 companies around the country. That’s a lot of travel.

And start-up investors want to do more than just attend meetings. They want to see how the business is doing, to experience the product and spend time with the managers. There’s a lot that we can’t experience in virtual reality. We’re physical beings. We need to be physically present. Ideally, venture capitalists would like to be only an hour or so from their investments.

How often have you been part of an online conversation and been distracted by something happening in your real world? And when have you been in a meeting and seen something in the other attendees that wasn’t part of the speaker’s presentation? Face-to-face encounters matter. There’s something significant about having an emotional connection with someone physically present in the same room. Besides, we just don’t have the bandwidth for all the online meetings we’d like to have – and we probably never will.

Public Doman. Source: Pixabay

It’s not just home bias that causes US venture funds to mainly support US companies and Chinese investors primarily to fund Chinese start-ups. While opportunities may be everywhere, we simply can’t be. It turns out that all management – like all politics – is local.

Douglas R. Tengdin, CFA

Charter Trust Company

“The Best Trust Company in New England”

By | 2018-04-26T06:44:26+00:00 April 26th, 2018|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

Leave A Comment