Mo’ Money, Mo’ Problems? Why Predicting An NYC Tech Bubble is Just a Juicy Headline

Cross-posting this piece from the InSITE Blog

Over the past few months, I had the pleasure of working with fellow InSITE Fellows David Lerman and Patrick Chang and David Aronoff at Flybridge Capital Partners to examine the health of the New York venture and startup ecosystem. It is no secret that New York’s startup scene has been on a tear in recent years. The press has been rife with New York tech funding stories, favorable and unfavorable comparisons to Silicon Valley, more than a little hometown boosterism, and occasional warnings of bubbles and crunches. We wanted to dive deeper and see what the data had to say about the health and sustainability of New York’s tech sector. Our team examined the trends in and current state of New York’s tech startup capital funnel—from seed-stage financing, to later-stage venture/growth funding, through M&A and IPO activity. The study went through several iterations of refinement and internal discussions. David then wrote an excellent piece summarizing our findings and what they mean for the current state and future of New York’s startup community. We would encourage you to follow the link and read it.

In brief, we found a startup ecosystem that is growing in remarkably healthy balance. Funding growth is well-distributed between early- and later/growth-stage financings and across sectors. M&A activity is keeping pace nicely (although naturally lagging slightly as companies incubate), and many of the City’s leading companies appear to be nearing major liquidity events. A few representative stats from David’s piece underscore these trends:

  • $13.5B+ in venture financings across 2,700+ transactions (NY VC Almanac, p. 7).
  • 800+ M&A transactions, including substantial exits between $50M and $1B in the past two years. Notable companies include Admeld, Buddy Media, indeed, MakerBot, tumblr, and many others (PWC / NVCA Moneytree Report Feb 2014; data from Thomson Reuters)
  • Critically, we’re seeing a number of very strong companies (such as AppNexus, mongdoDB and ZocDoc) approaching “unicorn” status as they surge toward IPO candidacy in the $B+ range.
  • NYC accounted for 7 (9.3%) of the US VC-backed IPOs in 2013 (Wilmer Hale Research, Feb 2014). Additionally, Shutterstock (the most the successful of 2013 NYC tech IPOs) was not VC-backed, and stands with a market cap of nearly $2.7B.

As David details in his piece, the health of New York’s startup ecosystem extends beyond fundraising and exit statistics. As the City’s company formation and capitalization activity has expanded, so too has its tech talent pool, its tech-oriented education infrastructure, the vibrancy of its tech event community, and the investment of global tech firms—including Facebook, Twitter, Google, Microsoft, and Yahoo!—in the City.Anyone who follows tech knows that it has been an exciting few years in New York. As with any bull run, it can be difficult during these heady time to gauge how healthy the market is underneath all the hype. That may be particularly true for those of us who were not yet of age during the first tech boom (and bust) of the early aughts, and for whom the status quo has been ever up and ever to the right. While there is doubtless some degree of of hype surrounding today’s New York tech scene, it is reassuring to see that the fundamentals of our growing sector nonetheless appear strong.

For the three of us on the InSITE team, this project has been an educational and rewarding experience that leaves us feeling even more optimistic about the ecosystem in which we have chosen to invest our careers. We’d like to thank David for leading this charge, and we encourage everyone to check out his piece for a more robust analysis on the state of New York’s venture and tech ecosystem.

Shows NYC’s continuing surge with 5 straight quarters of deal volume growth.  While dollars invested in NYC are up overall, they haven’t risen at the same steady rate as deals, meaning that average dollar value per deal is decreasing.  Not surprising given that the costs of starting a company (at least at the early stages) continues to fall, but worth mentioning given all the talk of a coming Series A Crunch.

Thanks to the Sailthru team for hosting our Columbia Entrepreneurs Organization group yesterday. Poised for big things in 2013. Sweet new digs too.

Thanks to the Sailthru team for hosting our Columbia Entrepreneurs Organization group yesterday. Poised for big things in 2013. Sweet new digs too.

abegeiger:

Packed house at the @insitefellows event. Awesome to see the org keep growing! (at Cooley LLP)

abegeiger:

Packed house at the @insitefellows event. Awesome to see the org keep growing! (at Cooley LLP)

If you’ve heard the word MOOC (Massive Open Online Course) and wondered what all the fuss is about, this TED Talk by Daphne Koller of Coursera is a great intro.  The peer grading strategy around minute 12 is particularly cool.

Giving Thanks

As I took stock of all that I have to be thankful for this past Thursday, I realized there was an unfamiliar addition to this year’s list.  It dawned on me just how excited and optimistic I am to be involved in New York’s startup community these days, and just how lucky I am to be able to say that.

During most of my professional life (I graduated college in 2005), the prevailing economic zeitgeist has been pretty bleak.  Between severe and lingering economic crisis, elevated unemployment, political gridlock, ballooning national debt, and two prolonged wars, the narrative has been dominated by a steady drumbeat of doom and gloom.  Those last seven years stand in stark contrast to the energy and upward momentum that characterizes today’s day to day in New York’s startup community.  

