NYC vs Silicon Valley

There's been a lot written lately about the NYC startup scene. It's exploding. It's hot. Etc. And all that is true. 

But as a first-time founder trying to raise capital and achieve product-market fit, the question for me is not "Is NYC hot?" or even "Is NYC becoming a better startup hub?"so much as it is "Is NYC the best place to locate my startup?" And on that question, I'm not sure the answer is yes. 

See, here's the thing: As far as I can tell, startups face two main environmental challenges:

1) Raising Capital
2) Finding Talent

Here's how NYC scores on this…

Raising Capital

Good: Folks like Chris Dixon, Betaworks and Fred Wilson are here. Smart, visionary investors. 
Bad: Folks like Chris Dixon, Betaworks, and Fred Wilson are a TINY fraction of the market. 

In reality, the capital markets in NYC are flooded with Wall Streeters turned venture capitalists. These are people who know how to analyze and pick in assets, not people who know how to build companies. These are people who do dumb shit like ask about pricing for a premium version of a genuinely novel product (in a category with no existing market) that hasn't even launched yet…in the first meeting. #VCFAIL (Ok, there's some exceptions, but not tons…)

And in this environment, the entrepreneur-investors stand out in sharp contrast to the platoons of walking checkbook geniuses that roam Manhattan. Yet the founder types are few and far between. 

So what does this mean for the Founder/CEO trying to raise money in NYC? Well, from what I can tell, a few things…

a) Weak Angel Network
 Good luck finding angels in NYC who understand early-stage tech investing. Technically, they're out there…somewhere. But they're fucking hard to find. 

And let's get real: Smart founders want angels, not VC's! Angels are the ones who invest at the earliest, most risky stage. They're the startup equivalent of breast milk. And NYC has a big fat shortage. (e.x. "NY Angels" is one of those pay-to-pitch schemes that Jason Calacanis is crusading against)

b) Only a few bullets
 A corrolary to the weakness of NYC's angel network: There's only a handful of top-tier folks in the nieghborhood and if you don't get one of them excited, you're SOL. This means you better wow 'em right out the gates. No learning on the job. 

c) Harder to create competition around a deal***
 As my peeps at Venture Hacks have so adamantly advised: Founders should ALWAYS try to create competition around a deal. The more competitors in a market, the easier it is to get the swarm mentality going. And of course, the converse is true as well: the smaller the number of players, the lower your chances of gettting someone excited and tripping off the investor feeding frenzy.

This is especially true at the seed and angel stage, which remain stubbornly local as far as capital markets go. 

Think of it like going to a party: the more women at the party, the more likely one of them likes you, the more likely it is you get laid. Lesson: Go to parties with more women…err, VCs. 

d) Lower valuations
The logical outcome of this dynamic: lower valuations and shittier deal terms. Now, to be clear, I'M NOT SPEAKING FROM EXPERIENCE at this point. But it makes sense: If you're a young startup with an unproven team targetting a big market, the good investors are investing as much in you as they are in the product/market/idea. If you have fewer sources of capital investing in this type of good (because so few of them made their money in tech, where this is normal), a simple economics model will tell you that the cost of capital will rise––ie lower valuations and shittier terms.

e) Slower deal cycles
 So…if it's harder to raise angel money and create competition around a sale of your startup's equity (ie a "deal"), then it's probably gonna take more time to raise money.

f) Competetive disadvantage
 In startups and war, SPEED KILLS. And let's get real: Raising money is a gigantic waste of fucking time. Each minute you spend hobnobbing with and strategizing RE: investors is a minute you don't spend on product or customer development. This is why at SpeakerText we've developed a hierarchy regarding our priorities as a company (actually, we just ripped it off from Johnson & Johnson):  Customers > Employees > Society > Investors.

Essentially, raising capital is a gigantic-if-neccesary waste of time. Having to spend more time on this task puts you at a strategic disadvantage versus your competition. 

Finding Talent

Good: NYC has gobs of technical talent from amazing schools. Many now unemployed.
Bad: NYC has gobs of technical talent from amazing schools that are used to being paid inordinately  high wages and don't value stock options.

a) Wall Street has been a huge talent suck for a long time. 
 If you're a hotshot software engineer, the default dream varies depending where you go to college:
    -West Coast: Work for Google.
    -East Coast: Work for Lehman.
 So what's the problem? Google's a lot more entrepreneurial, gobbles up and spits out a lot more founders than our dearest Goldman Sachs (birthplace of the CDS). The mythology is all wrong. 

b) Wall Street Quants make A LOT of money. 

This is a problem because founders make barely earn a living wage before they exit. While it might average out better in the end for startup Founders, the delta in wages is pretty hard to stomach. It requires a fundamental change in lifestyle for people of who take the leap. This is especially hard when there's not a mythology of garage-to-riches built up in the engineers' minds. 

c) Silicon Valley has a bunch of Googlers who got rich from stock options. New York, not so much.

It's about the existence of a mythology. In the Valley, there are lots of engineers who just do startups. They get it. They understand it. The huge payoff down the road is a very real prospect. It's their thing. 

