All It Takes Is A Smile And A Hug To Jump-Start NY TechForbes Mar 27, 2013 Back to press
While still considered immature compared to Silicon Valley and perhaps even China, New York‘s Silicon Alley is in motion, brimming with startups of all kinds and plenty of venture capital and angel money to fund the next new thing.
There’s no Facebook, Google or Apple yet in New York’s entrepreneurial hubs DUMBO and SOHO, but don’t rule it out. ”It’s still early,” says Jim Robinson, general partner and co-founder of RRE Ventures.
It might be early but meet-ups in lower Manhattan already attract hundreds of Zuckerbeg wanna-bes — at least by those who couldn’t resist heading out west to Zuck-ize or supersize their startup. The density of this northeastern urban center makes it easy to commute and connect with colleagues and friends at nearby cafes and bars without having to catch CalTrain or brave Highway 101 jams or – Beijing pollution and sandstorms.
Then too, New York City entrepreneurs have begun focusing on a broader range of launches in technology fields, spreading out from the traditional stronghold of digital media and marketing. The trend has accelerated as startups can be formed more quickly and with less cash today, thanks to the Internet, mobile communications and cloud computing that make it possible to flip the switch on and get going.
“New York was criticized for not having hard core technologies under the hood but now we are seeing companies that do software and SAAS here,” says Kamran Ansari, a venture capitalist with Greycroft Partners, who spoke at a recent Silicon Dragon forum held at NASDAQ.
The rise of serial entrepreneurs and super angels are also jumpstarting New York City’s tech economy — a very positive sign considering the broad and deep impact they’ve already had in Silicon Valley, China and India. Think of the new businesses spawned by Pay Pal alum and super angel investor Dave McClure and his 500 Startups, which just opened an office in the city after trail brazing through California and emerging markets.
As young entrepreneurs pour into New York with a dream of getting rich with their own handiwork, capital sources have multiplied too. Ross Goldstein, a co-founder and managing director of DFJ Gotham, points out that the Big Apple has climbed the ranks to become the second-largest venture capital hub in the U.S., unseating Boston and second only to the Bay area now.
Brian Cohen, who chairs the New York Angels investing group, sees the whole startup ecosystem ripening as increasingly sophisticated angel investors clamor to get in on the action. ”There is a never-ending supply of new money. We are going through angel exhaustion,” says Cohen, who notes that new angels have wised up and become more realistic about valuations to invest in seed-stage companies. Pointing to the impact of this investor community, he notes that angel investors are doing 90 percent of early financing for startups. “We provide an on ramp to the VCs,” says Cohen, who works from a co-loft space with 200 startups in the Big Apple’s former meatpacking district.
What may be an under-current to the startup mentality in New York today is a touchy-feely aspect of the culture. ”I’m a New York snob,” says Cohen, adding, “in New York, everyone hugs. There is an attitude that is warm, kind, generous and giving in New York — emotional words that don’t always come easy to Silicon Valley tech folks.”
Once these startups scale into full-fledged profitable businesses, another trend in the market is for founders to turn to mergers and acquisitions as an option to cash out. Glenn Nash, a partner at law firm Sidley Austin, points to a broader range of corporate strategic acquirers beyond the naturals Google and Facebook. He notes that one of his recent transactions took the market by surprise when Adobe emerged as the buyer. The deal underscored the growing importance of strategic investors motivated by business strategies and not just financial incentives, points out Porter Bibb, managing partner of MediaTech Capital.
Robinson of RRE Ventures notes that the M&A trend is being fueled by large corporations with lots of cash on their balance sheets, less potential for return in the market, and a perception of missing out on an acquisition opportunity or falling behind in the fast-paced startup sphere.
Now that social media has been around for a while, just what is the next new thing on the tech horizon? Well, big data for one, and how to take advantage of it, but also other advances. Ansari says he’s bullish about mobile advertising technology with new factors such as rich media and display. He also signals that Google Glass is being talked about as a platform, with prototypes already existing for developers to build upon.
Healthcare and education are two sectors with embedded bureaucracies that need to be disrupted, points out Goldstein of DFJ Gotham. ”We are starting to see some models taking hold in these areas. There is such potential for disruption and innovation.”
Is China on the radar of these power investors in New York? Well yes, but there is no rush to get into this fast-growth but challenging market.
Both Greycroft and RRE Ventures have made a couple of investments in Chinese startups but are not hurrying to add more deals given the time and energy required to oversee them from afar. A year or so ago, Robinson says he toyed with RRE Ventures launching a hybrid fund in RMB and dollars at $150 million to invest directly into China deals but decided not to go ahead.
For a U.S. venture firm to succeed in China, Robinson points out that it takes local staff and on-the-ground market intelligence. He notes that entrepreneurs and venture capitalists are “smart enough to know that you just can’t parachute in to get a lay of the land or you risk parting with your money.”
How is China tech innovation regarded by NY’s power VCs? Robinson observes that Chinese innovators are starting to come up with their own ideas now rather than copying them from the West. Meanwhile, the copy-to-China cloning trend shows signs of a reverse. Tencent’s mobile messaging service WeChat is a good example. Message Me in the U.S. is essentially a clone of WeChat.
Who could have figured on China’s tech rise just five years ago and its challenge to the west? It’s one sure sign of the hyper-speed, interconnected world we live in today.