New York’s startup boom has been well documented.  VC deals for New York companies are increasing faster than anywhere else in the country, early stage deals account for an ever-greater share of this activity, the number of community events continues to explode, and the list goes on… For my part, I get to spend my days talking to inspiring entrepreneurs, working alongside brilliant VCs, and generally trying to absorb as much as I can.  Overall, the prevailing sentiment, both on the community and personal level, is that today is better than yesterday and tomorrow will be better than today.  That energy is as infectious as it is inspiring.

A lot of life is about timing and I’m lucky to be starting the next phase of my career with the winds of this time and place at my back.  Thanksgiving is a good time to pause and be grateful for that good fortune.

Why So Down?

Stat of the day: “In the third quarter of this year, 39% of the companies that raised venture capital did so at valuations at or below those secured in their previous investments, up from 26% of companies in the second quarter, according to a financing survey by Silicon Valley law firm Fenwick & West LLP.”

One quarter does not make a trend and this number has moved around a bit recently but this quarter’s jump was enough to raise my eyebrows. Perhaps the effects of the Facebook IPO are finally starting to trickle down.

InSITE partners with leaders of the NY tech community through ‘Special Projects’

Below is a post I recently wrote for InSITE’s blog.  I am InSITE’s VP for Special Projects this year and this explains a bit about what that vaguely cryptic title means as well as highlighting some of the cool stuff we’ve put together for Fellows this year.


Both InSITE and the New York tech community have matured over the past decade. At InSITE, we have responded by: first, remaining true to our roots serving the most promising early stage tech startups; and, second, expanding to work with later stage tech startups and other members of the New York tech ecosystem–like incubators and venture capital firms–who help these companies flourish.

We have dubbed this new line of work “special projects”, and we customize each one to the needs of the individual partner we’re working with.  Typically, a special project consists of a small team of InSITE Fellows diving deep into a narrow, high-prioirity issue for the partner, such as identifying a new market vertical to target or analyzing the effectiveness of a recent strategic decision.
As we have increased the volume of special projects over the past couple years, we have found they are not only a great experience for all parties involved but also increase the value InSITE Fellows are able to deliver to the earliest stage companies we work with.  Thanks to special projects, InSITE Fellows are able to transfer best practices and insights from some of the most successful New York tech companies and their supporters to the next generation of startups.

This term, in addition to working with six outstanding early stage startups, we are also working on special projects with some of the most prominent leaders of the New York tech scene, including:

2U (f.k.a. 2tor): 2U partners with universities to build, administer, and market online degree programs.  2U develops state-of-the-art technology platforms that enhance traditional offline curricula to create transformative instruction using the best educational and Web 2.0 technologies.
37 Angels: A community of female investors committed to funding early stage startups.  37 Angels aims to increase the percentage of female angel investors from 13% to 50%. 37 Angels does this by sourcing high potential deals and coordinating due diligence for members to invest in deals between $50K and $1M.  37 Angels also offers a unique training program to educate novice angels in the fundamentals of investing in young companies.
Bonobos: A clothing company focused on delivering great fit, high energy, and superb customer experience.  Launched in 2007 on the internet with its signature line of better fitting men’s pants, Bonobos is now the largest apparel brand ever built on the web in the United States.
Canaan Partners: A global venture capital firm investing in visionary entrepreneurs and providing them the networks, insights and operational guidance required to build high performance technology and healthcare companies.  Founded in 1987, the firm has raised nine funds, has over $3 billion in funds under management, and has completed more than 78 acquisitions and 53 IPOs.
Life Science Angel Network: Founded by the New York Academy of Sciences in 2011, the Life Science Angel Network provides young life sciences companies with financial and operational support, sector-specific mentorship, and access to a broad network of investors and entrepreneurs for subsequent institutional financing.
New York Digital Health Accelerator: The largest-funded health IT accelerator program in the United States, and the first to provide access to senior-level healthcare providers who are committed to the success of the growth stage companies the Accelerator accepts.
New York Tech Meetup: the largest MeetUp in the world with over 2,700 members supporting the New York technology community.
NGEN Partners: Founded in 2001, NGEN Partners is a pioneering investor in companies in clean energy, resource and energy efficiency and other sustainable industries minimizing the impact on the environment and improving health and wellness.
Recombine: Simplifies genetic testing.  They manage all aspects of genetic testing, from sample collection to genetic counseling.  Their goal is to ensure genetic information is delivered in an accurate, informative and responsible manner.
Shake: The smartest, tastes, cheapest, and most beautiful way to make it legal.
Sherpaa: Provides companies with accessible and affordable healthcare. Sherpaa provides a company’s employees with around the clock email and phone access to Sherpaa’s friendly, NYC-based doctors (or Guides as they call them).  Guides provide expert advice and referrals and Sherpaa plays nicely with the insurance that patients and companies already have.
We’re looking forward to sharing updates from these special projects at the InSITE showcase on November 30th.  We’re also hard at work lining up special project partner companies for Spring 2013.  If you think an InSITE special project could be a good fit for your company, please get in touch at vp.special@insiteny.org.

