Why Smart VCs Are Going Local: The Surprising Secret to 170% Returns in Venture Capital

What if we told you that the most successful venture capital strategy isn't about chasing deals globally, but rather becoming a local expert?

While conventional wisdom suggests casting a wide net across global markets, the data tells a radically different story. Specialized regional expertise is quietly becoming the most powerful driver of exceptional venture capital returns.

And we're not talking about marginal improvements. We're talking about returns that would make even seasoned investors sit up and take notice.

The 170% Return Reality Check

Let's start with something that might change how you think about venture capital forever.

Cyberstarts, an Israeli VC firm focusing exclusively on Israeli cybersecurity startups, has achieved yearly returns of 170% since 2018. Not total returns. Yearly.

Meanwhile, in New York City, fintech investments are outpacing Silicon Valley by 135%.

These aren't anomalies. They're the new normal for VCs who understand a fundamental truth: proximity breeds profit.

The Hidden Advantage of Going Local

Here's what most investors miss: startup ecosystems are deeply embedded in their local contexts. They're shaped by unique talent pools, institutional knowledge, regulatory environments, and business cultures that outsiders simply can't fully grasp from afar.

Research from SSRN confirms what successful regional VCs already know: geographical proximity between investors and portfolio companies significantly correlates with higher returns. And this isn't just about being able to grab coffee with founders (though that helps).

Regional expertise creates multiple reinforcing advantages:

• Superior deal access through established local networks
• Better due diligence through contextual understanding
• More effective support through deep ecosystem knowledge
• Stronger board representation and governance involvement

The numbers back this up. VCs with regional focus place more directors on portfolio company boards and provide more hands-on support—directly translating to better outcomes.

Israel's Cybersecurity Phenomenon: A Masterclass in Regional Focus

Israel's cybersecurity ecosystem offers perhaps the most compelling case study in regional specialization.

In 2024 alone, Israeli cybersecurity startups raised $4 billion across 89 funding rounds—more than double the previous year. This happened despite ongoing regional conflicts, highlighting the resilience of a truly specialized ecosystem.

The secret? It's not just about being in Israel. It's about understanding the unique structural advantages:

• Elite military units like 8200 creating specialized talent pipelines
• A cultural appetite for entrepreneurial risk-taking
• Dense networks connecting founders, investors, and global tech companies
• Formalized ecosystem-building through initiatives like CyberSpark

The result? Over $23 billion in exit value through 116 acquisitions of VC-backed Israeli cyber companies over the past six years.

For investors with deep regional expertise in this ecosystem, these aren't just statistics—they're opportunities that generalist VCs simply can't access or evaluate properly.

NYC's Fintech Revolution: When Geography Beats Technology

New York's emergence as a fintech powerhouse demonstrates how traditional industry expertise can create venture capital opportunities that outperform even Silicon Valley.

The city captured 36% of all U.S. fintech fundraising in 2024, up from 25% the previous year. For VCs with deep NYC ecosystem expertise, this represents exceptional opportunities unavailable to outsiders.

Why? Because NYC's fintech success isn't just about startups—it's about understanding the intricate connections between:

• Traditional financial institutions
• Regulatory bodies
• Specialized talent pools from finance backgrounds
• Corporate partnership opportunities unique to the city

Local VCs who understand these dynamics can identify opportunities that remain invisible to outsiders and provide contextually appropriate support that generic investors cannot.

The Network Effect Multiplier

Networks play a crucial role in amplifying regional advantages. Recent research reveals that when new VC partners join firms, they generate an 8.21% increase in investments into startups from their alumni networks.

But here's the key insight: these network effects are strongest in regional contexts where:

• Information flows more freely through established channels
• Reputations are built and verified through community participation
• Trust develops through repeated interactions over time
• Local knowledge provides critical context for investment decisions

The most successful regional VCs don't just tap into networks—they become central nodes within them, creating virtuous cycles of deal flow and portfolio support.

The Strategic Playbook for Regional Focus

For venture capitalists looking to leverage regional expertise, success requires more than just showing up. Here's the strategic framework that works:

1. Choose Your Battlefield Wisely Identify regions with natural advantages—where local expertise, institutions, or market access create distinctive opportunities. Look for structural advantages, not just trending sectors.

2. Commit to Deep Immersion Building meaningful regional expertise takes years, not months. Successful specialists develop systematic approaches to:

• Mapping ecosystem participants
• Understanding talent flows
• Analyzing funding patterns
• Identifying gap areas for distinctive expertise

3. Balance Focus with Scale Research reveals a three-way interaction between fund size, industry scope, and geographic scope. Smaller funds benefit most from tight specialization, while larger funds can gradually expand while maintaining advantages.

4. Contribute, Don't Just Extract The most successful regional VCs don't just invest—they build. They contribute to ecosystem development, support founders beyond their portfolio, and create value that compounds over time.

The Future Belongs to the Focused

The evidence is overwhelming: regional expertise drives superior venture capital returns. From Israel's cybersecurity ecosystem to NYC's fintech revolution, the pattern is consistent—deep local knowledge translates into exceptional investment outcomes.

For new venture capitalists, this insight is particularly valuable. In an industry where information advantages determine success, regional expertise represents one of the few sustainable competitive advantages against established firms.

The path forward is clear:

• Focus on regions where you can develop genuine expertise
• Build systematic approaches to ecosystem development
• Contribute meaningfully to community building
• Align your geographic and sector focus with your resources

This isn't about thinking small—it's about thinking smart. In venture capital, the best opportunities often aren't global. They're local, nuanced, and accessible only to those who truly understand their ecosystems.

Making Regional Expertise Work for You

At Esinli Capital, we've built our strategy around this fundamental insight. Our proprietary two-layer optimization model doesn't just identify opportunities—it leverages deep regional and sector expertise to unlock value that others miss.

This approach has enabled us to deliver institutional-quality opportunities with strategic diversification and lower minimums, making venture capital accessible to qualified investors who understand the power of focused expertise.

The question isn't whether regional expertise matters in venture capital. The question is: which region will you master?