Today’s post is by request.  Someone pinged me on IM today and said that they had an idea for a blog post, but wanted to see me write it, not them.  It was an interesting enough topic, so I’m obliging.  This person may or may not work for Yahoo! and have a hyphenated last name that includes an item you’d find at a hardware store.

Working on applications where you are the intended user is undoubtedly more the exception than the rule.  Not all apps and servers are consumer facing, and ultimately they’re probably trying to cater to a much wider audience than just you.  On the other hand, niche applications still require a wide range of staffing and support, and so I don’t assume that all of the front end developers at Kayak like to travel or that whoever does sysadmin at Suicide Girls likes busty pinup girls with tats in leather.  Ok, wait… maybe that was a bad example…  but you get the picture.  You’re not always the user, but is it an advantage to be the intended demographic or will it cloud your judgment?

I think the answer isn’t A or B, but C…   that it probably doesn’t make nearly as much sense for someone on the team to be your intended demographic as it does for you to be immersed deeply in the community of your potential users.  So, if I’m building a social network for bungee jumpers, the fact that I’m afraid of heights shouldn’t really prevent me from being able to build a great app for them—so long as you are constantly getting community feedback on what you’re building.  In fact, you’ll probably be better at interpreting the feedback of others than you will be at identifying what will solve your own problems—if for no other reason than it’s easier to identify trends in the feedback of many than a trend of one. 

At the same time, when you’re not necessarily solving your own problems, you’re less tempted to “fall in love” with certain features that don’t advance the product towards key milestones.  In a certain sense, good product managers need to be a little dispassionate—with a quantifiable, logical, and actionable process for adding or removing features or changing strategy. 

That leaves open the question of where the original idea for the business or service comes from in the first place.  To some extent, you already need to be immersed in an area to identify a new way to create value—but it would take a lot of passion for that space to really want to build a company in it.  So, while I’m probably advocating a dispassionate product development process, at the same time I don’t necessarily relate to the Fabrice Grinda “9 criteria” approach to entrepreneurship—which lands him in ringtones one day, international marketplaces the next, and almost put him in cloud storage.  I feel like its more likely the case that you start out with a way to solve a problem that is close to your heart, but that, at some point, you have to put on your surgery scrubs on and operate on this service like its a machine, not someone’s grandma.

Some might argue that this approach makes it less exciting to build an application, since you’re not the intended user, but I don’t really think the best builders are motivated like that anyway.  They want to solve interesting technical problems, make services that are more robust, faster, and scalable.  To the extent that they’re solving the world’s problems or their own I think is more of the cherry on top—not the main reason to work on that project.  It’s certainly not enough to keep you at a place if you don’t have interesting challenges—and at the same time, few people I know with interesting, if not basic, product development challenges got tired because they didn’t care about using any of what they built as a user.

A new cafe opened up in Bay Ridge this year, on the corner of 83rd and 3rd, right opposite Cafe Cafe.  It’s called Cafe Rustica and the food there (at least the paninis, which I keep going back for) is pretty good.  They did a nice job of building the place out and it seems like a great place to get dessert as well.

When I went in there, though, I went to go check in on Foursquare, but it wasn’t on there—I added it and soon became the mayor.  They also don’t have a website, or a Facebook fan page or Twitter or anything.

A funny thing has been happening to me since I joined First Round Capital.  People have gotten a lot more self-conscious about sharing their ideas with me.  Several times in the past week, friends of mine and others that I know have hesitated to tell me about a new idea because it "wasn't ready".  The other morning, I ran into an entrepreneur on the subway coming in from Brooklyn and he kept stressing to me how early his idea was and that he wasn't really planning on pitching it to “an investor” that early. 

Getting Feedback

The truth is, you can absolutely never be too early--at least to talk to me personally.  First of all, I'm big on feedback.  I don't think you can innovate in a vacuum.  Ideas need other ideas and feedback to grow.  They're almost like little kids.  Lots of overprotective parents keep their kids from playing in the dirt or playing with too many other kids, so as not to get them sick.  What happens is that they never get exposed to all the other germy little kids and therefore never get the chance to build up any kind of immune resistance.  The kids who play in the dirt almost always wind up getting sick less as they grow up.  Similarly, you can always tell when a startup idea hasn’t been circulated among enough people for feedback. 

Who Else is Out There?

At the same time, there’s a good chance I’ve already spoken to the eight other people thinking about this space.  It’s in your best interest to ask me to put you in touch with them.  They could be potential biz dev partners, competitors about to each your lunch, or even acquirers—you never know.  Whatever the case, it’s better to talk to them as early as possible.

Strike While the Bar is Low

When your idea is half-baked, I’m really not going to expect much.  It makes perfect sense that you have a lot of open questions and unsolved problems when you’re just a few days or weeks into an idea—but it seems worse if you’re “ready” for an investor pitch and you still have them.  Holes and broken demos are fine.  Things always break and you always wind up missing things you needed.  One of the things it’s my job to do is to vet the person and to figure out whether this is the kind of person who can fix things.

I’ve also been there.  I know what it’s like to iterate on a business idea as an entrepreneur.  The early versions of the Path 101 concept look nothing like the eventual product.  That’s what entrepreneurs, at least good ones, should do—pivot and adjust based on market and customer feedback, as well as a internal process of continual improvement.

Is There a Market for This?

Lastly, I think you want to know early on whether or not something seems to be venture fundable.  When you pitch a half baked idea to people who could support you, and they seem to get excited about it, you get an early signal as to how easy or difficult fundraising might be.  If every investor you talk to wants to know who your technical partner is, than maybe it’s an early signal that you need to get one.  That’s better than waiting until your prototype or demo is perfect and then finding out no one really cares that much about your space or the angle you choose to exploit the opportunity. 

Ignore Me

Of course, if you’re really passionate about an idea, and your early feedback isn’t great, that doesn’t mean you should just drop in and move on to something else.  Sometimes the process of moving forward can help you morph an idea into something disruptive.  Besides, lots of investors initial instincts have proven to be wrong, but it helps to know where the market’s at while you’re building. 

Forward Progress

People tend to think that you only have one chance to pitch an investor, but one of the best things you can do to impress an investor is to meet them very early, and then let them see how your idea morphed over time and how you made progress.  It shows forward momentum and we love it when we see someone three months later come back and say, “Hey, we vetted the idea and we’d like to update you on what we learned and our new approach.”  Plus, if you first came to me before you were even sure if you needed money, how much, etc., then there’s really no way I can turn you down, because you haven’t asked for anything yet.

Idea Theft

Some people don’t want to share their idea early because they’re worried that someone will steal it—especially an investor looking to make money off it.  That notion fails on two accounts.

First, if I had any interest in having a long career in venture capital, which I do, it would absolutely not be in my best interest to steal your idea and give it to someone else, because then I’d basically do irreparable damage to my reputation.  It’s just not worth it, because word travels too fast. 

Second, an idea isn’t really worth anything anyway.  It takes execution to get an idea off the ground, and not only are you probably the one best suited to execute on your own ideas.  Even if they do get stolen, you can out-execute the next person if you put your mind to it anyway.   I can’t think of very many people in online technology who succeeded because they were *first*…   Not Facebook, YouTube, Google, Amazon, etc.  So, there’s really no incentive for me to go stealing early ideas because getting them to someone else to beat you to it doesn’t guarantee success.

So if you’ve got a half assed idea and you want to talk it out, feel free to drop me a line.  Even better, let’s get a couple of other people smarter than us together over lunch to kick the tires and see what’s there.

Here’s my quick response to Chris Dixon’s post on taking seed money from VC firms.  As a part of the First Round Capital team, I’m totally biased here.  First Round does quite a number of very early seed investments, even less than 500k (so you’re never too early to start talking to us.)  That’s ok, Chris is biased, too, because he’s an angel investor and wouldn’t benefit from more competition in the early rounds.  The nice thing is, there really doesn’t need to be any competition because seed investors and VCs can all play nice together in the sandbox.  Any firm like First Round would love to do a deal with Chris.