While there are definitely engineers in NYC who are into the whole startup mythol
ogy, they tend to be outliers as opposed to the mainstream. 

d) Specialized technical talent is harder to find in NYC than the Valley (or Boston).
I hate Boston. Would never live there. So ignoring that city, where are you going to find, ohh, let's say Speech Engineers? Theoretically, you can find stragglers from the old Bell Labs days in New Jersey. But they're not exactly easy to find. On the other hand, the Valley is teeming with peeps w specialized skillsets and advanced degrees who WANT to work for startups. So if you're shoping for talent (as we are), it seems––yet again––that the Valley is a better place to shop.

Conclusion
New York is great if you're Chris Dixon or Dennis Crowley or anyone else who's already built a successful company and had a real exit under their belt. These people have their own angel and seed capital networks that transcend locality. And since they have no problem raising capital, they have no problem attracting top tier talent. Realistically, the amount of resources they have access to means they could be in any minor startub hub and make it work.

But if you're a schmoe like me and you've got a big, world-changing dream, NYC is not the best place for you. The odds are already stacked against you. Being outside the Valley just stacks them higher. 

Ok, so I don't know if this conclusion is actually true, so I'm heading out the California on Monday to test it. Honestly, I hope I'm wrong, because I hate driving, hate the suburbs, and love urban living, but we'll see.

UP NEXT: My trip to Silicon Valley: Testing the Emerging California Thesis

  • Pingback: Shit Happening is Predictable, So Stop Dicking Around and Close (Part II) | The Metamorphosis Shit Happening is Predictable, So Stop Dicking Around and Close (Part II) | Becoming an Entrepreneur, by Matt Mireles

  • William Shulman

    Like urban living? Live in the city of San Francisco. Problem solved :)

  • William Shulman

    Like urban living? Live in the city of San Francisco. Problem solved :)

  • http://profile.typepad.com/bsiscovick Bsiscovick

    Nice comment, Nate.
    RE: colleges – I’d like to give a shout out to Mark Davis, Dave Whittemore and crew who are doing a fantastic job nurturing an incredible community of startup-interested folks at Columbia. The Columbia Venture Community has over 1000 members today, and incredibly active and useful email listserv, a wide range of monthly events and more.
    This group started less than two years ago and is now a real force both on campus and for alums. This is a huge positive step in the right direction.

  • http://profile.typepad.com/bsiscovick Bsiscovick

    Nice comment, Nate.
    RE: colleges – I’d like to give a shout out to Mark Davis, Dave Whittemore and crew who are doing a fantastic job nurturing an incredible community of startup-interested folks at Columbia. The Columbia Venture Community has over 1000 members today, and incredibly active and useful email listserv, a wide range of monthly events and more.
    This group started less than two years ago and is now a real force both on campus and for alums. This is a huge positive step in the right direction.

  • http://profile.typepad.com/sachinkamdar SachinKamdar

    Great points and I agree with most all you said (including giving credit to “wall streeters” where it’s due).
    To be specific though, I’m not saying that you guys aren’t taking risk. Of course you are, it’s the nature of the game. I’m just saying that because of the disparity between supply and demand of investors, you have the ability to take less risk, relative to SV.
    And risk is measured in very different ways — not just revenue. It depends on management team, traction with customers/users, how close a startup is to bringing dollars. So given all of this, my observations are that SV is making riskier investments at the early stage than NY (very strawman analysis). Like I said though, it makes sense. There’s more demand here and less supply, so of course investors would pick the less risky investments.
    I think NYC is headed in the right direction — it will mature and compete with SV in the future. It’s just not there yet — and it’s frustrating for a startup like mine. We’ve hit so many milestones that investors have laid out, and have had the goalposts moved each occasion, that it’s really disenchanting. It won’t stop us by any means, but it doesn’t help.

  • http://profile.typepad.com/sachinkamdar SachinKamdar

    Great points and I agree with most all you said (including giving credit to “wall streeters” where it’s due).
    To be specific though, I’m not saying that you guys aren’t taking risk. Of course you are, it’s the nature of the game. I’m just saying that because of the disparity between supply and demand of investors, you have the ability to take less risk, relative to SV.
    And risk is measured in very different ways — not just revenue. It depends on management team, traction with customers/users, how close a startup is to bringing dollars. So given all of this, my observations are that SV is making riskier investments at the early stage than NY (very strawman analysis). Like I said though, it makes sense. There’s more demand here and less supply, so of course investors would pick the less risky investments.
    I think NYC is headed in the right direction — it will mature and compete with SV in the future. It’s just not there yet — and it’s frustrating for a startup like mine. We’ve hit so many milestones that investors have laid out, and have had the goalposts moved each occasion, that it’s really disenchanting. It won’t stop us by any means, but it doesn’t help.

  • http://profile.typepad.com/1233532474s12769 Matt Mireles

    Thanks dude. Any objections in particular?

  • http://profile.typepad.com/1233532474s12769 Matt Mireles

    Thanks dude. Any objections in particular?

