At CoRise, we’ve had a very strong view on the future of the tech & media start up scene in NY, which I’ve blogged about before. So when I recently met a prominent VC, who was a former entrepreneur with a successful exit, I was curious of his opinion on the current state and future of NYC. He was clearly enthusiastic on the potential of NYC, but he made several cautious remarks as well that I thought were interesting. He seemed to agree with many of my Top 5 reasons why I was particularly bullish on the future of the NY scene:
1- Mayor Bloomberg initiatives (like the new Cornell campus) bringing much needed engineering talent
2- the new Facebook presence doing much of the same
3- the recent NY passing of Boston in December in VC funding
4- the growth of accelerators to nurture young companies, like ERA
5- and the direct access to Madison Ave ad dollars and Wall Street money
However, he gave me somethings to think about as challenges for the growth of the NYC tech scene:
1- Dearth of stablished large Internet companies – While NYC does have Tumblr, Foursquare, Etsy and others, it is lacking Internet companies the size of the ones near Silcon Valley. There are no Facebooks, Googles, Ebays, or Yahoos. He pointed out that having these large companies not only provides a talent pool to poach from, but also provides a stability from the entrepreneur point of view – this means that an entrepreneur can take a shot at a startup in Silicon Valley and if he fails, can merely rejoin one of these large companies. His/ her family has a mitigated financial / career risk. In NY, there arent as many fall back options (AOL?), and hence to move here and take a shot may be more risky. And, on the poaching of talent point, the NYC startup scene is forced to poach each others talent, creating more pressure.
2- NY VCs are different. In his opinion, NY VCs were very different than the west coast variety. From what he has seen, NY VCs are more focused on metrics, numbers, valuation, monetization & profitability. This isn’t to say that these things aren’t important, but he thought the West Coast VCs were more willing to bet on a vision or a management team, seeing the other metrics as secondary. Very interestingly, he also pointed out that NY VCs also want board seats (and are maybe obsessed with them). While the West Coast also takes board seats, he didn’t think it was as much of an obsession. He also questioned the value of board seats: it takes a lot of work from the VC side and the VCs may not really be that impactful anyway – at the end of the day in this stage, the future will be much more impacted by the management team. Lastly on VCs, he pointed out that there really just isnt that much money in NY vs Silicon Valley. Therefore, if you were an entrepreneur and wanted to maximise your chance of getting funding, the best thing to do is move out west.
3- Cost of Living. He also thought while the cost of living in the NYC area is an issue, it’s really not that much different than living in the Valley. Further, new areas like DUMBO can provide more cost effective living opportunities. So while this is an issue, it’s not the most impt in his mind.
I think that all 3 of these points are valid, but not insurmountable challenges:
First, on his #1 point of talent accessibility, if one of the most disruptive payment companies can be born and thrive in Des Moines, clearly geography should not be the limiting factor. Further, as the Etsys, Tumblrs, Foursquares and others grow, there should be more opportunities for a talented engineering pool. Additionally, we expect offices like Google’s to be established by Facebook and other successful
/ emerging Internet companies Twitter.
Second, on his VC point, NYC VCs may adapt to embrace more of the west coast culture. Moreover, I think what’s missed in this point is the NYC hedgefund / Wall Street money. While VCs (with traditional LPs) are one funding source, the NYC access to these funds is almost unparalleled. And, these entities are looking for diversification / additional growth.
Third, I agree that NYC area is expensive. However, less costly areas of the are are blossoming with startups and I think this only spreads out into further reaches of the tri-state geography over time.
So, while I’m not trying to be ignorant as to the challenges in front of the emerging NY tech / media scene, I am still very optimistic. There is a tremendous amount of opportunity that is untapped and I literally think we are just at the beginning of the growth curve.
Lastly, who’s to say that the east coast startup scene needs to exactly mirror the west coast scene anyway? While we all respect the Silicon Valley ecosystem, maybe there is more than one way to build a vibrant community…and if any ecosystem can do it, I’d bet on NY.
President, CoRise CO. LLC