I’ve written a few times about what seems to be an exploding tech scene in NYC. This is sometimes interpreted as arguing that NYC is a better place to start a company than the Valley. Most recently, Matt Mireles seems to be addressing people like me with his critique of the NYC startup scene (he makes some good points as does Caterina Fake in her response).
I’ve never meant my arguments to be about where it is better to start a company. California is a phenomenal place to start a tech company. NYC is a great place as well. (Note to Matt – it’s hard for first time founders everywhere). To me, the important question isn’t which place is better, but rather how we import the things that make the Valley great into NYC. As I said last year:
New York City has many of the same strengths as Silicon Valley – merit-driven capitalism, the embrace of newcomers and particularly immigrants, and a consistent willingness to reinvent itself. Silicon Valley will always be the mecca of technology, but now that people here are getting back to, as Obama says, making things, New York City has a shot at becoming relevant again in the tech world.
I spent the past week in California and had the honor of meeting some legendary venture investors. I was deeply impressed: they are legends for a reason. Of course, they are incredibly smart and hard working and all of that, but most impressively, it was clear that they truly believe in making big bets on ambitious, seemingly wacky ideas to try to change the world. Every VC has this rhetoric on their website, but – at least in my experience – most just want to make incremental money on incremental technologies. (Side note: I noticed that the more powerful the VC, the more likely they were to pay close attention, show up on time, and not bring phones/computers into meetings. I guess when you are changing the world, emails can wait an hour for a response).
California should be NYC’s role model and ally. The enemy should be people and institutions who make money but don’t actually create anything useful. In NYC, this mostly means Wall Street, along with the Wall Street mindset that sometimes infects East Coast VC’s (emphasis on financial engineering, needing to see metrics & “traction” vs betting on people and ideas, etc).
Matt should do what’s best for his company. God knows it’s hard enough doing a startup – you don’t need to carry the weight of reinvigorating a region on your back as well. That might mean moving to California. Meanwhile, forward-thinking investors and founders in NYC will continue trying to make things that change the world – in other words, trying to make NYC more like the Valley.
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It's not just NYC vs California. There are also the 200 other countries and tens of thousands of major regions and cities where great startups can come from. Sure, SV is a great place and has many advantages. For Europeans, you could say NYC is still much better location than in Athens, Tallinn, Stockholm or Krakow for a startup. That does not mean everyone should move to SV (although it can be considered) and not set up startups in any place of our world.
Well said! Noting that Like NY, Montreal, Toronto, Calgary, Boston… and many other areas in North America are building clusters around successful entrepreneurs and tech industries which in turn provides the nurturing and helps creates new promising startups with the momentum, resources, networks and knowledge needed to succeed. The Valley has the critical mass and a startup culture not seen anywhere else… as of yet… but building bridges and feeding the entrepreneurial startup community is how we are helping our non-Valley startups succeed.
I especially love this line “when you are changing the world, emails can wait an hour for a response”…I've always lived my life this way and I think it makes me a much happier person overall. 'Urgent' really is a relative term…
Anyway – another post you've knocked out of the park….*bowing* I am not worthy…*bowing* I am not worthy
I've never met my web savy cofounder (for Victus Media). He lived in Maui, and recently moved to Portland. I live on Long Island. We've worked together for five months exploring the opportunities in semantic social processing (social gesture/knowledge). He's pushed me to pick up some rudimentary ruby on rails skills an even push through the great git barrier. The remote founders will only become more prevalent as folks can work, communicate and share workspaces from all over.
Startups, the culture and support businesses that go with them are infecting cities all over the world. As the cost to discover a viable business drops, the barrier to entry does as well. The cost to fail is dropping! That means more iterations, competition, an better products.
If I needed 100k worth of resources to risk on developing information processing tools I may not have started.