  • http://profile.typepad.com/1233532474s12769 Matt Mireles

    Hi Nate,
    Thanks for the thoughtful reply.
    First off, I appreciate the feedback. It’s cool. I’m learning.
    Second, it’s not about me or what I can finagle because I have connections. It’s about the guy who has no connections and is a broke nobody. And for that guy, the price to apply to MAYBE get a chance to pitch some of New York’s richest people is $150. And that’s not cool. I wrote this up as a whole post: http://www.metamorphblog.com/2010/02/is-ny-angels-a-paytoplay-scheme.html
    Third, I agree RE: colleges and am prepping for a couple posts on that subject.
    Honestly, I am trying to figure things out myself as I go along and occasionally have strong opinions about things. And I’m not afraid to voice them and own them publicly. If people want to criticize and debate me on them, that’s totally cool. I welcome the debate and the chance to learn and be proven wrong.
    Also, while I understand that some of this debate feels like old hat to you, you’ve been around the scene for a lot longer than I. I’m new and I’m confronting this NYC vs the Valley issue for the first time. And I think there’s a lot of people out there like me.
    Also, Seth Sternberg, the Founder/CEO of Meebo and my personal mentor, founded the company in NYC and moved to the Valley in 2006/7––and that’s not that long ago. Meebo has raised $35mil from Sequioa, DFJ and True, and acquired 50mil users. His advice: Move to the Valley. So it’s not a stale debate for me. http://techcrunch.com/2009/10/11/finding-your-co-founders/
    With regards to using my social capital to make things better beyond bitching, I’m doing that too, often off-blog, and you know it. But I’m also a person struggling with first-time founder issues, and that makes it onto my blog. Expect more of both in the future.
    Anywho, I enjoy and appreciate the debate.
    Cheers!
    -Matt

  • http://profile.typepad.com/1233532474s12769 Matt Mireles

    Hi Nate,
    Thanks for the thoughtful reply.
    First off, I appreciate the feedback. It’s cool. I’m learning.
    Second, it’s not about me or what I can finagle because I have connections. It’s about the guy who has no connections and is a broke nobody. And for that guy, the price to apply to MAYBE get a chance to pitch some of New York’s richest people is $150. And that’s not cool. I wrote this up as a whole post: http://www.metamorphblog.com/2010/02/is-ny-angels-a-paytoplay-scheme.html
    Third, I agree RE: colleges and am prepping for a couple posts on that subject.
    Honestly, I am trying to figure things out myself as I go along and occasionally have strong opinions about things. And I’m not afraid to voice them and own them publicly. If people want to criticize and debate me on them, that’s totally cool. I welcome the debate and the chance to learn and be proven wrong.
    Also, while I understand that some of this debate feels like old hat to you, you’ve been around the scene for a lot longer than I. I’m new and I’m confronting this NYC vs the Valley issue for the first time. And I think there’s a lot of people out there like me.
    Also, Seth Sternberg, the Founder/CEO of Meebo and my personal mentor, founded the company in NYC and moved to the Valley in 2006/7––and that’s not that long ago. Meebo has raised $35mil from Sequioa, DFJ and True, and acquired 50mil users. His advice: Move to the Valley. So it’s not a stale debate for me. http://techcrunch.com/2009/10/11/finding-your-co-founders/
    With regards to using my social capital to make things better beyond bitching, I’m doing that too, often off-blog, and you know it. But I’m also a person struggling with first-time founder issues, and that makes it onto my blog. Expect more of both in the future.
    Anywho, I enjoy and appreciate the debate.
    Cheers!
    -Matt

  • http://profile.typepad.com/seph250 Seph250

    Founders don’t take the path of least resistance – quite the opposite – founders do what they need to do to build a successful business.
    If you get a term sheet and the perfect engineering team in SV, but not NYC, then you should move. Until then this is pure speculation.
    Startups are hard no matter where you are and moving to SV sounds like a distraction. I vote for NYC.

  • http://profile.typepad.com/seph250 Seph250

    Founders don’t take the path of least resistance – quite the opposite – founders do what they need to do to build a successful business.
    If you get a term sheet and the perfect engineering team in SV, but not NYC, then you should move. Until then this is pure speculation.
    Startups are hard no matter where you are and moving to SV sounds like a distraction. I vote for NYC.

  • http://profile.typepad.com/6p0120a59c5270970c www.facebook.com/profile.php?id=621599484

    This is a great blog post. I admire your courage to put it all down in writing. But I disagree with your conclusion. Great blog. My first time here. I just added it to my blogroll. Found the blog in a Jenny 8 Lee tweet.

  • http://profile.typepad.com/6p0120a59c5270970c www.facebook.com/profile.php?i

    This is a great blog post. I admire your courage to put it all down in writing. But I disagree with your conclusion. Great blog. My first time here. I just added it to my blogroll. Found the blog in a Jenny 8 Lee tweet.