In any case, he points out that it looks bad when someone who can follow on, like a VC firm, doesn’t do your next round.  It becomes a case of “What do these guys know that I don’t?”

I have several issues with this:

1 – This assumes that angel/seed folks don’t ever follow on.  They often do—which is why they rarely do a deal without the prorata right to maintain their ownership stake.  Some of these “super angel” folks can write checks of hundreds of thousands of dollars, if not more.  So, you have the same problem if you have *anyone* in your deal who could ever write more than like a $25k check.

2 – If a VC invests in a seed round, something has to go pretty wrong for them not to follow on.  VCs aren’t generally in the business of just putting 100k slugs to work here and there.  They’re assuming and *hoping* that you will have an investable deal for them when Series A time comes around.  They’ll sit down with you early on and say “This is what it will take to be a viable Series A deal for us and for anyone else in the market.”  The entrepreneur should only agree to take seed money from them if they agree to that milestone.  If the company falls so far short of that milestone that the seed VC thinks that additional investment won’t get them there, then what other invester is going to want a piece of that deal?  Wouldn’t it be clear that this is a company going in the wrong direction?

3 – Having a top tier VC in your seed round, versus some random band of family members, the local real estate developer, etc. gives you a *better* chance at building a company.  VCs bring to bear an expertise, a network, and a powerful brand that often brings a halo effect to their companies.

So, yeah, the problem doesn’t seem to be with the optics of who’s in/who’s out… it’s more the problem that the company didn’t do enough to make themselves a screaming buy to the people who knew them best. 

Two years ago, I partnered with an awesome CTO, Alex Lines, to start a company called Path 101.  We didn’t get enough traction on the product and business to continue it fulltime, so we’re now working on it as a nights and weekends project as we take on other jobs.  This is the 2nd of a series about what I learned starting up a company. First one is here.

A few months ago, I wrote about the three types of deals VCs do.  One thing I realized was that aside from just betting blindly on an experienced entrepreneur or funding a later stage project, was that when VCs put money into something that's innovative, they tend to do it in an innovative sector.  So, it's not just about the idea, but they want that idea to live in an ecosystem that is in flux or generating new and interesting approaches.  For example, BazaarVoice (a First Round portfolio company) helps power social commerce with a variety of applications that help amplify customer voices to both sellers and to other customers.

No matter what they started with, social shopping was definitely an interesting area when the company started in 2005 and got funded in 2006.  It was clear that reviews and social media were helping sell product, so a bet on a suite of tools that helped companies create conversations around commerce would seem to have the wind at its back.

That's exactly what we didn't have at Path 101 in the jobs space.  In fact, what was fascinating to me, and unexpected, was how negative VCs were on the jobs area--especially for something so monetizable.  There there had been very little innovation in the way that companies hire and the way people find their jobs online in the last 15 years--except for LinkedIn--and investors largely saw that industry as a hopeless dinosaur.  Sure, there were business model innovations, like TheLadders and Indeed, but these were mostly about subtle changes in the way these companies made money.  It was still job ads and resumes at the end of the day.  The average VC didn't quite believe there was a disruptive job play to be had, so the idea of thinking of us as that play was a stretch. 

I can't exactly blame investors either.  Often times, investors bet on the "pivot"--the ability for a startup to stop what they're doing and have a strategic shift in the product or business plan.  It probably happens a majority of the time, and so an investor needs reasonable assurance that the team is going to pivot into something good.  If you're in a dynamic industry that is primed for innovation, not only is it easier to see where the next big thing is going to come from, but you get more experimentation from customers.  They're more willing to try new things because they know business is changing, but they're not sure exactly now. 

On top of that, it's easier to get press if you're in an industry with some buzz around it.  If you were to do a new geolocation startup, like Hot Potato, everyone will want to talk to you because there's obviously something happening in this space.  No one was really that excited about talking about new models in the job space.  Heck, the only blog actually covering new models in the space, Cheezhead, stopped publishing over a month ago.  

The other thing was that ideas don't happen in silos.  It helps to surround yourself with a vibrant community of entrepreneurs--and in the job space, there were only a handful of people I felt like I could talk with about new models.  Everyone else was basically minting cash on businesses that I couldn't understand how they'd even be able to exist in five years.  That meant that our inflow of new ideas and great feedback was pretty limited.

It's hard, because there wasn't another industry that I really wanted to change so badly.  Careers was my thing.  I'm extremely passionate about helping people figure out what to do with their careers, but ultimately, creating a startup in this space was an uphill battle from the beginning.  I'm not saying this was a fixable problem--just more like a warning to new entrepreneurs.  Take a look at your space.  Wipe your finger on the tables.  If it's too dusty, you may want to wait a little bit before trying to move the furniture around.

Two years ago, I partnered with an awesome CTO, Alex Lines, to start a company called Path 101.  We didn’t get enough traction on the product and business to continue it fulltime, so we’re now working on it as a nights and weekends thing as we take other jobs.  This is the 1st of a series about what I learned starting up a company.

Raise money--That's the first thing many entrepreneurs think of when starting a business.  They plot world domination schemes that hinge on their ability to get an angel round together, without answering a lot of important product questions first.  That's fine if you're Rich Barton from Zillow and Benchmark gives you 7 million bucks to go do to real estate what you did to travel at Expedia.  If you're running leaner and you're raising "Get something up" or "just feed ourselves for a little while" money, you need a lot more questions answered. 

That was our first mistake at Path 101 and I'll take the blame for that one personally.   Or, you could think of that mistake in a different light and say that I should have realized that we were going to have to be a lot more experimental and iterative.  That would mean needing closer to a million dollars than the 350k we raised—and we definitely could have gotten more.  We just had this innate desire to be lean and only take what we thougth we needed.  Nowadays, I tell people to take twice what they think they need, especially if they’re doing this for the first time.  Maybe it should have been a little of both, but regardless, wireframes, specs, etc  should all be done before you take money.  Granted, these will all change, but you can go a long way to honing in on the product roadmap in great detail on your own time. 

For example, Aardvark worked on their product design and user interactions for 8 months before writing any code and before taking a big slug of cash.  The social answers platform started out with a dude on the other side of a chat account manually interacting with users in a structured way in order to product test.  They knew a ton about how their product was going to work and what it needed at the onset of development--and that's something you can do nights and weekends or bootstrapping.  It doesn't need a designer either.  Just tell me your best thinking on exactly what the product will do, in detail--talking basic wireframes here--at each milestone and how much money it will take to get there.

Milestones are important because not only does it help to estimate cost, but it helps figure out revenue and funding potential.  You can (and should) take a wireframe to a customer and say "If we build this, will you buy it...and if no, why not?" 

VCs may be a little different.  They probably won't take a vaporware presentation very seriously unless you know them or someone vouches for your ability to build something.  Get a warm intro.  Scared that they'll take your idea?  Someone can steal your idea a month after launch anyway, so what's the difference?

At Path 101, everyone we talked to thought that the idea of pulling resumes off the web to figure out career paths was really interesting.  We talked about what data you might want to pull out of the Resume Genome Project but not a lot about what the data actually needed to look like to be useful to a user.  There was no way we were going to get that right on the first try, but there's no reason we couldn't have had three or four iterations of that done--not just to show investors but to show developers, too.  This would have helped us get a sense of technical challenges that maybe we weren't considering or just to generate more interest in our vision.

There wasn't a good model out there for what we were trying to do, so answering a lot of the questions about how users were going to interact on the site would have gone a long way.  Instead, we did a lot of this research (and made more mistakes) when we should have been developing to more specific, vetted milestones.

That was lesson number one--more to come.

