Chris Dixon

“Do you want to sell sugar water for the rest of your life or come with me and change the world?” – Steve Jobs

I sometimes wish that instead of working on internet and software projects, I worked on cleantech or biotech projects. That way, when I came home at night, I’d know that I had literally spent my day trying to cure cancer or prevent global warming.  But information technology is what I know, and it’s probably too late for me to learn a new field from scratch.

That doesn’t mean information technology can’t improve people’s lives. Google’s search engine helps people find information, which, for example, makes cancer and cleantech researchers more productive. Skype allows companies to collaborate remotely, and connects people with friends and family around the world. In the area of information technology, we create infrastructure and hope that people use it for more good than bad.

That said, the best entrepreneurs seem to follow a path of increasing gravitas. Scott Heiferman started out selling online ads and is now creating new communities. Jack Dorsey created Twitter and is now democratizing payments so sole proprietors can compete on a level playing field with large companies. Elon Musk started with online payments and is now developing electric cars and space programs.

Founders of large companies sometimes also follow the path of increasing gravitas. Google is developing new energy technologies, self-driving cars and other world-changing technologies. Bill Gates devotes almost all of his time and money to charity.

The tech press is preoccupied with investments, trends, exits, and other “inside baseball” topics. But these are all means to an end. Investments provide fuel for entrepreneurs to convert ideas into products. Trends shape the terrain that entrepreneurs navigate. Exits provide financial incentives for investors and entrepreneurs.

Tim O’Reilly says that entrepreneurs should try to create more value than they capture. You can make money selling people obfuscated financial products, entertaining them with mind-numbing TV shows, or selling them sugar water decorated in elegant designs.

Alternatively, you can make something that matters and — if you are lucky and smart — change the world.

Here’s what I think NYC needs to become a serious, long-term startup hub:

1) Some extremely successful startups. We need PayPals – companies that spin out boatloads of talented entrepreneurs and “smart money” angel investors. Big successes also reinforce the “culture of equity” that is so strong in California – the idea that owning options in a startup is the best path to financial and career success.

2) More web product design talent. This is the scarcest talent of all (more so than engineering). NYC has perhaps the best design community in the world, but most of the designers are trained in non-web design fields (e.g. print design).  Most of the good design schools don’t emphasize web product design (some exceptions – e.g. my friend Zach Klein taught an excellent class at the School of Visual Arts last semester on web product design). NYU’s ITP stands out as a program that focuses on the intersection of design and technology (e.g. the Foursquare team went to school there). CMU’s HCI program and MIT’s Media Lab are also great. Other schools need similar programs.

3) More engineers. However, this doesn’t mean we need more engineering schools (although that wouldn’t hurt). Like Silicon Valley, NYC is populated mostly by people who moved here from other places. For the right opportunity, it isn’t hard to convince, say, recent MIT grads to move to NYC.  The problem is that NYC startups are basically unknown to students at MIT, CMU, Penn, and even (shockingly) to engineering students at NYU and Columbia (big props to HackNY for trying to fix this). East Coast CS students also view startups as a much riskier path than they actually are. I say this having been at dozens of events with East Coast students over the last year or so talking about startups. I’m constantly amazed that most of the students simply don’t realize startups are a viable option. What we have is primarily a marketing, not a supply, problem.

4) High-speed internet throughout all the “startup areas” of Manhattan (Flatiron, Meat Packing, Soho etc) and Brooklyn (Williamsburg, Dumbo, etc). It’s amazing that we have such a fundamental infrastructure problem in a city as advanced as NYC, but I can’t tell you how many startups I know that struggle to get working high-speed internet access that has solid uptime.

5) More marquee tech companies opening large tech offices here. Google has something like 1500 engineers here. This adds a lot of vibrancy to the tech culture and attracts more engineering and design talent to the city.

Some things we don’t need:

1. Government or university organized events that introduce entrepreneurs to other entrepreneurs. There seems to be one such event each week. Entrepreneurs are by nature very good at meeting one another and it’s a small enough community that pretty much everyone already knows each other anyways.

2. Expensive projects like big engineering universities. Again, the more engineers and CS programs in the US the better (even better yet we need more CS majors – which probably means more CS education in high school and earlier), but I can think of far more productive ways to spend $100M to help the NYC startup and tech world.

3. Lower rents. No doubt the rents are too damn high and lower rents would be great. I’ve been living here since college when my room for one year was a hallway in a friend’s apartment. I sympathize with people who say this. But the idea that NYC is unaffordable on a typical startup salary is a complete myth. You can rent a decent place in a cool part of town on a typical startup salary. As to commercial space, for venture-backed startups the difference between rent in NYC and rent in other cities is generally the difference between spending, say, 3% versus 4% of your total financing on rent.

4. More early-stage investment capital. There are plenty of smart angels, seed funds, and VCs who are either based here or are based elsewhere but actively invest here.

Most of all what we need is for our tech and startup scene to reach critical mass (and to sustain that critical mass even if a tech downturn comes). Facebook wasn’t started in Californa and lots of future big successes will be started in all sorts of random places.  NYC needs enough tech critical mass that the next Mark Zuckerberg seriously considers relocating to NYC.

This hasn’t happened to me, but I keep hearing stories about situations like the following: 1) startup raises a seed financing round while working on a preliminary idea, 2) founders later “pivot” into a new idea that looks more promising and/or gains traction, 3) founders decide to raise a new round of financing, 4) founders argue that the new idea is so different from the original one that it should be part of a new company, and that the original seed investors shouldn’t own any part of it.

At Founder Collective, we think of ourselves as investing primarily in people, and only secondarily in ideas or products. I have to admit that until I heard about these situations happening, I hadn’t even conceived of the possibility of “pivots into new corporate structures”. In retrospect, I suppose it was inevitable given the founder-friendly market and the rapidly evolving venture environment.

As a legal matter, assuming the founders worked on the idea on the original company’s time and/or money, the seed investors probably have a strong claim. Founders and employees normally sign “invention assignment” agreements that would make the new ideas and products property of the original company (again, these aren’t situations I’m personally involved in so I am just speculating on the specifics).  The reality is that most professional seed investors aren’t going to sue founders and will likely instead try to work out some compromise.

This is not to suggest, by the way, that founders are indentured servants to investors. It is perfectly fine, if an idea isn’t working out, to wind down the company, return the remaining capital, and go off and work on new ideas. If one of those new ideas shows promise, the founders are then (legally and morally) free to form a new corporate entity and raise new financing from whomever they choose. From news reports, it sounds like this is what the Odeo team did before they pivoted to Twitter. It’s the conventional and, in my view, correct way to handle these situations.

Here’s what really worries me. If it becomes a norm for founders to jettison seed investors when their company’s focus changes, seed investors who invest “primarily in people” will stop doing so. I think that would be a real shame: we’d lose an important source of capital and a lot of innovative startups wouldn’t get funded.