  • http://innonate.com/ Nate Westheimer

    Matt, I don’t mean to be rude, but you’re starting to sound a little shrill on your blog, and probably going to burn more bridges than you create. Raising money is hard — no matter where you are.
    To start, the NY Angels isn’t a pay-to-play scheme. Come on. If you networked with any of the members — many of whom devote their lives to helping entrepreneurs (David Rose, Jeff Stewart, Roger Eherenberg, Brian Cohen, etc) — I bet you’d get in without a charge. The “shmoes” who pay are those who haven’t had the sense to meet up independently with its members, excite them, and have you get in front of their colleagues without having to pay the administrative fee.
    In terms of getting people to fund “big, world-changing dreams” — well, not every world changing dream should be funded. We’re frothy as it is, and an ecosystem with looser pockets and more cash looking to be used isn’t necessarily a healthier ecosystem. In fact, too many ideas get funded today — many of them world changing but not market changing or executable. In fact, less should be funded in general, not more.
    Also, you talk a lot about taking risks, but you don’t talk about the reward. Risk is awesome if there’s a chance a company could be world dominating and there’s a clear path that way. And New York investors will get behind that risk. But for risk for “technology” that’s really a UI innovation (Tumblr, Twitter, Foursquare) to make sense, you had better have real traction before you get funded. For companies which have science to their growth (Hunch, Gilt Group, Demand Media), you had better have a proven, phenomenal management team that can execute around that science. The market is pretty rational — and playing the VC game like it’s Vegas isn’t smart no matter where you are.
    Lastly, this Valley vs New York rant is getting old. Apples and Oranges. To be fair, not a single high-profile person in the Alley has moved out, yet NY keeps getting folks to move here. That speaks volumes, but who cares? All I care about is how New York is doing. And New York is doing fine. There’s money for good ideas, entrepreneurs taking risks, second and third generation entrepreneurs mentoring new ones, and great, vibrant communities.
    In fact, you only barely mention colleges in this post, but that’s where all our focus should be. Instead of worrying about not being Chris Dixon, we should be worrying about how Columbia and NYU can be more attractive to hackers. We should be worrying about how to get great internships for those hackers in NY startups while they’re in school. And, we should be actively recruiting those hackers before they graduate and go to Wall Street. Then, we should complete the cycle by working more closely with researchers at these universities to utilize/commercialize their technology, and have them work on the Big Problems our startups are facing. Now this is a healthy discussion, but not the Apples and Oranges / NYC vs the Valley chatter that people can’t seem to get away from.
    Matt, I don’t mean to be hard on you — I think you have a smart, awesome product and I think you’re amazingly passionate — but I just feel your social and intellectual capital could be used better than for posts like these (or posts calling out or making broad generalizations about area law firms, etc). I don’t think it’s really helpful, and being the passionate guy that you are, I think you can be helpful to other entrepreneurs if you focus your energy on the right things.

  • http://innonate.com/ Nate Westheimer

    Matt, I don’t mean to be rude, but you’re starting to sound a little shrill on your blog, and probably going to burn more bridges than you create. Raising money is hard — no matter where you are.
    To start, the NY Angels isn’t a pay-to-play scheme. Come on. If you networked with any of the members — many of whom devote their lives to helping entrepreneurs (David Rose, Jeff Stewart, Roger Eherenberg, Brian Cohen, etc) — I bet you’d get in without a charge. The “shmoes” who pay are those who haven’t had the sense to meet up independently with its members, excite them, and have you get in front of their colleagues without having to pay the administrative fee.
    In terms of getting people to fund “big, world-changing dreams” — well, not every world changing dream should be funded. We’re frothy as it is, and an ecosystem with looser pockets and more cash looking to be used isn’t necessarily a healthier ecosystem. In fact, too many ideas get funded today — many of them world changing but not market changing or executable. In fact, less should be funded in general, not more.
    Also, you talk a lot about taking risks, but you don’t talk about the reward. Risk is awesome if there’s a chance a company could be world dominating and there’s a clear path that way. And New York investors will get behind that risk. But for risk for “technology” that’s really a UI innovation (Tumblr, Twitter, Foursquare) to make sense, you had better have real traction before you get funded. For companies which have science to their growth (Hunch, Gilt Group, Demand Media), you had better have a proven, phenomenal management team that can execute around that science. The market is pretty rational — and playing the VC game like it’s Vegas isn’t smart no matter where you are.
    Lastly, this Valley vs New York rant is getting old. Apples and Oranges. To be fair, not a single high-profile person in the Alley has moved out, yet NY keeps getting folks to move here. That speaks volumes, but who cares? All I care about is how New York is doing. And New York is doing fine. There’s money for good ideas, entrepreneurs taking risks, second and third generation entrepreneurs mentoring new ones, and great, vibrant communities.
    In fact, you only barely mention colleges in this post, but that’s where all our focus should be. Instead of worrying about not being Chris Dixon, we should be worrying about how Columbia and NYU can be more attractive to hackers. We should be worrying about how to get great internships for those hackers in NY startups while they’re in school. And, we should be actively recruiting those hackers before they graduate and go to Wall Street. Then, we should complete the cycle by working more closely with researchers at these universities to utilize/commercialize their technology, and have them work on the Big Problems our startups are facing. Now this is a healthy discussion, but not the Apples and Oranges / NYC vs the Valley chatter that people can’t seem to get away from.
    Matt, I don’t mean to be hard on you — I think you have a smart, awesome product and I think you’re amazingly passionate — but I just feel your social and intellectual capital could be used better than for posts like these (or posts calling out or making broad generalizations about area law firms, etc). I don’t think it’s really helpful, and being the passionate guy that you are, I think you can be helpful to other entrepreneurs if you focus your energy on the right things.

  • http://profile.typepad.com/1233532474s12769 Matt Mireles

    So let me ask you this: How many funds or even individual investors in NYC have the same risk profile as you guys? Name them if you like, but if you had to count, how many? More than 5? More than 10? More than 20?
    I’d love to hear

  • http://profile.typepad.com/1233532474s12769 Matt Mireles

    So let me ask you this: How many funds or even individual investors in NYC have the same risk profile as you guys? Name them if you like, but if you had to count, how many? More than 5? More than 10? More than 20?
    I’d love to hear

  • http://profile.typepad.com/1233532474s12769 Matt Mireles

    True dat. But I also think you guys are outliers in the system.