On Tuesday, October 13th, at 6:30PM, 100 Founders and CEO’s of NYC tech companies will gather at Sun Microsystems for nextNY’s “NYC Media: Meet the startups” event.

The idea behind the event was that, on a pretty regular basis, tech and small business reporters find their way to me and want to know about the “comeback” or “birth” or “rebirth” or whatever of the NY tech scene.  Then I have to tell them all about the fact that we’ve been here for years, heads down working.  Half the time, they don’t know about the most successful startups or the most innovative ones. 

It’s not easy, either.  NYC startups blend in pretty easy—squatting in other offices, in coffee shops, in their own apartments.  You never know when the two dudes in the back of your Williamsburgh design showroom are actually a couple of hackers trying to change the world.

Therefore, I thought it would be great to gather a bunch of NYC’s really awesome startups together in  one room—and that’s what we’ll have.  There will be 100 Founders and CEOs of NYC startups all in one room, including:

Brian Adams – AdMeld (Raised $15 mil in two VC rounds since 11/08)	Seth Besmertnik – Conductor (Raised $12 mil, including $10 mil this year from Matrix Partners and Firstmark)	Zephrim Lasker – Pontiflex (Raised $8.75 mil since 4/08)
Anthony Volodkin – Hype Machine (Doesn’t need VC to be cool… Inc Top 30 Entrepreneurs Under 30)	Dave Morgan – Simulmedia (Founder of Tacoda, sold to AOL for $275 million)	Geoff Lewis – Udorse Up and comer from TechCrunch 50 - $500k from Founders Fund, Private Beta

So the big question is… where are all the local tech and small business reporters covering this?  We’re going to have Jenna Wortham from the NY Times and John Abell from Wired, but I expected journalists to be tripping over themselves for this and we haven’t seen it yet. 

Where have all the reporters gone??   If you cover innovation, small business, technology, etc. you absolutely need to be here!  We’re also going to include a short presention called “Your Guide to the NYC Tech Community”.  Reporters, RSVP here!

PS… If you are an entrepreneur, we are sold out (or more like free’d out, since everything at nextNY is always free).  Please do not try to sneak in with a media ticket.  I will find you and hunt you down like the dog that you are.  Grazie.

Donor’s Choose is a fantastic way to get educational projects funded.  I had a great time with it last year and raised $1875.58, to be exact. 

This year, I want to double it:  $3751.16  Check out my giving page.

Here’s what I need from you: $3000

If I make it to $3000, I will kick in the $751.16, because I think this is an awesome way to get people involved.  Also, I’d like to beat the pants off the O’Reilly folks.  That’s right Tim.  I’m calling you out!  (The way I figure it, I probably wasn’t going to get invited back to another Foo anyway, so might as well go down in flames, right?)

Here’s an additional challenge…  if you get me to $4000, I will kick in another $1000, b/c $5000 is a psychologically satisfying number.   Anyone else want to throw in some matches at different levels?  Comment away.

So let’s get started!  I handpicked the projects this year… and they represent about $10,000 in needed funds.  Getting halfway there would be amazing!

Last December,  Owen Davis from NYC Seed decided to make my company, Path 101, the fund's first investment.  Given my recent announcement that I'm taking a full time job at First Round Capital and that the Path 101 team is going part time, I have to imagine we've been written off as an investment--from a financial point of view.  God help the next company that has to pitch to the NYC Seed board now.  The board is a room full of about a dozen folks, which is about ten people too many for making early bets on seed stage companies.    Undoubtedly their mindset after the news will shift even further to risk mitigation versus additional risk taking, especially after what our experience might be saying about the funding environment. 

That would be a mistake, however.  Experienced angel investors know that a 50% loss rate is about average--they expect half their portfolio not to return any capital.  That's how the business works.  So, if another NYC Seed company fails soon, that would pretty much be well within normal expectations.  I feel like a group of government folks isn't really going to buy that, but they have to.  The Bloomberg administration trumpeted the fund as a way to spur on innovative technology ideas and fill the funding gap for cutting edge startups.  If it had to only pick from companies that could break even on $200k, you'd see little in the way of large scale market disruption coming from these companies.  In other words, you don't pick the next Google by mandating that the company generate enough funds to cover itself within the next nine months.  You might as well invest in a couple of accounting firms or food stores--very little chance of losing your money on those. 

In fact, one could easily make the argument that a heck of a lot of good could be done while still losing the whole entire fund--laying a big fat goose egg.  People learn a lot from failure, and having a culture that excepts high failure rates is critical to a truly innovative scene.  Also, when companies don't work out, founders and employees often move on to other startups, taking their experience and making themselves more prepared for the next challenge.

Take the investment in Path 101, for example.  By enabling us to continue an extra year, we were able to build better relationships with the innovation community and investors.  I was able to pitch and continue communication with Josh Kopelman from First Round Capital.  In turn, First Round is now opening an office here in NYC.  There's no doubt in my mind that First Round will invest *at least* $2 million more dollars in NYC than they would have anyway now that they have an office here--so this development is actually a net positive for the city.  We all said there wasn't enough early stage capital located in NYC, and now, we have a new top tier VC fund setting up shop right in the Union Square/Shakeshackville area.  Add in the fact that my partner Alex Lines is joining Betaworks.  Who knows, he could hack something up that winds up becoming huge.  In a way, NYC Seed enabled him to find someone to fund his hacking.

Plus, we've now unleashed machine learning PhD/scientist Hilary Mason's data mining expertise on the NYC startup market.  After moving here to NYC, she's now looking for neat data projects to work on, particularly locally.  She has a highly soughtafter expertise and our company attracted her back to NYC in the first place. 

By allowing the Path 101 team more time to be out there in the market, NYC Seed unintentionally deposited some innovative human capital back into the innovation ecology here.  The results are likely to be way better than anything just our one company had a realistic shot at, but I wonder how this fund will be measured...  Net returns or overall economic impact.  I hope the board will take a broader view of the impact of the fund and even extend it's life past the mandate for $2 million.  It certainly can't help the portfolio's risk profile if Owen is making bets thinking he's only got six bullets left in his gun and that's what he's going to be judged by.

For quite some time now, I've been saying that New York City needs more dedicated early stage capital.  Having an office and people on the ground here build community and human capital infrastructure.  Doing it from a dedicated pool of long term, early stage money insures that ecosystem will be more permanent.  You can't jump in and out of early stage depending on the temperature of the market, or do this as a "test" to see if you really want to be in this game.  It's also really difficult to support the innovation community here when no one in your firm can ever stay out late in the city when the entrepreneurs are just getting started.

That's why I'm excited to announce that not only will I by joining First Round Capital, but, more importantly for the NYC startup community, they are going to be opening up a dedicated New York office in the Shakeshackville or Union Square area. 

I’ll be full time in NYC as an Entrepreneur-in-Residence looking at deals (which you can send to me at charlie@firstround.com) and setting up an office here.  I don't mean just building Ikea furniture, but also helping strategize how to best support and inspire startup success in the Big Apple through engagement, conversation, and strategic support of community building.  Helping to build up a firm's physical and virtual presence, as you probably know, is something I've been a part of before. 

I’ll be ramping up my efforts to support the local innovation community through nextNY and other projects.  The more I can help local entrepreneurs, the better the opportunities will be for any early stage investor in NYC, and the better I can do actually proving out the First Round Capital value proposition.  NYC entrepreneurs want and need investors who prove valuable in helping them create successful businesses—and what better way to do that by supporting them even before formal business relationships are built.  The entrepreneur is the customer of a VC firm and in today’s world, customers have choice.  We need to give a lot more upfront if we expect to get your business.