Chris, I think it comes down to what being a VC really means. You seem to equate the VC mission with “making things that change the world.” I believe this is a narrow and potentially dangerous definition, and actually highlights one of the biggest problems with the Silicon Valley venture scene. It also, in my experience, doesn't reflect the true dynamics of how large-scale West Coast VC works, which is a lot less sexy and entrepreneur-friendly than you indicate.
Should a good VC be working to fund ideas that change the world? Yes. Should they also be looking to back young companies working on important problems that are, say, built on top of something else and very useful but not transformational? I'd say so. There are lots of start-ups of value that will never be the next Google, Twitter, Microsoft or Apple, but that doesn't mean they shouldn't be funded and nurtured as any start-up should. If one were to apply the “change the world” mission to venture investing, the amount of capital being invested in such companies (or even that should be invested in such companies) is probably less than 20%. To me the key is making sure that those 20% or so get the requisite support and time to thrive from their venture backers, which is the much bigger issue at hand.
I'd like to think that I back worthwhile start-ups and am very entrepreneur-friendly without all that negative financial engineering you ascribe to certain East Coast VCs, but do most of my portfolio companies have a change to change the world? Not in the way I define changing the world. And personally, I'm ok with this. I'm helping to create useful products, create jobs, and foster entrepreneurial excitement and possibilities. This is what venture investing means to me.
As it relates to large West Coast VCs, many of these firms are structurally bound to trying to change the world because they need those kinds of wins to return their funds. This doesn't make them paragons of virtue; it makes them rational. But buying this series of far out-of-the-money call options has an ugly dark side as well: if companies don't appear to have the potential to change the world (read: sell for $1 billion+, go public, etc.), they often get squashed and orphaned since they are no longer worth the VCs time. Now I'm painting with a broad brush here but you get the point. Does this dynamic help create a favorable entrepreneurial culture? Is this approach really making the world a better place? Not to me. Plenty of companies that would have made it on the East Coast will fail on the West Coast precisely because of the need to hit home runs to the exclusions of singles, doubles and triples.
Chris, I certainly agree that those investors who are heavily focused on metrics and traction are noxious and ill-placed as seed stage investors (they are really Series B, C and D investors). However, I would say that entrepreneurs who combine vision with pragmatism are more attractive to me than entrepreneurs who simply have vision. Might this pragmatism keep the starry-eyed entrepreneur from changing the world, and only building a really large, successful company? Yes. Is this necessarily an indictment on the NY VC reputation of wanting to understand plans for commercialization even in pre-revenue companies? I don't think so.
Thanks for penning this, Chris. You've raised some really important points that warrant discussion.
Roger
That's amazing to me that you've never met your cofounder Mark. Incredible what Skyple/IM/etc empowers.
First, Roger, I hope it goes without saying that I consider you an important, positive force in NYC. I also have made many investments that are more likely “incremental.” I'd like to think this is mostly because those are the deals that happened to come to me and that when I get the chance to do “world changing” deals I don't shy away. I guess I think of the world changing stuff as more of an ideal, one that is more explicitly sought by certain West Coast VCs than by most East Coast VCs (there are plenty of bad VCs on the West Coast and great ones on the East Coast as well).
Also, I think talking through commercialization plans etc is always good, if for no other reason than to gauge the depth and seriousness of the entrepreneurs thinking.
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“God knows it’s hard enough doing a startup – you don’t need to carry the weight of reinvigorating a region on your back as well.”
Good point. Though if we all carry a bit of the weight, moving forward would be easier.
I must admit, however, to considering a move to NoCal myself. My start-up is 20 days old, and already I feel behind; I can't help thinking that were I in SV or nearby, it would be much further down the road, due to the resources available to first-timers there.
That said, my little company is what it is because NYC “introduced” me to Matt (who suggested the hook which pulled all of the pieces to together). I've also begun work with NYTMI & Mouse.org that I don't care to abandon. Maybe I'm crazy, but carrying my bit of weight and working on my start-up have not interfered with one another, thus far…
I hope it stays that way because in the end, as you've said here, I have to do what's best for my “baby”.