  • http://profile.typepad.com/1233532474s12769 Matt Mireles

    True dat. But I also think you guys are outliers in the system.

  • http://profile.typepad.com/bsiscovick Bsiscovick

    One more point – don’t hate on “wall streeters turned investors”. I have a background as both an entrepreneur and MBA/banker, as does my boss Roger Ehrenberg. And I think we are pretty decent at what we do…

  • http://profile.typepad.com/bsiscovick Bsiscovick

    One more point – don’t hate on “wall streeters turned investors”. I have a background as both an entrepreneur and MBA/banker, as does my boss Roger Ehrenberg. And I think we are pretty decent at what we do…

  • http://visualrevenue.com/blog/ Dennis R. Mortensen

    Everybody talks about how much of a timesink funding really is. Most people will chime in with a comment about how difficult or expensive it is to hire good engineers in NYC. – I am not sure I agree with most of those comments. In a Bootstrapped startup (as I see it) with a handful of folks, you don’t need funding, and you shouldn’t need to hire people (the founding team simply must have the ability to create the first iterations of the product, this including making money).
    The probability of finding and persuading those 3 friends to join you in NYC or Palo Alto is determined by a dozen other variables than a GEO dimension. So my philosophical advice tends to rhyme with “stop bitching”. If NYC is in the world wide top 50 as a startup hub (which is likely), you are beyond OK as an entrepreneur.
    Anywho, all the best luck Matt. This is a fun story to follow.
    (AND do pop by Chelsea for a free Diet Coke one day, would love to swap war stories)
    cheers
    d. :-)

  • http://visualrevenue.com/blog/ Dennis R. Mortensen

    Everybody talks about how much of a timesink funding really is. Most people will chime in with a comment about how difficult or expensive it is to hire good engineers in NYC. – I am not sure I agree with most of those comments. In a Bootstrapped startup (as I see it) with a handful of folks, you don’t need funding, and you shouldn’t need to hire people (the founding team simply must have the ability to create the first iterations of the product, this including making money).
    The probability of finding and persuading those 3 friends to join you in NYC or Palo Alto is determined by a dozen other variables than a GEO dimension. So my philosophical advice tends to rhyme with “stop bitching”. If NYC is in the world wide top 50 as a startup hub (which is likely), you are beyond OK as an entrepreneur.
    Anywho, all the best luck Matt. This is a fun story to follow.
    (AND do pop by Chelsea for a free Diet Coke one day, would love to swap war stories)
    cheers
    d. :-)

  • http://profile.typepad.com/to21 To2

    I think a great point Matt had is the mythology of the west vs. nyc. At NYU and Columbia students don’t aspire to be entrepreneurs like they do in the west.

  • http://profile.typepad.com/to21 To2

    I think a great point Matt had is the mythology of the west vs. nyc. At NYU and Columbia students don’t aspire to be entrepreneurs like they do in the west.

  • http://profile.typepad.com/bsiscovick Bsiscovick

    And Matt – keep up the great work! you’ll get there…

  • http://profile.typepad.com/bsiscovick Bsiscovick

    And Matt – keep up the great work! you’ll get there…

  • http://profile.typepad.com/bsiscovick Bsiscovick

    Matt and Sachin,
    While I can’t speak for other funds out there, I find your assertion that NYC funds don’t take risk way off base. Our fund (IA Ventures) invests at the earliest stages of a company – well before revenues, heck often times well before there is even a product (forget v1.0, I’m talking about before a beta, alpha and sometimes even before a prototype). We play at a stage in which the stakes are highest – highest risk, and hopefully correspondingly, highest reward.
    The reality is that there is still an imbalance of supply and demand when it comes to startup capital in NYC – there is not nearly enough *smart* early stage capital to go around to all the *fundable* deals out there (note – probably 90%+ of the deals we see are not truly fundable). As a result, investors have the ‘luxury’ of being incredibly selective. I can’t tell you how many great companies I have seen that are truly interesting and have a great mix of innovative ideas, contagious passion, a ripe market and the right talent necessary to succeed. But we can’t possibly do every deal that looks good, we simply don’t have the firepower. So we make very tough decisions, and in all likelihood many will be the wrong decisions, but hopefully many will also be right.
    Compounding the issue is focus – every fund has its own unique niche and investment sweet spot, both in terms of stage and product. Our firm is laser focused on seed and early stage deals for tools and technologies that manage and extract value from ‘big-data’. This discipline is a duel-edged sword – we hope to become the go-to firm for ‘big-data’, but we also pass on a lot of independently attractive opportunities.
    So when you take the fact that there is not enough capital to begin with and add the additional factor of niche focus, raising capital from the right firm is incredibly challenging.
    The other side of this reality is that the supply and demand gap is most definitely narrowing (albeit there is still a long way to go). Within the past few months our fund as well as Founder Collective launched – both of which play in the earliest/riskiest stages and both loaded with smart investors. There are also other small, smart, risk taking funds out there – e.g. Metamorphic, Coriolis, and Contour, to name a few. NYC still has a long way to go to achieve parity with SV – it will take a few huge wins before we get there- but the seeds are being sown and the direction we are heading is exciting and awesome.
    Additionally, the different coasts appear to still have different relative strengths and competencies. If you are starting a consumer oriented internet company, SV is probably still stronger (although there is tremendous innovation emerging from the East Coast as well). If you are an ad-tech company, NYC is hands down the place to be (and of course, there are plenty of exceptions to this generality). Digital media is probably somewhere in between – it shares many characteristics of consumer web companies, but there are huge advantages to co-locating in media capital of the world.
    Finally, keep in mind that although there is more supply of capital in SV, there is also much more demand for that capital.
    The bottom line is it is incredibly difficult to raise capital in any market.
    (Hope you don’t mind, but I blogged this because I thought it was worth sharing – bsiscovick.tumblr.com ;)