How did this all come about?  Well, not surprisingly, the open dialogue I’ve been having with the innovation community on my blog for over five years is how it happened.  After I wrote my “Free Business Plan” on how to start a VC firm in NYC, Josh Kopelman approached me at the Shake Shack.  He told me how much they believed in NYC as a major opportunity for them, as it has been with all the deals they’ve done here already.  We talked about our shared a vision of the kind of active, open, community focused firm that NYC needs.  They’ve already done 12 NYC deals, and the FRC team spends a fair bit of time here already.  This is a signal that they believe in NYC enough to make a commitment to being on the ground here in a more substantial way.  It's also a reflection of the fact that you can better serve the local community if all the hours that you spend here aren't squatting in other people's offices.

So what about Path 101? 

You’ve probably seen the math—half of all funded startups don’t make it and become zeros, a bunch go sideways, and then a select few shoot the lights out and return your portfolio several times over.  Well, suffice it to say that Path 101 isn’t going to be one of the shoot the lights out deals, but I’m cautiously optimistic that it isn’t going to become a zero either—and may even have some upside.  It's definitely not going anywhere.  It may just take some time to return what went into it—more time than it’s cash resources will allow. 

The three of us—myself, Alex, and Hilary—are no longer going to take a full time salary, small as it had been, from the company after September.  We’re just a couple of weeks away from launching our first revenue generating features—thanks to their hard work on the technical side—but those features probably won’t ramp fast enough to sustain a full time commitment for a team of three.  Therefore, Alex and I will move to a nights and weekends approach—a “born again” startup if you will.  Hilary will move on.

I'm excited to share that Alex will be joining Betaworks as Hacker-in-Residence.  It's a fantastic cultural fit.  He'll continue to support Path 101, especially through an upcoming feature launch, and trim the hedges, mow the code, and occasionally (albeit much less frequently I hope) fall asleep tweaking a server in the wee hours.   However, his main focus will be on building awesome stuff FRC can invest in.  :)

Hilary is seeking out cool data problems and will undoubtedly have more opportunities than she can handle--that is, until she optimizes the code and database structure in her head.  Then, she'll take on even more. 

Alex and Hilary have been incredible from day one and I have been extremely lucky to work with them.  I look forward to getting Path 101 on its own two feet so we can all see the fruits of our labor.

In the coming weeks, I’ll be detailing the lessons I learned in working on my own startup—lessons I’ll be taking with me to my job at First Round.  Launching Path 101 taught me enormous lessons about financing, product management, and process that changed the way I look at how innovation happens. 

There’s so much more to write about my experience at Path 101, our upcoming features, my switch back to the other side of the table, First Round Capital, etc…   Look out for quite a bit of content coming out of me over the next week or two.

Oh, and if you’re a reporter covering the local innovation scene here in NYC, you absolutely need to be at this event.  We have almost 100 founders and startup CEOs showing up on October 13th to meet the local media, like Dave Morgan from Simulmedia, Dan Porter from OMGPop, Anthony Volodkin from HypeMachine and tons of the next wave of up and comers.  Don’t call it a comeback—these are the companies that have been making NYC great for quite some time.  It’s time for you, the reporters, journalists, and tech bloggers to meet them.

I'm super psyched to be part of the First Round Team--I actually knew most of them fairly well already. I'm psyched for New York City that another dedicated early stage fund is firming up its commitment here.  Lastly, I'm psyched to be able to do more to help the innovation community in my hometown.  Please do not hesitate to reach out to me with your ideas (no matter how early), thoughts, opportunities, or just to say hi.  Hopefully, you can stop by our new office soon--maybe even within a couple of weeks.  I promise it will be a fun, open, accessible place.

Sarah Tavel posted this morning on something I've been thinking about for a little while now: Twitter Spitter.  That's the term she's given to machine generated updates from apps trying to co-opt Twitter as a viral marketing mechanism.  Whether it's a Foursquare update or a Nike+ run recap, lots of apps are realizing that letting people post to Twitter can drive a lot of growth. 

Here's the problem, in Sarah's view:

"...the natural evolution of this is that Twitter will be increasingly abused by new web apps hoping to leverage Twitter’s effortless word-of-mouth. There is no mechanism in Twitter that I know of to limit what I’ll call web app Twitter “spitter”, and so there is no reason for web app companies not to push their app-specific messages to Twitter. And while conceivably there should be a natural mechanism of Tweeters not wanting to abuse their followers by allowing too much “spitter”, that mechanism is just not that efficient. I’m willing to put up with my friends’ spitter in much the same way that you put up with a friend’s occasional bad jokes or body sounds. But that’s not to say that spitter doesn’t degrade my experience on Twitter. As more applications look at FourSquare as an example of how to leverage Twitter, Twitter is going to increasingly become a jungle of 3rd party tweets."

Justin Shaffer said something similar to me the other day at breakfast--that we'll soon be near 80% conversation and 20% autotweeting from 3rd party apps.  He said, "What happens to the value of Twitter when it's the other way... 80% autotweets?"

I think we all know what happens then--the value of Twitter falls off the table, and it happens long before we hit 80% autotweets.

The problem is that Twitter Spitter is inherently a watered down, out of context version of behavior on the actual app.  Despite being guilty of Foursquare posting myself, I'll admit that to my Twitter followers, hearing that I'm at a particular place isn't as useful via Twitter as it is on Foursquare itself.  Foursquare provides the appropriate context and action steps to deal with this piece of structured information.

This was basically the Friendfeed problem.  Friendfeed waters down a person's activity across social networks and throws it all at me at once.  So, if you follow a person because they have a great blog, you're also going to get pictures of their kids on Flickr.

I go back and forth about this, and while I appreciate the value of getting to know the whole person, I also feel like it degrades me signal.  What I realized is that it's not the fact that this esoteric content is in my feed, it's that the receiving mechanism isn't built to make the most out of the structure it contains.

Reimagining Tweetdeck

The solution, in my mind, is to make Twitter clients, like Tweetdeck, smarter.  Since Twitter Spitter usually comes with an underlying link, it wouldn't be hard to give users the opportunity to opt out of these kinds of automated updates.

Even further, you could imagine channeling these links into more appropriate interfaces.

For example, how about:

- A map panel that aggregates all the Foursquare, Brightkite, etc. checkins and displays my friends' last known location.

- A play button for music that I can use to play, when I want, all of the aggregated songs posted to twitter throughout the day, even sorted by tags or genre.

- That same play button for video.

- A meme panel that collects and ranks the top links from all the people I follow on Twitter or different groups.

- A suggested user list powered by Follow Friday.

This way, people can post all the Spitter they want, and it doesn't get in the way of the real time conversation I came to Twitter to find in the first place.  Otherwise, Twitter is soon going to become the MySpace of real time--overburdened by so much spam at a critical time that the key users jump ship for more well controlled pastures.

When the city announced its 11-point plan to encourage innovation and entrepreneurship in NYC, it was met with quite a bit of skepticism for the few in the startup community who bothered to notice it.  Most of the existing entrepreneurs who didn’t need a financial downtown as an excuse to start a new company didn’t take the two minutes to read the city’s press release because they were too busy working on their businesses.  Much of the plan centered around taking those that had been laid off from Wall St and helping them start their own businesses.

I think the reality is that the mindset, DNA, and maybe more importantly lifestyle of somebody who worked for a big bank and didn’t leave until they were forced to doesn’t exactly overlap with what is needed to start a company—and I’m not sure that a 6 week training program can change that. 

However, what I realized this morning is that there are extremely specific needs at many well funded startup companies that aren’t being met.  For example, I’ve talked to at least four startups in the past two weeks that needed someone to run their web marketing—but not write site copy or do branding work.  They needed some hardcore quants to test strategies for loyalty and affiliate programs, measure ROI on paid search, etc.  Frankly, fine tuning the web marketing strategy and lead conversion of an e-commerce company is not unlike managing a portfolio, trading or doing financial analysis.  It’s putting a person in front of a set of quantitative tools, analyzing large pools of data, goal seeking, and optimizing.  It’s the kind of thing that, if you were awesome at it, you could walk into any startup that sells anything, pitch your ability to add directly to the bottom line and pretty easily get hired to do it. 