Jon Levy, Partner at L Capital demoing the super cool BioLite after guest lecturing our Entrepreneurial Finance class this morning.  L Capital is the lead investor in BioLite,  which makes a clean-burning stove and device charger, targeting the developing world.  Put sticks in, cook your food and charge any USB-connected device, it’s that easy.  



This is a potentially life-changing innovation.  Dirty cooking stoves and lanterns kill 3 times as many people in the developing world as malaria.  As you can see in this video, once you flip the switch, the BioLite burns cleanly, absorbing all of the smoke produced by the wood fire.  The smoke is then re-combusted to produce electricity to charge a USB device with.  Not only can the BioLite improve health conditions but it will also save the significant time and money that people in developing countries spend on charging stations for their mobile phones.  Instead of walking 15 miles and paying 25 cents to charge your phone (a considerable expense if you’re living on $2/day), you can now feed the BioLite some twigs and charge up as you cook dinner.  And all of this functionality is being offered for just $40, which BioLite will finance for as little as $2/month, making it revenue positive for customers in the developing world from Day 1.



Good explanation of how the BioLite works right at the beginning then you can skip to 4:45 to see it in action.

Overdue Professional Update

I’ve read that half the work of maintaining a good blog is simply updating it regularly.  If that’s true, I’m batting below .500 since it’s been a few months since the last post.  So I thought this would be a good time to share an update on what I’ve been up to professionally over the summer and into the fall.

I came to business school last year looking to make a fairly dramatic professional shift: transition from 6 years in nonprofit community development work to a career working with tech startups in venture capital.  It’s been an amazing run so far, starting second semester last year with an internship at AOL Ventures (the venture capital arm of AOL) and a fellowship with LearnCapital (an early stage VC firm focused on eduction technology).  I’ve been fortunate enough to continue this journey, first over the summer at Draper Fisher Jurvetson Gotham (DFJ Gotham), and now at Canaan Partners.

I spent my MBA summer internship at DFJ Gotham.  DFJ Gotham is an early stage technology-focused VC firm and the New York affiliate of the global DFJ network, one of the most storied names in the VC industry with 16 affiliates across 4 continents. DFJ Gotham is one of the oldest VC firms in New York, raising its first $90 million fund in 1999 and its second $70 million fund in 2007.  This summer was a busy time around the DFJ Gotham office, meaning it was a great time to be there.  I had the opportunity to participate in the diligence and decision making process for DFJ Gotham’s newest investment (Pickie), help the team prepare to raise their third fund, saw the acquisition of one of our portfolio companies (SinglePlatform by ConstantContact), and watched the team promote its first new partner (the wickedly smart Thatcher Bell) in years.  Not bad for 3 months.  I learned more and had more fun than I could have expected and want to say a big thank you to Danny, Ross, Thatcher, Joy, Lucas, and Aaron for a great experience and friendships that I anticipate extending well past the summer.

I’m now working two days a week throughout the school year at Canaan.  Again, couldn’t have asked for a better opportunity.  Canaan is also an early stage, tech-focused VC firm.  They’ve been around for roughly 25 years, have 5 offices around the globe and raised their 9th, $650 million fund this past January.  The NYC office is small (three investment professionals, laid back and, most importantly, the fridge is always stocked with good beer and coconut water.  The deals we’re seeing are some of the most interesting I’ve seen to date and the people (both partners and entrepreneurs) are as sharp as they come.  A lot of my time is spent on deal sourcing, screening, diligence, and in pitch meetings, which basically means seeing a ton of startups.  Hard to imagine a better way to spend the last few months and looking forward to a great year ahead.

When I started out at Columbia, I really had no idea how to even start to break into this industry.  I consider myself very lucky to have had such a rich variety of experience over the past year and have been trying to absorb as much as possible along the way.  One of the most interesting aspects of the past year has been observing the differences and similarities between the four firms I’ve worked with.  Some, like LearnCapital and AOL Ventures, focus on specific tech industry sectors, while others, like DFJ Gotham and Canaan will consider most things digital.  Some prefer to invest in Seed rounds, while others primarily look at slightly more established startups looking to raise A or B rounds.  Some are deliberative while others pride themselves on agility.  None of these choices represents the “correct” approach. Rather, each generally seems like the right fit for the firm’s personality and objectives and is a good lesson that there are many reasonable approaches to early stage venture investing.  It also illustrates why startups usually end up hearing “no” from numerous VCs before finally hearing a “yes.”  Just one of many useful takeaways from a fascinating year.

All in all, this has been the most educational, humbling, and engaging year of my professional life.  New York’s startup and VC ecosystem is filled with some of the sharpest people I’ve ever worked with and my challenge now is to figure out exactly how I fit into it.  I’m far from certain exactly where this journey will take me in the end but I’m loving the ride.