June 2, 2006
Big Apple, Little Company
Ed Daciuk, on of my blog subscribers, questions: What is your view on the benefits of being in NYC as a startup?
Fred wrote a good posting several months ago and a related one this week on early stage investing in the NYC market from the perspective of a venture capitalist. His main points: (1) NYC is a great place to invest in early stage tech-related businesses as long as they’re not "core technology" businesses like semiconductor or hardware, because (2) core technology companies are more exciting to investors, and therefore the investors have clustered around those companies in places like Silicon Valley or Boston. He also thinks this dynamic is changing as more and more successful companies are started as technology-enabled service businesses as opposed to pure tech companies.
As someone who’s been in tech-enabled services businesses in NYC for 10 years now, I couldn’t agree more with this last point. But I thought I’d address Ed’s question from the entrepreneur’s perspective as well.
First, why is New York a great place for a startup?
1. Access to customers. There is far greater concentration of major corporations and agencies headquartered in and around the NYC area, making it much easier to see and talk to prospects and customers in this market.
2. Lots of talent. There are lots of people, meaning there are lots of people to hire. Some disciplines are easier than others to find talent, but the labor pool is just huge.
3. Convenience. This is always one of NYC’s main selling points, and it applies here as well. It’s mainly a collection of little things like being able to see a customer or investor in minutes by foot or mass transit and late night food delivery, but all those extra minutes you save here and there add up!
4. Idea generation. The density and complexity of the city’s business landscape make it a natural for stimulating great ideas, especially in the service and media sectors.
5. Work ethic. New Yorkers are accustomed to working startup hours in many professions — banking, consulting, law, etc., so it’s much more natural to have a team pounding away at the office early and late than it is in other geographies.
But it’s not all that easy. New York can also be a difficult place for a startup because:
1. It’s expensive. Very expensive. People cost more, benefits cost more, T&E costs more, rent costs more.
2. Space is limited. There’s no such thing as starting out in someone’s garage, because there are no garages — only teeny tiny apartments. And no one takes a lease with room to grow because that extra space comes at such a premium.
3. Good money is harder to find. As Fred says, it’s getting better, but the environment still isn’t as rich with high quality VCs as places like Silicon Valley or Boston.
4. Even when you do find good money, valuations are tougher. For whatever reason, I’ve always found that "west coast" valuations are more generous than "east coast" valuations.
On balance, I’d say it’s probably a wash — there are plusses and minuses of NYC as a place for startups. But it’s definitely not, as conventional wisdom would have it, an inhospitable environment for startups.