What I’m saying is, there are lots of opportunities at the startups we already have, and skillsets that are scarce.  Instead of creating more startups, why don’t we make sure the talent pool is deep for the existing startups that already have some traction and funding.  Let’s create more product managers and web developers, not more entrepreneurs.  While the job market is difficult right now, there are a ton of opportunities in startups that aren’t getting filled because they can’t find a specific skillset.  If someone were to train themselves to be a web marketing analytics ninja, they’d get hired in a second.  How to you get that skillset to a former financial analyst?

I don’t know if programs like Jumpstart NYC are going down to this level of detailed skills training—and the reason I don’t know that is that their classes are closed.   You have to attend in person and there’s no materials or courseware on the web.  Why not just release all the materials in public and record the classes to put them up  online?

Contrast that with how it looks like we’ll run our little learning Python experiment.  We asked the community for feedback on what books do use, how to structure it, and even for people to join Julie Steele and I in our little quest to learn how to program.  We got lots of feedback and we’re going to do the whole thing in public.  We’ll probably just get a little group of 5-10 people together, but we’ll share everything we’re doing so that others can follow along with us or even find the materials in the future and maybe add to them.

Not only would that increase the number of people who could possibly learn—like those who couldn’t make it in person—but it will be available for others to not only find it later, but to add best practices and materials to it as well.  I don’t think a big top down program could be dynamic and flexible enough to teach people the specific, detailed skills that are immediately useful to startups.  Group learning and public materials could get all these Wall Street tech guys working on trading systems coding iPhone apps faster than a city program could.

I had lunch with Julie Steele from O'Reilly the other day and we were talking about how we both regretted not being able to write code.  I've thought about picking something up hundreds of times, but never really followed through on it.  That's when I realized the buddy system might be helpful and so I suggested that we figure out a framework to learn together--a book, some meetings (online or off), shared resources, etc.

We've already decided that we're going to try Python, so let's not debate languages here. What we'd really like is some suggestions on the following:

-- A good beginner book

-- A reasonable schedule to follow along

-- Tools that we should look into to share work, learnings, etc.

-- Ways that others can follow along and join our efforts

Thoughts?  Links?   Anyone who doesn't already write code want to join us?

The other day, I noticed an event at Fordham's Lincoln Center Campus on Gary's Guide.  The event was titled "Entrepreneurs Day at Fordham Midtown" and it cost $62.50 to attend, and $125 if you wanted to present your business to Steve Brotman, Mark Davis and James Kollenger.  It was upsetting to me as a Fordham adjunct professor in the entrepreneurship area that we'd participate in an event that reached so deep into the pockets of would be entrepreneurs.  Obviously, I didn't have anything to do with it.

But, was it worth the price of admission?

Steve is a partner at Greenhill SAVP--a recent investor in local NYC standout Mobile Commons and clearly someone who can lead a deal.  Mark, on the other hand, is not a "check writer" as Chris Dixon puts it.  That being said, his blog is a tremendously useful resource and he is truly a student of the industry.  Still, the very fact that he does blog makes paying to pitch to him seem a bit silly, since a relevant link in the comments to your cool product or thoughtful blog post will surely get his attention.  Steve is now blogging as well.  So we have one deal lead, one more junior guy--both pretty accessible through their social media presence.  James seems to run an advisory company called Genesys Partners.  While it's not clear that he's still actively putting money to work in deals, given that most of the "recent deals" on his site are a few years old, he seems to be a pretty connected guy who can gather a party with more VCs than you can shake a stick at.

So...  three seemingly smart, connected folks--only one of whom seems to be in a position to lead a traditional early stage venture deal themselves:  $125

I suppose that's a pretty good bargain to the Funding Post, which charges $2,500 for a single ticket to their funding event.  Interestingly enough, many of the active funds represented at the Funding Post don't even send partner level professionals to this event.  I think if I was shelling out this kind of cash, I'd want to meet as many partners as I could.

Want Funding Post on the cheap?  Try the New York Venture Summit--filled with largely the same people, but only $695 if you're an entrepreneur.

Put aside, for the moment, whether or not these events are worth it to entrepreneurs.  Are they worth it for the investors?

Consider that these are companies that couldn't figure out a way to research the active investors in a space and find a way to get warm introductions.  What are the chances that these represent the cream of the crop of the startup universe?  I'll go out on a limb and say that the best deals are not coming from these types of events.

Moreover, these events are undoubtedly having the unintended effect of casting the local community, New York in this case, as lacking active investors who are interested in meeting entrepreneurs.  If all of the investors sit behind a pay wall, then how startup friendly of a place will that make our city look like?  Last I checked, VCs and angels were in the business of trying to see as many good deals as possible, not making it harder for people to meet them.

Some might argue that money represents a quality filter.  Some, such as myself, might call bullshit on that.  There's absolutely no correlation between a startup's willingness to pay a fee to meet investors and the eventual outcome of the deal.  If anyone can prove otherwise, I'd be happy to eat the keyboard I typed this post on. 

No, what these deals reflect is the willingness of investment professionals to accept just about any invite that comes their way to meet companies that matches open spots in their calendar--without much regard at all for what their presence means to the innovation community.  When entrepreneurs see names like First Round and Firstmark, they're led to believe that pay to play is an accepted industry standard, when it isn't--or at least, it shouldn't be.  If New York City is ever going to fulfill it's potential as an innovation center, step one to meeting supportive investors should not be "open your wallet". 

One argument that investors might admit to privately is that they know the best deals come straight to them anyway--so it doesn't really matter if some entrepreneurs pay to attend these events.  Smart entrepreneurs will figure out a way around this expense.  If that's the case--if investors knowingly are supporting events that take advantage of less savvy entrepreneurs--well that just seems kind of mean, actually. 

When I was at Union Square Ventures, I took some meetings and spent time with "aspirational" entrepreneurs--many folks who probably didn't have the know how or savvy to build a successful business, but who were well intentioned nonetheless.  Honestly, I didn't want any kind of artificial scarcity creating business screening them out for me.  I tried to spend time with them when I could because entrepreneurs, both experienced and aspirational, will always wind up running into each other.  I got intros to good deals from several um... less than good deals... that I had turned down.  The more helpful I was, even to a startup that wasn't going anywhere, the more I built up the brand of the firm.  Some of those folks would go on to join other startups and become good networking contacts, even though their attempts at launching a company didn't work out--so the last thing I wanted to do was to built a high wall around myself to keep them out. 

I think local investors need to start examining how they spend their time in the community and start getting a little more discerning about how they spend their time.  Instead of attending events that are pay to play where not everyone can attend, how about offering yourself up to a local user group or free entrepreneurial community group--or even host your own event as a firm?  Why make the entrepreneurs pay when you're the one who is in the business of investing.  Entrepreneurs can always try to bootstrap, but VCs have to invest--its their sole purpose in life.  The burden should be on them to pay to build connections. 

What I would like to see is a pay to play walkout--an all out ban on participation by established, active firms on events that set too high a barrier for entrepreneur attendance.  UPDATE: I'm talking specifically about events setup for the purpose of introducing entrepreneurs to investors or about financing a startup.  If you want to speak at an industry conference and they happen to charge everyone, that's fine.  I don't want to kill the conference industry.

It's one thing if someone needs to charge ten or twenty bucks to cover the cost of a room or pizza and beer.  It's another to ask for thousands of dollars to pitch.  The investors in the NY tech community have a serious branding issue when compared to their west coast peers, and only by becoming a lot more entrepreneur friendly is NYC going to be seen as with the Valley in terms of innovation support.