  • http://profile.typepad.com/bsiscovick Bsiscovick

    Matt and Sachin,
    While I can’t speak for other funds out there, I find your assertion that NYC funds don’t take risk way off base. Our fund (IA Ventures) invests at the earliest stages of a company – well before revenues, heck often times well before there is even a product (forget v1.0, I’m talking about before a beta, alpha and sometimes even before a prototype). We play at a stage in which the stakes are highest – highest risk, and hopefully correspondingly, highest reward.
    The reality is that there is still an imbalance of supply and demand when it comes to startup capital in NYC – there is not nearly enough *smart* early stage capital to go around to all the *fundable* deals out there (note – probably 90%+ of the deals we see are not truly fundable). As a result, investors have the ‘luxury’ of being incredibly selective. I can’t tell you how many great companies I have seen that are truly interesting and have a great mix of innovative ideas, contagious passion, a ripe market and the right talent necessary to succeed. But we can’t possibly do every deal that looks good, we simply don’t have the firepower. So we make very tough decisions, and in all likelihood many will be the wrong decisions, but hopefully many will also be right.
    Compounding the issue is focus – every fund has its own unique niche and investment sweet spot, both in terms of stage and product. Our firm is laser focused on seed and early stage deals for tools and technologies that manage and extract value from ‘big-data’. This discipline is a duel-edged sword – we hope to become the go-to firm for ‘big-data’, but we also pass on a lot of independently attractive opportunities.
    So when you take the fact that there is not enough capital to begin with and add the additional factor of niche focus, raising capital from the right firm is incredibly challenging.
    The other side of this reality is that the supply and demand gap is most definitely narrowing (albeit there is still a long way to go). Within the past few months our fund as well as Founder Collective launched – both of which play in the earliest/riskiest stages and both loaded with smart investors. There are also other small, smart, risk taking funds out there – e.g. Metamorphic, Coriolis, and Contour, to name a few. NYC still has a long way to go to achieve parity with SV – it will take a few huge wins before we get there- but the seeds are being sown and the direction we are heading is exciting and awesome.
    Additionally, the different coasts appear to still have different relative strengths and competencies. If you are starting a consumer oriented internet company, SV is probably still stronger (although there is tremendous innovation emerging from the East Coast as well). If you are an ad-tech company, NYC is hands down the place to be (and of course, there are plenty of exceptions to this generality). Digital media is probably somewhere in between – it shares many characteristics of consumer web companies, but there are huge advantages to co-locating in media capital of the world.
    Finally, keep in mind that although there is more supply of capital in SV, there is also much more demand for that capital.
    The bottom line is it is incredibly difficult to raise capital in any market.
    (Hope you don’t mind, but I blogged this because I thought it was worth sharing – bsiscovick.tumblr.com ;)

  • http://newsley.com Jonathan Nelson

    Matt, let me know when you’re going to be out here. If you’re interested, we’d love to have you at a Hackers and Founders meetup. I organize the events, and I’d be happy to try to schedule it when you’re around. There’s tons of really smart people here doing the startup thing, and they’re all generally pretty helpful. My contact is my first name at http://Newsley.com.
    Heck, same goes for pretty much anyone moving out here to join the startup world. Drop me a line. I know how hard it is to move out here. I’m happy to help where I can.

  • http://newsley.com Jonathan Nelson

    Matt, let me know when you’re going to be out here. If you’re interested, we’d love to have you at a Hackers and Founders meetup. I organize the events, and I’d be happy to try to schedule it when you’re around. There’s tons of really smart people here doing the startup thing, and they’re all generally pretty helpful. My contact is my first name at http://Newsley.com.
    Heck, same goes for pretty much anyone moving out here to join the startup world. Drop me a line. I know how hard it is to move out here. I’m happy to help where I can.

  • http://profile.typepad.com/bknotts Bknotts

    I don’t think there is any debate whether Silicon Valley is better than NYC on a macro level. I’m glad we have people trumpeting the NYC startup scene, because maybe one day we can debate without knowing the answer ahead of time, but we’re obviously not there yet.
    What I think is debatable, is if you’re not in Silicon Valley, does any city have a real big advantage? – NYC, Boulder, Austin, Seattle, Boston, Chicago, Indianapolis, Atlanta etc. At some point, it’s the micro not the macro conditions that matter, like where your network is, where your family is (free rent perks), and where it’ll be easiest to navigate some sort of back up plan for yourself.
    Is it worth moving from Indy to NYC? Does NYC provide enough of an advantage to outweigh the increased living expense and the strength of my Indy network? That’s the question I’ve thought about for the past 6 months.
    http://www.ManIndyArena.com

