The Tech Hub Tier Test
Decide where to angel invest by tiering your city and pricing your access honestly
- Difficulty
- Easy
- Time to result
- ~months to results
- Steps
- 5
- Confidence
- 78%
Geography is treated as a hard input to angel returns, not a preference. If you are in the technology industry and living in a technology hub, you are already halfway there. The tiering is explicit: San Francisco, New York, Beijing, Shanghai and Bengaluru are the safe places to start; London, Austin, Seattle, Denver, Boulder and Chicago are playable if you are a pro; below that you had better know what you are doing. The health test for any hub is exits — founders and early employees getting rich and recycling money into their friends' companies — not the size of the local angel community. Emerging markets offer lower valuations and higher potential returns but make timing the binding risk. If your city fails the test, the answer is to move, or to invest through a proxy: a trusted friend's venture fund, AngelList, or flying in for a demo day.
Origin
Extracted from the Naval podcast, where Naval Ravikant and Nivi tier global startup cities and describe angels in weak markets surrendering and routing capital through AngelList into Bay Area companies.
Core principles
- 01Being in a tech hub and in the tech industry is half the battle.
- 02Exits, not community, are the signal that a hub is actually working.
- 03Funding markets develop in reverse — angel money should be the last stage to arrive.
- 04Remote investing forfeits the trust networks and the deal volume.
- 05Never pay Silicon Valley prices in a market with Silicon Valley risk and no Silicon Valley pool.
How to run it
- 1
Test whether you are in a hub
A real hub has hundreds of startups in the city, prior exits, and people who visibly got rich from them. Ambiguity is itself an answer.
Watch out If you have to ask whether you are in a technology hub, you probably are not.
- 2
Place your city in a tier
Sort into safe (San Francisco, New York, Beijing, Shanghai, Bengaluru), pro-only (London, Austin, Seattle, Denver, Boulder, Chicago), or below the line.
Pro tip Stable secondary hubs still work if you see everything — but expect only one or two great companies formed per year.
- 3
Check the exit signal and the funding stack
Look for realised exits and for local Series A and B investors. Without later-stage capital, locally funded companies get stranded, crammed down, or converted to common.
Pro tip Company-level breakouts still attract late-stage money from anywhere, but the gap between rounds means the team must go very far on very little.
Watch out A wave of new local angels with no Series A behind them is a false start, not a hub forming.
- 4
Price the risk honestly
Compare local valuations against the demo-day prices founders are anchoring to. Emerging markets can pay off through lower competition and lower prices, but the timing risk is real.
Watch out The worst position is a thin local market where you invest in half of what you see while paying Silicon Valley prices.
- 5
Move, or route through a proxy
If the tier test fails and lifestyle reasons keep you where you are, invest through a trusted friend's venture fund, through AngelList, or by flying in for demo days.
Pro tip A proxy converts a structural disadvantage into a fee — usually a good trade against the returns you were forfeiting.
Watch out Investing remotely without proxies costs you the trust networks and the deal volume at the same time.
In the wild
Angels investing locally in cities that were not producing good technology startups eventually gave up on the local market and started deploying through AngelList into Bay Area companies instead. The quality of the companies and the returns were visibly higher than what their home market could generate, even after giving up the local relationships and paying a platform for access.
→ Higher realised quality and returns from routing capital through a proxy rather than forcing a thin local market.
An emerging market can produce enormous winners — an Australian angel who backed Canva or Atlassian did very well. But outside those two names the pool was thin, so the outcome depended almost entirely on timing the market's breakthrough correctly. Lower competition and lower valuations raise the ceiling; the shallow pool raises the variance.
→ Potentially higher returns than a mature hub, paid for with far greater timing risk and a much smaller set of chances.
Common mistakes
Paying hub prices in a thin market
Founders in weak markets key their valuations off Y Combinator demo day, so you take much higher risk for the same price with a fraction of the pool.
Investing in half of what you see
When only one or two startups appear a year, any reasonable deployment pace forces a hit rate far above one in ten, which guarantees a lowered bar.
Treating a local angel scene as a hub signal
Angels appearing is not the signal — exits are. Without Series A and B capital behind them, locally funded companies get stranded and the early investors get wiped out.
Is it for you?
Best for
Investors deciding whether to invest locally, move to a hub, or route capital through a proxy.
Not ideal for
Investors already embedded in a top-tier hub with strong access, for whom the location question is settled.
From the transcript
“So, getting into the tech hubs to do the angel investing is half the battle. You can do it remotely, but the odds are stacked…”
“It's certainly much safer and easier to get started in San Francisco or New York or Beijing or Shanghai or Bengaluru. If you're a pro,…”
“What's the best indicator that a startup hub is working? Is it exits? Is it a thriving community of other angel investors? Unfortunately, it's exits.”
From the episode
How to Angel Invest, Part 1