In it's place, I would love to see investors make an active effort to reach out to local, entrepreneur driven community groups like the NY Tech Meetup, nextNY, or the Entrepreneur's Roundtable--who all run free or very cheap events that have featured top tier, partner level investors and active angels.  How about getting this many VCs to attend a BarCamp, or helping entrepreneurs self-organize, on the cheap, a FundingCamp that will be open to all regardless of their ability to pay.  There's just no reason why these pay to play events should more investor participation than the nextNY listserv

And start sharing your wisdom, too.  If you're blogging about the NY tech community or NY companies, add your blog to the nextNY blog, which aggregates stories about our local community.  All you need to do is signup here and post about anything NY tech or startup related while adding "nextNY" as a category in your post. 

I’ve spoken on many occasions about now New York City doesn’t necessarily need more money for early stage startups, but it definitely needs more dedicated early stage money.  There’s a big difference between a random pool of stimulus money that may or may not be around next year versus an actual early stage venture capital fund that raises commitments to put early stage money to work over the next four years.  In reality, VC funds are usually given the benefit of two funds.  When capital is raised for a second fund, the first fund is usually mostly unrealized and “too early to tell”.  That means that for each new VC fund manager, you’re almost guaranteed to get about a decade of new investments. 

When you have that kind of commitment to a space, your presence will not only attract more entrepreneurs, but you’ll be highly incentivized to do the work to make the long term social capital and community infrastructure investments to ensure a vibrant innovation ecosystem.  You’ll build relationships with universities, incubators, community groups and even big corporations—relationships that may not have an immediate payoff, but are likely to come in handy if you’re going to be here a while sourcing, investing in, and supporting startups. 

For whatever reason, as I’ve said before, there aren’t very many funds in NYC doing early stage investments.  Lots of people have asked me about what I’ll do after Path 101, and I think it's probably likely I'll return to my investment roots.  When the conversation turns to bringing my network and experience to a VC firm, the resulting conclusion is that I’d probably need to be the NYC guy for an out of town firm.  After crossing Union Square Ventures off the list, since I already worked there, the number of NYC funds who will regularly do pre-revenue deals is pretty small. 

However, given the number of really interesting things going on in NYC, many of which are getting funded by out of town firms, you have to imagine there’s an opportunity in the market to build another early stage VC fund here.  The interesting question, one that I explored with a couple of people over the last week, is how you would go about setting up a new VC fund. 

It's an interesting exercise.  Here are, in my mind, some of the key questions and issues that you’d have to address in setting up a VC fund in NYC, and how I think someone should go about addressing them:

The Shadow of Union Square Ventures

No matter what you think of their portfolio or style, I think you have to concede that Union Square Ventures, in its relatively short existence compared to other firms, has grabbed the venture capital spotlight in NYC.  Not only is it an early investor in highly sought after deals like Twitter and Foursquare, but the mindshare they have captured, largely through Fred's blog, is a very valuable asset and a competitive edge.  Does that mean that a new firm would have a hard time not being seen as second fiddle at best?  Would there only be scraps left at the table?

The answer is no--not even close.  If anything, Union Square Ventures, and the other local firms like RRE and Firstmark are actually looking for more local partners.  Many of their deals have been done with other VCs, so a firm with close ties to USV would seemingly have a good opportunity to see their dealflow.  That being said, there are many more deals to go around than just what USV is seeing and doing, and they certainly don't see everything.  There are lots of great deals being done by non-USV firms--some that turn out to be extremely successful like Right Media, Conductor, Pontiflex, bit.ly and Gilt Groupe.  I actually know of a couple of deals where other local firms were looking for a partner in town and couldn't find one. 

Even so, if you're worried about the specter of USV, it seems to me that there's plenty of opportunity for a NYC firm to grab additional mindshare from local entrepreneurs.  The entrepreneur appetite for intelligent public discourse coming from a NYC firm is enormous and, if anything, there's a bit of a shortage.  Most of the active NYC investors, especially if you count angels, don't necessarily blog and even some of those that do don't really count on it as a pillar of their brand the way USV does.  A new VC firm would have lots of opportunity to build brand equity in NYC by engaging in public discourse.

Branding

The public perception of much of the NYC startup investor crowd, including the angel scene, is that it's a bunch of former bankers and others that are unwilling to make the kind of bets long on vision that are made each day in the Valley.  NYC is known to be friendlier to sales execution plays versus technology innovation.  A new NYC VC firm would have to send a strong signal to the market that it isn't a bunch of bankers just looking at spreadsheets for direction on how to change the world.  It could make a lot of headway by focusing on technology and product focused innovators and participating in both online and offline conversations.

By fostering and participating in these discussions, like USV does with their Sessions talks, a new firm would attract smart technologists and innovators into their social circle.  There's still only one venture capital firm whose corporate site is a blog--so there seems to be plenty of opportunity to market an entrepreneur focused fund in NYC.  You could also take a page from the First Round playbook and do open office hours--giving any entrepreneur the opportunity to come in and pitch their business or get feedback. 

There's also something to be said for having a more national presence in your branding and not just being seen as a local player--both among the entrepreneur community and among other VCs.  Venture firms often see deals through relationships--ones that span geographic boundaries.  That's how Redpoint found Right Media even though it wasn't necessarily looking at NYC for deals--they got introduced to it through another company (I think a portfolio company).  You also want to be seen as a smart partner for an out of town firm who finds a good company in NYC. 

Entrepreneurs, too, are connected across geographic boundaries to other entrepreneurs.  I can't tell you how many times I meet other NYers at out of town events.  Often times, when people are in their home city, they're too busy with their heads down doing work and so your best times to meet them are during conferences and meetups in other cities.   

Leveraging the infrastructure

One thing that I haven't seen NYC firms do that well is leveraging the existing innovation infrastructure in NYC--or, more accurately, turning it on.  Local NYC educational institutions have very few connections to the investor and startup community compared to the West Coast and places like Stanford.  A VC firm will sponsor the occasional business plan competition here, but we're not generating the same kind of awareness among the best and brightest from local schools that entrepreneurship and technical innovation can be a career.  We need to start pulling more students into our innovation community in a systematic way, and sending back more professionals, both technical and on the business side, into the classrooms. 

Big corporations could stand to be a bigger part of the local startup community, and a new venture firm would do well for itself to try and find better ways to tap into the huge businesses that thrive in the Big Apple.  By being a conduit for trends and technologies, not only could a new local VC firm create a powerful network that could result in lots of business development opportunities for its companies, but it would also sow the seeds of entrepreneurship into the existing corporate infrastructure.  There are still lots of well trained technologies inside big companies--ones that are building world class applications that scale.  They need to see more supporters of the startup community in order for the cloud of risk aversion to completely go away in this city. 

A new venture capital fund would not only have to be a friend to and active participant in the local community groups, like nextNY, NY Tech Meetup, Digital Dumbo, NYC Resistor, Future Y+30 Meetup, etc., but also be a catalyst for top tier efforts to setup shop here in the city.  There absolutely needs to be a TechStars NYC and an FooCamp NYC.  That would tie a new VC fund in with a great innovation network and help give NYC a bigger pin on the map--which is good for all local investors, but especially for the one that makes it happen. 

Staffing

After evaluating top tier venture capital firms at the GM pension fund for four years and being a part of one at Union Square Ventures for almost two, and then pitching them as an entrepreneur--I've got a couple of opinions about the optimal human capital deployment at a VC firm.  For one, early stage investing absolutely needs to be driven by the decision makers.  Two analysts will not source twice as many early stage deals as a single principal or partner--someone who can lead a deal.  Sourcing basically means being able to add a deal to your deal log or setup a meeting, which isn't a function of actually doing deals.  Decision makers are always the throughput bottleneck.  If you can't get a company in to see a partner or principal, and get them to spend time on it, that deal isn't going anywhere. 