The NYC investing culture that entrepreneurs want to see more like the west coast is going to take time to develop and it seems like we are on the right path to get there, nothing happens over night.
In order to see investors take risks in concepts that “to try to change the world” rather than just “incremental money on incremental technologies” we are going to need to see some successes on the smaller side to be more comfortable taking that risk. i.e. we need to walk before we run in ny and i believe we are on the right path.
It's not clear to me that a funds investment thesis has to be consistent from bet to bet (i.e “I will only bet on companies that have potential to change the world”)…as we develop our own thesis as a new fund, I find myself thinking more opportunistically than categorically. In general, I agree w the purpose of changing the world, but I am concious of the sample size of potential opportunities required to find the companies that are capable of this…I assume that we have a better chance of changing the world if we are investing multiple funds over a 10 year period, and as such, recognize the importance of generating a visible short term return through the incremental economic return you describe (increases ability to raise funds 2&3, etc…). So where I'm coming out is that different bets perform different functions for the fund in the short and long term…i guess this is an argument for flexible thinking and investment filters
Look at what Matt Mullenwegg did with automattic.
They primarily work “on the cloud” where every employee lives everywhere in the world. It's pretty impressive what can be done when it's your idea that drives your company.
I like this model. And I think it'll be a, as Caterina suggested, a lot more doable when NYC has a massive exit that seeds a generation of founders. NYC needs more guys who think like you and have the dollars to back it up.
My original post was really just me reflecting on the NYC scene as it relates to startups in my position and thinking through whether I should stay here or follow the advice of my mentor, Seth Sternberg the Founder of Meebo, and head West.
After my original post, Eric Weisen of RRE (awesome dude) sent me a Tweet: “The grass is always greener.” And so I'm heading to Cali to test the hypothesis. I'm as curious as anyone to see how it shakes out.
Expect me to report back my findings.
Automattic's success and business architecture is a compelling case study. I've been a big fan of Matt's for a while (ever since I moved my blog to a self hosted Wordpress setup and loved the experience).
To put our communication in a frame of reference:
We've talked on the phone for about ~10 hours
we talked on google talk/skype for ~40 hours
we've shared a desktop for ~30hours
we've shared hundreds of tweets
we've exchanged hundreds of tickets (tracking changes/ideas on Lighthouse)
we've shared thousands of lines of code with dropbox/git (many offshoots/branches/deadends have been removed from our current baseline)
& we've exchanged several thousand emails
You're right and wrong Kevin. It's another great post (9/10) but you are worthy. And you're precisely the audience that Chris is reaching out to.
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time to share the $$$
Word
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technology and progress have always tried to change the world, unfortunately not always for the better
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Totally agree with this post. I'm an entrepreneur in the Raleigh-Durham area, and I think it's a great spot for people to build businesses. However, until there's a runaway success that instantly throws off a couple dozen young angel investors, we're not going to be able to compete with places like the Valley.
So, until that happens, it's important for entrepreneurs to just keep their heads down focusing on their startup and hopefully helping the area get to the point where there are a couple of big exits to help juice the investment scene.
I actually got inspired by this and wrote a blog post with some more of my thoughts on the Raleigh tech scene and what it'll take to get to the level of the others':http://clayschossow.com/2010/03/the-venture-capital-scen-for-tech-startups-i-the-raleigh-durham-area/
I agree that more places like the Valley are a positive idea for everyone, from entrepreneurs to society as a whole. But, as much as I love the big apple, why, should the next Valley be in NYC?
I mean. Please fill me in someone; what does New York have – that no other place have – that seems essential to become a Valley-like centre of tech?
I think a little bit of history of the Valley may help. I am comfortable assuming that the Valley was a lot of things before it became “the Valley”, but it certainly was not a big apple.
The next tech-center could and should start somewhere else. The big apple is already a big apple. Let the next tech-center start and blossom elsewhere.
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