  • http://profile.typepad.com/bknotts Bknotts

    I don’t think there is any debate whether Silicon Valley is better than NYC on a macro level. I’m glad we have people trumpeting the NYC startup scene, because maybe one day we can debate without knowing the answer ahead of time, but we’re obviously not there yet.
    What I think is debatable, is if you’re not in Silicon Valley, does any city have a real big advantage? – NYC, Boulder, Austin, Seattle, Boston, Chicago, Indianapolis, Atlanta etc. At some point, it’s the micro not the macro conditions that matter, like where your network is, where your family is (free rent perks), and where it’ll be easiest to navigate some sort of back up plan for yourself.
    Is it worth moving from Indy to NYC? Does NYC provide enough of an advantage to outweigh the increased living expense and the strength of my Indy network? That’s the question I’ve thought about for the past 6 months.
    http://www.ManIndyArena.com

  • Charles

    For many Web-startups that want to be the next Facebook, Google, or Twitter, the target audience is planet earth, so any location on terra firma will suffice.

  • Charles

    For many Web-startups that want to be the next Facebook, Google, or Twitter, the target audience is planet earth, so any location on terra firma will suffice.

  • http://profile.typepad.com/1233532474s12769 Matt Mireles

    Again, they may think they’re not in the same investing environment, but really, early stage founders are mobile. As long as this mentality rules, the Mark Zuckerbergs of the world are gonna head West. Any smart founder is gonna see this.

  • http://profile.typepad.com/1233532474s12769 Matt Mireles

    Again, they may think they’re not in the same investing environment, but really, early stage founders are mobile. As long as this mentality rules, the Mark Zuckerbergs of the world are gonna head West. Any smart founder is gonna see this.

  • http://profile.typepad.com/1233532474s12769 Matt Mireles

    You’ve nailed it in terms of the mentality: I don’t need to take the risk, they say, so why should i? Well, there’s one problem with this logic: we entrepreneurs are mobile.
    The assumption that these investors make is that you’ll just stick around and come back later when your venture has been de-risked. In fact, I’ve actually been told that, literally. But if you’re saavy and see the emerging dynamic, you can change the game by packing up and not even playing the game.
    As a founder, it’s my job to follow the path of least resistance and negotiate the best deal I can. If I can get better terms elsewhere, I will. And if i succeed in taking the company to a huge exit, then the less-risky investors lose out in a big way.

  • http://profile.typepad.com/1233532474s12769 Matt Mireles

    You’ve nailed it in terms of the mentality: I don’t need to take the risk, they say, so why should i? Well, there’s one problem with this logic: we entrepreneurs are mobile.
    The assumption that these investors make is that you’ll just stick around and come back later when your venture has been de-risked. In fact, I’ve actually been told that, literally. But if you’re saavy and see the emerging dynamic, you can change the game by packing up and not even playing the game.
    As a founder, it’s my job to follow the path of least resistance and negotiate the best deal I can. If I can get better terms elsewhere, I will. And if i succeed in taking the company to a huge exit, then the less-risky investors lose out in a big way.

  • http://profile.typepad.com/1233532474s12769 Matt Mireles

    A burrito!! Awesome. Can’t wait. I’m from SoCal––miss burritos.

  • http://profile.typepad.com/1233532474s12769 Matt Mireles

    A burrito!! Awesome. Can’t wait. I’m from SoCal––miss burritos.

  • http://profile.typepad.com/sachinkamdar SachinKamdar

    VCs/Angels in NYC(northeast as well) are just not in the same investing environment as the West Coast. And it’s solely because this area is just not as mature as there. There are the investors that are smart and are willing to take the risks (Founder’s Collective, USV, FRC, Flybridge etc.), but the problem is that they are few and far between relative to earlystage VCs and angels on the west coast. Therefore, because they’re smart, have branding and don’t have serious competition, they DON’T have to take the risk. And why would they, who would blame them? They can wait until the company is almost completely de-risked before they move in. (I guess an argument here is that it’s a good thing that the early stage investing industry is small and less risky here. If they succeed more will come.)
    The other investors here (the wall streeters turned VCS) just don’t get it. They’re not investing, as you say, in “change the world” ideas. They’re investing in stuff that can make money right away, which is probably why they ask about pricing prematurely.
    NYC is frustrating in this respect, and it’s easy to see why you’re thinking about the West Coast. They’re just way more intelligent, early-stage investors. That’s changing though, I believe. It just sucks to be a startup in this sort of purgatory. The more Ron Conway’s that come to the east the better!

  • http://profile.typepad.com/sachinkamdar SachinKamdar

    VCs/Angels in NYC(northeast as well) are just not in the same investing environment as the West Coast. And it’s solely because this area is just not as mature as there. There are the investors that are smart and are willing to take the risks (Founder’s Collective, USV, FRC, Flybridge etc.), but the problem is that they are few and far between relative to earlystage VCs and angels on the west coast. Therefore, because they’re smart, have branding and don’t have serious competition, they DON’T have to take the risk. And why would they, who would blame them? They can wait until the company is almost completely de-risked before they move in. (I guess an argument here is that it’s a good thing that the early stage investing industry is small and less risky here. If they succeed more will come.)
    The other investors here (the wall streeters turned VCS) just don’t get it. They’re not investing, as you say, in “change the world” ideas. They’re investing in stuff that can make money right away, which is probably why they ask about pricing prematurely.
    NYC is frustrating in this respect, and it’s easy to see why you’re thinking about the West Coast. They’re just way more intelligent, early-stage investors. That’s changing though, I believe. It just sucks to be a startup in this sort of purgatory. The more Ron Conway’s that come to the east the better!

