Why NYC?

The Primary NYC Summit has been a reminder to think about why NYC is a great and unique place to start a company, let me lay out seven reasons.

Diversity:  NYC is the most diverse city in the country.  I would argue it’s one of the most diverse cities in the world.  There are 8M+ people in NYC, 20M+ in the metro area and over 800 language spoken in NYC.  3.2M of the 8M people in NYC are born outside of the US.  Truly unique.  The exciting opportunity is that only a small sliver of people living here are involved with tech startups, a lot of upside in terms of building awareness, training people and cultivating entrepreneurs in communities that aren’t yet involved.

Customers:  Manhattan (a smaller part of NYC) has the highest concentration of Fortune 500 companies in the country.

Funding:  some of  the big investors in the world are HQ’d here:  Insight, Tiger, Goldman Sachs, Blackrock, KKR, Blackstone, General Atlantic, Coatue, Apollo, Warburg Pincus, Deerfield, Providence, etc.  The past few years, many outside firms have added people in NYC:  GGV Capital, NEA, Battery, General Catalyst, Wellington Management, NextView, Flybridge and soon to be named firm (to be announced soon).  There are more VC dollars being invested here than any of these cities:  Boston, Los Angeles, London, Paris, Berlin, Tel-Aviv, etc.; NYC is only behind the Bay Area and Beijing.  The best VC firm in the world, Sequoia Capital, is the most active non-NYC based firm investing here.

Healthcare:  there is a huge opportunity for healthcare related startups.  There are many customers to sell into:  patients, physicians, hospitals, medical schools, pharma companies, etc.  Flatiron Health was a massive $2.1B exit.  Oscar is getting a ton of momentum, $3B+ valuation and almost 1,000 employees.  Capsule just raised a $200M.  A sleeper company, Komodo Health, is a firm you should be tracking.  Wet/dry labs are being set up in Manhattan and Brooklyn, J&J , Alexandria , etc.  .  Deerfield and Columbia struck a big deal.  One of the best life science investors is HQ’d here, OrbiMed.  In addition, New Leaf, Versant, Lux, Aisling, Venrock, Canaan, Oak HC/FT are also in the metro area.

International magnet: Founders from Europe and Israel are moving their offices here , more so than other regions such as Boston and Bay Area, which is where they historically moved.

Industries: many of the largest industries have a large presence here:  retail, food, marketing, advertising, legal, healthcare, financial services, media, education, government, etc.

Most Active Bay Area VC in NYC ?

I sent out this tweet and poll, here are the responses per the crowd of 255 people:

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The crowd was wrong but all four are very active in NYC.

As you are likely aware, the NYC tech ecosystem is on fire and many Bay Area VC firms are actively investing in the region.  Many firms from outer regions have opened an office in NYC the past few years, including NEA, Battery, General Catalyst and most recently GGV Capital.  We are going to see more non NY HQ’d VCs opening offices here.

For the purpose of this exercise, I only researched firms without an office or full time person in NYC.  The time frame of the investments occurred between Jan 2018 and Sept 2019.  These include new investments and follow-on investments.

Below are the results per a query on Pitchbook.

I will caveat this that GGV Capital also had 17 investments during this period, I excluded them as they didn’t meet the criteria mentioned above as they recently had a team member move to NYC.

Sequoia led the pack with 17 investments, second was Forerunner with 14.  Both firms are HQ’d in the Bay Area.

In terms of firms from other regions that are active in NYC, they include F-Prime , which had 13 , followed by Accomplice and Polaris with 12.  All three of these firms are HQ’d in Boston.

Another caveat is that there are a lot of seed investors outside of NYC that are active here but on many occasions those rounds are not disclosed publicly or in regulatory filings, so there are firms that should be on this list but didn’t make the cut since Pitchbook doesn’t have their data.

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NYC vs SF startup scene

I sent out this tweet survey and got a lot of responses , so this blog post is to provide the actual answer and the underlying data.

The tldr is that NY Metro tech scene is 50% the size of the Bay Area tech scene, I’m sure you might be surprised or skeptical, just hear me out.  18% of the twitter survey respondents got it right.

The correct answer to the survey really depends on what data you are analyzing and comparing, so really all the twitter survey responses COULD be accurate , it is all about how you slice & dice it.

For the data gathering, I used two publicly available (you need subscriptions) data sources , PitchBook and CB Insights, which are my favorite tools for startup/VC information.