It's fine to have your analysts vet the dealflow from businessplans@venturefund.com, but anything viable really needs to be touched in some way by a more senior person, otherwise you're outsourcing your screening process to the people with the least experience.  Not only that, getting your decision makers out there in front of as many deals as possible in a space helps their education on the opportunity set, because markets are constantly evolving.

Prominent senior people are driving just as many deals as a "funnel" that would otherwise start with a bunch of analysts turning over every rock.  They build reputations for being knowledgeable in a space, good board members, etc. and the best entrepreneurs seek them out--as do other venture firms.  They don't seek out analysts.  In an era of VC transparency, when entrepreneurs know exactly who the partners and principals are and they're more reachable than ever, analysts are often seen as unnecessary friction--no offense, but I was in your shoes, too.  Three more of me at USV would not have tripled our deal pace. 

Analysts make sure the ball isn't dropped on process, that all the blind spots are covered, help shepherd closings through and are good for keeping a finger on the pulse of the young innovators. 

The bigger question, besides seniority, is *who* exactly in NYC would you start a new VC firm with.  Would you try and peel off a principal at another fund who has lots of deal experience?  A serial entrepreneur looking to switch gears?  I'll leave this question somewhat open and I'd be interested in who your "dream team" for a new VC fund would be if you could choose from among folks you could legitimately get.  Whoever it is, I think it would have to be someone who conveys authenticity and has enough credibility within the existing community that they're not seen as an outsider--someone who just wants to stuff cash in their company and replace them as CEO like some evil VC with a handlebar mustache. 

Stage

The NYC scene is wide open to be mined by a new VC doing pre-revenue deals.  A few top firms, given the stage of their own fundraising, are now leaning towards doing revenue deals that might have an exit closer on the horizon than a totally new company.  Many of the folks lining up to do Foursquare, for example, were not NYC-based.  Any NYC based investor who got to know Dennis as early as Bryce from OATV did would have had a shot at that deal.  That's why, if I were setting up a NYC fund, I not only would be focused on pre-revenue deals, but I might even carve out some capital for a pool of early, somehwhat passive angel type investments--maybe in conjuction with a TechStars type program or like Start@Spark. 

I don't necessarily think someone will come along and start a VC firm because of this post, but I think it's worth talking about the model of relating to entrepreneurs and supporting innovation in the community so I'll end it there and let said community finish the rest of this post in the comments...

The Foursquare "Crush"

First we put our investment thesis out there and got feedback from a lot of people on it. Second, the company appreciated our strong early endorsement of their service long before we had even offered to invest. Third, we saw the market develop around the deal as most interested parties contacted us at one time or another. And most importantly, now that we are investors we have a good sense of what the company is doing, what they need to do, and how we can help.

So I come out of this situation with my resolve to continue to play the venture capital business with an open hand firmer than ever.

When Kristin Maverick (Twitter) joined Carrot Creative, she helped put the boys from Dumbo on the minds of the local PR and marketng community in a big way.  Not only was she an active participant in the community—attending NY Tech Meetups and social media/PR events, but she helped to create community as well, running a nextNY event on PR for startups, and then starting up the very popular Digital Dumbo.  No doubt that her network and social capital were key assets that Attention! saw when they hired her.

Similarly, Fraser Kelton’s involvement in community brings much value to Adaptive Blue.  Not only does he show up to local community events, but he’s a two sport star, having participated on both Soccer 2.0 and Dodgeball 2.0—two recreational sports teams formed by local entrepreneurs, tech, and VC professionals.  He organizes the NYC Lean Startup Meetup and is always meeting up with other folks in the community.

What amazes me, though, is how many people around the periphery of the innovation community never get out from behind their desks, rarely come out to events, and even when they do, listen to panels and just leave afterwards.  Any startup who has ever raised money will tell you that they day they annouce, their inbox is filled with a pleathora of service providers of all types—recruiters, PR folks, CDNs, bandwidth providers, etc.  What I want to know is—why aren’t I meeting all those folks out in the community?  Apparently, they’re content just being a random name I’ve never heard if in my inbox trying to pitch me on something—or even worse an unfamiliar voice on my voicemail. 

I think the city government has that same issue.  No matter how many times I’ve invited folks from the NYC Council who sit on tech committees or members of the various city offices to events to mingle with the people on the ground actually innovating, I can never seem to get anyone to show up.  Seems they’re too busy running big programs—i.e. flying over the ground war.

People want to work with people they know and trust—it’s that simple

I don’t expect the partner of a PR firm with three kids to be out every night mixing with the innovation community.  However, the list of people and companies who have told me over the years that they’ve wanted to “get involved” with the NYC tech scene and meet people, yet never ever seem to come out from behind their desks or stay out late is as long as my arm.  Do you know how many junior folks working for these service providers I know who are afraid to take a lunch—and when they do they have to rush right back?   Seriously, when Fred Wilson or the Tumblr team shows up to the Shake Shack, you want your people knowing that not only should they find a way to be there, but they should hangout as long as everyone else does.  Or when a Twitter buddy of yours invites you out to Citifield in a big group, you might think about changing your flight to be there.  If you don’t think either of those things are worth it, from a business perspective ask Bryce Roberts, the VC who just got into one of the hottest startups around.

In the startup and tech scene, maybe even more so than any other industry, you are your network.  Your next opportunity, news on the latest trends, a potential hire—it all comes from the people around you, both online and offline.  As an organization, you depend on the networks of the individuals who work for you to gather mindshare and knowledge—and they get it out at a bar or on the dodgeball court just as often as they get it in a business meeting or sitting behind their desks staring at a screen. 

Not sure how to get involved?  Start following this girl—Elicia Banks-Gabriel, Social Media Strategist at Anomaly.  I haven’t even met her yet, but she’s quickly getting to know just about everyone you’d want to know around here—with such a velocity that I can “hear” her in my network.  Everytime I turn around, she’s tweeting to someone I know or people are asking me about her.  She’s got social momentum.  Look around your office.  Do the people who work with you or for you have social momentum?  If not, you’re probably missing out on something “out there”.  

Chris Dixon attempted to do the NYC tech community a favor with his latest post, but I think winds up doing it an injustice.  He acts as if New York being a good place to build a startup is a new thing, which it isn't.

"One thing that was puzzling about the “web 2.0 boom” from 2003-2008 was how irrelevant the East Coast, and particular New York City, was compared to the first dot-com boom. There were a few big hits – Right Media comes to mind – and a big near miss – Facebook – which started in Boston but moved to the West Coast.

I was mostly checked out of the internet scene in the 90s (in perpetual grad school), but from everything I’ve read and heard, New York City and the East Coast in general was much more competitive with the West Coast. One interesting supporting data point: Matrix Partners in Boston had the best return of any VC fund in the 90s (an astounding 516% IRR)."

Jeez... where do I begin here?  He seems to be making two separate points here.  One, that we were "irrelevant" here in NYC, and two, that the gap between the coasts is widening. 

Comparisons between Silicon Valley and NYC are sticky issues.  Sure, Silicon Valley is *bigger* but does that necessarily mean better?  Better how?  And for who?  Someone told me yesterday that it was easier to get a job as a web product manager in the Valley--which I took to task immediately.  Sure there are more product manager jobs available, but there are also way more people with product manager experience--so the ease of getting a job really depends on supply/demand, not overall market size.  It's the same thing with engineering.  It doesn't make sense that there would be more engineers per idea in the Valley.  If anything, since every Valley engineer probably has an idea for a startup, while there are many NYC engineers just solving interesting enterprise challenges and not into the startup thing, there are probably more hireable devs in NYC per good idea. 

But the term Chris uses is "irrelevant" and that's where I'll take issue.  In addition to Right Media, there have definitely been exits of significant size in NYC over the period in question:  Doubleclick ($3B), About.com ($410m), LinkShare ($425m), Tacoda ($275m), Quigo ($340), and Massive ($187m).  In addition, there are companies here that will no doubt (based on significant current revenues) be triple digit exits like Huffington Post, TheLadders, Meetup, Etsy, Paltalk, Indeed, Thumbplay, and Gilt Groupe. 

