Friday, November 11, 2011

Holy Crap! The NY Startup Scene

Every few months I take a weekend to step back and make myself a list of startups doing impressive things.

One of the things that struck me was the extent that startups coming out of NYC were included on the list for the first time.  It used to be that NY mainly about AdTech and SEO-farm focused "new media" startups.  These companies were often pretty underwhelming.   Nowadays, NYC is definitely undergoing a web renaissance with clusters in social media and commerce.

4 Reasons The NYC Startup Scene Changed
1. Access to Capital.
There is a lot more capital available in NYC today than there has been historically, and it is now provided on "West Coast Terms".

It used to be that NY and Boston was known for ex-Banker VCs who wore ties and penny loafers and asked entrepreneurs to go on a 5 year vest.  NYC has seen an influx of capital in terms of both thoughtful local VCs (such as First Round and Union Square) and angel funds (e.g. Founders Collective, Lerer Ventures), but also a larger number of traditionally West Coast focused VCs have been increasingly willing to fund NYC based companies.  This includes everyone from Accel (Diapers.com*, BirchBox, Bauble Bar), Andreessen Horowitz (Foursquare, Canvas), to Sequoia (Tumblr, etc.) and more recently Greylock (Tumblr).

Almost every NYC startup I know of now makes a trip out west to fundraise, and West Coast angels and VCs have become increasingly comfortable investing across the country.  In parallel, some West Coast VCs are moving to the East Coast . For example, Accel recently opened a NYC office, and one of the sharpest investors I know - Alex Kinnier, recently joined NEA on the East Coast.

Capital is now chasing the best companies no matter where they are (as long as they are in the Bay Area or NY :)

2. Anchor Companies.
In 2002 I somehow ended up with almost an hour 1:1 meeting with Don Valentine, the founder of Sequoia Capital, and the VC who personally funded Apple, Cisco, EA, Oracle and other titans of tech.  Valentine and I spoke about the difference between Boston (which I had just moved from) and Silicon Valley.  

He pointed out that one advantage Silicon Valley had over the East Coast was its preponderance of "anchor companies".  These companies are large tech companies that recruit and import a large number of highly talented people from all over the world.  These talented people then either go on to found their own companies, or to poach management or other talent from the existing anchor companies.  In other words, the fact that Google and VMWare and Intel and Cisco have tens of thousands of engineers each enables the creation and *scaling* of amazing startups with high talent density themselves nearby (e.g. I have seen one estimate that about 1/3 of Facebook's engineers are from Google - which means hundreds of people have switched from Google to Facebook in a short time span).  

In contrast, the number of "anchor companies" on the East Coast has traditional been pretty low (I don't consider IT departments of big investment banks as "anchors" as these organizations are not product focused).  This started to change as companies such as Google built large engineering/product offices in NYC, and has allowed companies to find talent more quickly.  For example, a pretty big chunk of the early Foursquare engineering team is ex-Google, while the COO  of Etsy is also from Google.  This increase in web product/engineering talent density in NYC helps change the dynamic and allows East Coast companies to scale to a larger size without the need to open a West Coast engineering office.

In parallel, NYC has started to get some smaller anchor companies for competencies such as commerce and more recently, social media.

3. Increased Ease of Development.
The cost and speed of development has dropped dramatically.  From AWS to Django and Ruby to all the various APIs and platforms (Twilio, Stripe, etc.) a single engineer can build an enormous amount.  This means a small team can wholesale execute a great product (see e.g. the early days of Tumblr, or stand-alone 1 person teams such as Instapaper.)

This lower bar to development means that despite its sparser engineering and product talent pool, NY startups can get up and running with fewer people and still pull off amazing things.

4. A Social, Design Commerce Focused Environment
People who chose to live in NYC are in an environment that is more art, design, and media influenced than SF, which jives well with the webs shift to social media.  It is not a surprise that companies such as Tumblr and Foursquare have thrived in NY.  Similarly, many big brands and traditional commerce companies are based in NY, which has been a boon to companies such as Gilt Group.

List of Some NYC Startups
Here are some of the startups I think are doing some of the more interesting things based in NYC:

A. Social Media


B. Commerce

Hopefully, some of these startups will get large enough to act as anchor companies and reinforce the cycle of startup creation.  If these companies end up with early exits, they will never hit the scale and talent competencies that will allow them to contribute to the next entrepreneurial startups.

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*I believe Diapers.com is actually HQ'd in Jersey