  • http://profile.typepad.com/whittemore Nathaniel Whittemore

    Matt, love the thought process in this post. I moved from Chicago to SF last year to build my company, but my cofounder is in Brooklyn so we sort of see both sides. There is a lot that is awesome about NYC, not least of which is people in other industries that help make sure you’re not just developing for other developers. But, I think a lot of what you articulate holds true.
    I think the sweet spot is actually San Francisco proper. We’re based in the Mission District and it just has a ton of passion and energy, and everything is walkable. So many startups are here these days that we’re hosting these Missionstartups.com mixers now.
    Let me know if you’re in the city at all! I’ll buy you a burrito.

  • http://profile.typepad.com/whittemore Nathaniel Whittemore

    Matt, love the thought process in this post. I moved from Chicago to SF last year to build my company, but my cofounder is in Brooklyn so we sort of see both sides. There is a lot that is awesome about NYC, not least of which is people in other industries that help make sure you’re not just developing for other developers. But, I think a lot of what you articulate holds true.
    I think the sweet spot is actually San Francisco proper. We’re based in the Mission District and it just has a ton of passion and energy, and everything is walkable. So many startups are here these days that we’re hosting these Missionstartups.com mixers now.
    Let me know if you’re in the city at all! I’ll buy you a burrito.

  • http://profile.typepad.com/1233532474s12769 Matt Mireles

    We’ll see how this trip to the Valley goes.

  • http://profile.typepad.com/1233532474s12769 Matt Mireles

    We’ll see how this trip to the Valley goes.

  • http://profile.typepad.com/keinan Tal Keinan

    If the most important thing is customer development shouldn’t you be located next to your customers?

  • http://profile.typepad.com/keinan Tal Keinan

    If the most important thing is customer development shouldn’t you be located next to your customers?

  • http://profile.typepad.com/ibagrak Ibagrak

    So much passion, and yet so much information. :) Enjoyed reading this, thanks.

  • http://profile.typepad.com/ibagrak Ibagrak

    So much passion, and yet so much information. :) Enjoyed reading this, thanks.

  • http://profile.typepad.com/1233532474s12769 Matt Mireles

    See, that’s the thing, I’m not sure you can just pick up a company and hop coasts. I wish, I hope, but I don’t think so. This is why angel networks are so important.

  • http://profile.typepad.com/1233532474s12769 Matt Mireles

    See, that’s the thing, I’m not sure you can just pick up a company and hop coasts. I wish, I hope, but I don’t think so. This is why angel networks are so important.

  • http://astatespacetraveler.com Carter Cleveland

    Duuuude, NO! Or at least, that’s what I want to scream at you after reading this. But it is hard for me to refute your logic around investors. Of course, SV has a larger and older network. Can’t deny that. But, of course, in SV there are also waaaay more entrepreneurs vying for VC dolla bills. Having spent time in both locations, I wouldn’t say it’s any easier to raise funds in SV, although they do have more smart money for sure. But now with FRC, Flybridge, and Founder’s Collective (among many others) stepping up in NYC, I think we’re just seeing the beginning of an awesome growth curve.
    Plus, haven’t you been reading Dave McClure’s blog? It’s not about the tech, it’s about the design and marketing. Which NYC has in SPADES.
    Alright dude, enjoy SV!

  • http://astatespacetraveler.com Carter Cleveland

    Duuuude, NO! Or at least, that’s what I want to scream at you after reading this. But it is hard for me to refute your logic around investors. Of course, SV has a larger and older network. Can’t deny that. But, of course, in SV there are also waaaay more entrepreneurs vying for VC dolla bills. Having spent time in both locations, I wouldn’t say it’s any easier to raise funds in SV, although they do have more smart money for sure. But now with FRC, Flybridge, and Founder’s Collective (among many others) stepping up in NYC, I think we’re just seeing the beginning of an awesome growth curve.
    Plus, haven’t you been reading Dave McClure’s blog? It’s not about the tech, it’s about the design and marketing. Which NYC has in SPADES.
    Alright dude, enjoy SV!

  • http://profile.typepad.com/victusfate VictusFate

    Awesome analysis from the proto-founder perspective. I’m more accustomed to suburbia (Long Island, and green stuff). I’m heading out to west coast later this year if a deal doesn’t come together here.
    After you’re startup is rocking, you can always head back east or split the coasts.

  • http://profile.typepad.com/victusfate VictusFate

    Awesome analysis from the proto-founder perspective. I’m more accustomed to suburbia (Long Island, and green stuff). I’m heading out to west coast later this year if a deal doesn’t come together here.
    After you’re startup is rocking, you can always head back east or split the coasts.

  • http://nomansman.wordpress.com Orrin

    I completely agree with you and posted a reply to what you said. Hopefully you agree with me! Great post as well and good luck on the west side.
    http://bit.ly/aGdEAt

  • http://nomansman.wordpress.com Orrin

    I completely agree with you and posted a reply to what you said. Hopefully you agree with me! Great post as well and good luck on the west side.
    http://bit.ly/aGdEAt