On top of that, the influence that the New York scene has is significant, even if it has missed out on some opportunities to capitalize on it.  One of the most impactful companies of the Web 2.0 was del.icio.us, built right here in NYC.  It was scooped up very early, but it's impact on web service navigation is far reaching--what site doesn't have tags?  You could also argue that the search DNA that will make Twitter a huge exit came from NYC through the Summize acquisition.  Certainly Twitter's initial VC funding came from here. 

As for whether the spread is getting wider, well, Chris largely discounted his own ability to even have an opinion on that--since he wasn't involved in the web during the late 90's.  His idea that the east coast was more impactful on the web is "proven" by the performance of a single VC fund.  Of course, a nice chunk of that Matrix fund's performance came from Alteon WebSystems, a west coast company, and other network hardware plays, not web startups. 

The stats just don't prove that out either.  As Fred Wilson pointed out about 3 min into his Web 2.0 Expo talk, NYC had 4 times as many VC backed deals in 2008 as it did in 1995, while the Valley only grew by 1.5 times.  While the startup scene in the Valley is certainly larger, the gap is narrowing. 

Chris goes on to try and explain his incorrect assumption about the lack of startups in NYC with the same flawed logic that the NYC government has when they keep thinking that Wall St. folks can easily be turned into entrepreneurs:

"The finance bubble of 2003-2008 was a giant talent suck on the East Coast.  The people I knew graduating out of top engineering or business programs on the East Cast were all trying to work at hedge funds or big banks or else felt like fish out of water and moved west.   Money was flowing so freely in the finance world that there was no way the risk/reward trade off of startups could compete.  Eventually it just became downright idiosyncratic to be a startup person on the East Coast."

I'm sorry, but if short term financial gain is your primary goal, you're probably not right for a startup anyway.  Last I checked, engineers like to work on interesting technical problems.  Sure, they won't do it for free, but given that the size of the venture backed startup market is a third of the Valley, not to mention the number of consultants who fund themselves by doing consulting work for agencies, there are plenty of people not getting sucked into the finance world.  I just don't buy that finance is a talent suck because most of the people I know in the startup world who came out of finance hated it and couldn't wait for a startup to scoop them up.

At the same time, their time in financial firms served as a training ground for working on large systems that needed to scale and be absolutely bulletproof.  My Co-Founder at Path 101, Alex Lines, used to work on the financial side, as did many NYC area founders. 

NYC is not the Valley, and I'm glad it isn't--but the local tech "revival" has been going on for several years now.  nextNY, a group of over 2,500 local tech and digital media folks, was founded in February 2006.  I joined Union Square Ventures a year earlier after the final close of its first fund.  First Round Capital started around the same time as well.  The NY Tech Meetup needed a venue as large as Cooper Union's Great Hall back in 2006.

The point...  If I were starting a company right now, I'd put New York right up there against any city--because good companies can attract talent and funding from anywhere.  Also, you're not going to wind up with crybaby Facebook engineers here who complain that their equity isn't worth anything after two years and need to be bought out before the company even exits.  Your quality of life will be extremely high--since NYC rents are pretty cheap now and transportation costs, unlike in the Valley, are near zero if you're biking to work like I am. 

So wake up people.  The New York tech boom isn't new news!  Dave Lifson made the comment via Twitter that "until google showed up, NYC was a barren wasteland for college grad tech people who did not want finance jobs" and "generally, startups are out of reach for those with no experience, so young entrepreneurs went elsewhere (I was one, in 2005)".  Well Dave, since you worked for a Bethlehem, PA company in 2005 and then went to Amazon, I'm going to respond by saying that a) you must have conducted a pretty crappy job search if you found more startups in Bethlehem in 2005 than in NYC, and b) Amazon is an interesting conception of an "entrepreneurial path".  He wrote on Chris Dixon's post that Google was the only NYC company he applied to.  Again, if you work for Google, you might as well be working for Goldman Sachs or any other big corporation.  Just because it's finance doesn't make it a place where you can't learn tech, and either way, it's definitely nothing like doing a startup in New York or anywhere else.

Here are some cool peeps deserving a vote for their SXSW Panels for 2010.  They're certainly panels I'd plan on attending.   While you're at it, don't forget to vote for mine:

Everything I Didn't Learn About Startups in VC

People always tell me that I'm really lucky to know what VCs want when I go and pitch them, but starting my company has taught me some very valuable lessons I didn't learn in my time at Union Square Ventures.  I'll be joined by three other former VC professionals working on startups now as well.

Here are my picks:

Scaling Simplicity: Grow Your Income, Not Your Headache  Awesome guy with a really relevent message--because most people *shouldn't* look for the big VC round and the huge exit--they'd be a lot better off first figuring out how to make food and shelter money from doing something they really love.

Coconut Valley - Building a Tech Community on the Beach  I love "outside the Valley" stories, and hearing about how the Miami tech community grew should be very informative for people who don't think you need to be in CA to make an impact in tech.

Tweet Your Way to Your Next Job  Might be a bit remedial for this crowd, but I'm giving him the vote because of the first question that he listed that this panel will answer--and it should be the question that every panel answers in some way: How to make connections that matter?

The 10% Problem: Fostering Real, Engaged, Quality Conversation Again, same theme... is there any more worthwhile problem to address?

Hacking The Funding Process  Jason Schwartz, through his job at Angelsoft, gets to see a lot of the way real angel investors operate from behind the scenes--and it's not always how you might think if all you're doing is reading the blog buzz.

How the Internet is Disrupting the Concert Industry  Ian is cool dude and I'd be really curious to hear about how live events are being affected by the web, as opposed to your usual "labels suck, how can we get free music" debate.

In Code We Trust: Open Government Awesomeness  I cannot be happier that "No Neck" Noel found an outlet for his passion--breaking open government silos and walled gardens.  Only someone with his kind of energy could really tackle that--think Juggernaut from X-men.

Understanding Lies, Deception, and Truthiness in Social Media  danah would get my vote for a panel if she was going to discuss pickles, and I don't even know if she knows anything about pickles.  If she was talking about it, I'm sure she would research the hell out of it and have real conversations with pickle eaters, makers, etc. and get down to the bottom of what pickles are really about, cutting through the hype. 

Media Armageddon: What Happens When the New York Times Dies  This sounds like a fascinating thought exercise--or prep session, depending on your view of the future.  While we're at it, check out Mark Josephson's talk on new models for news as well--supposedly with "real fucking numbers".

Handheld Awesome Detectors: Sustainable Apps No doubt with Rachel giving this talk that everyone's awesome detectors will be going off the whole session. She may need to make an announcement to shut them off before the panel starts.  It's an important topic, too... who hasn't been in a restaurant thinking about what you're supposed to be eating if you care about the planet.

People-Powered Education: Building A Community-Run School  This is something I've been thinking about a lot lately as I love teaching, but like many others share that passion, I find that academia isn't really the best place to be if you actually want to teach, particularly if it's something useful. 

What Guys are Doing to Get More Girls in Tech!  A road I've been down... and I keep trying. 

Will Kiva Kill Your Nonprofit? Donations 2.0  Interesting approach given that it's Kiva people talking about whether their approach will implode the space.  Honestly, I'm a bit skeptical, because most of the online donations I've made in the past year have been to old school orgs using old school websites just put in front of me by passionate people, so I may go just to poke the bear.

Brands Don't Think Like You Think They Think  Answers the question, "Why brands don't want to advertise on your website?"  I can name, ooooh... about a cajillion websites that need to know this answer.

Jumpstarting Sales in a Start-up  Startup sales?  What?  You mean... making money?  Srsly?