Now this isn’t about NYC vs SF but a bit broader NY Metro vs Bay Area, is captures the full startup scene as comparing distinct cities isn’t comprehensive. Example , there are startups in Palo Alto, Oakland and Jersey City, these are examples of other cities need to be included in a comparison.

I looked at startups and VC firms to measure the tech community.   Both the startups and VC firms had to be HQ’d in the respective regions that I’m comparing.  I wanted to look at data that was more a leading indicator (early stage companies) as opposed to a lagging indicator (late stage / public companies).   I believe that looking at early stage companies will give us a better sense of where these respective markets are headed and the potential they hold.

For the startup side, I reviewed the number of deals, the number of rounds and the aggregate amount of the funding. The time period was Jan 1st 2017 to May 9th 2019. The rounds of financing for the comparison was Seed, Series A and Series B.  In terms of sectors, it was comprehensive, so life science, energy , consumer , enterprise , etc was included.

For the VC firms , I looked at funds that were raised between Jan 1st 2016 and May 9 2019. As you may have noticed , I used a slightly longer time period (one additional year) for VC funds, as some VC firms only raise capital once every three years, so wanted to capture all the relevant funds. The funds were both early and growth stage funds, similar to companies , included all funds regardless of sector focus (or geography focus). I also looked at the number of firms, which is distinct from the number of funds, although they are obviously related.

Here is the first piece of the data, which you can see includes some bonus data with expanded time horizons on the funds side.

Here is a visual on the number of VC firms, per PitchBook:

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Here is the data on the company side, are you can see there is discrepancy between CB Insights and Pitchbook on the aggregate amount of funding but in terms of number of companies, they are similar.

Here is a visual of number of VC funded companies via PitchBook.

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So to summarize, I believe the NYC Metro scene is about half the size of the Bay Area startup scene (18% of the respondents to the twitter survey got that question right).  I have never thought that the two metro regions would be equal in size but have mentioned before that I thought NY could be half the size, I’m really surprised it happened this quickly though.

If you have any comments or thoughts, please post or hit me up on twitter @shaig.  Thanks for reading this far……

$50M+ deals in NYC

There has been a flurry of $50M+ rounds announced for NYC HQ’d startups, so was interested in taking a look at data and comparing 2018 vs prior years.  see below.

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As you can see, 2018 has been an incredible year in terms of # of deals and dollars.  In 2012 there were zero deals that were $50M+ in size, which is eye opening when you look at the 2018 data.

It is really amazing to see the growth of the startup community in NYC, so many investors are excited about what is happening.  On the investor front, I was wondering which firms have been the most active in these $50M+ round sizes.  see below.

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The middle column is the most relevant as it captures which firms have been the most active in the past two years.  Over half of these investors have offices in NYC, so the days of having to fly to Sand Hill to raise large rounds could be coming to end potentially.

Active Early Stage Investors in NY based companies (Jan ’17 to Aug ’18)

In preparation for an event that we run on a regular basis, called Fundraising Workshop, wanted to provide an update on some of the most active early stage VCs (Venture Capital) who are investing in NY based startups.

A few items before providing you the information.

  • The data was pulled via CB Insights
  • The investors do not need to be based in NY but have to be investing in NY based companies
  • The date range was Jan 1 2017 to August 13 2018
  • It only includes venture capital firms and excludes accelerators, angels, corporates, etc.
  • CB Insights doesn’t provide data on who is leading the rounds, so the assumption with these firms listed, is that they participated in the round and not necessarily lead, a critical distinction when fundraising.  If you are fundraising, you need to do more homework to figure out is actually leading rounds.

The data is below.

Most active VCs who participate in sub $2M rounds, see below.  Many of the seed and pre-seed rounds are sub $2M in size, so if you are looking for firms who are active at this size, this is a good target.  Now, the data around pre-seed and seed is challenging since many of these rounds are not announced , which makes it is difficult for CB Insights to capture.  So this list is not comprehensive but I think it provides a lot of signal on the right firms to reach out to.

sub $2M rounds

Most active Seed VCs, see below.  In this query and unlike above, I didn’t put parameters on the size of the seed round.

Seed

Most active Series A VCs, see below.  Again, no parameters on the size of the round.  As I mentioned in beginning of the post, I am unable to query who is “leading” these particular round.  So some of these firms could be leading and other could be participating in them.

Series A

Top NYC growth startups?

Are these the top growth startups in NYC?  I don’t know, but lets take a look at some PUBLICLY available data from LinkedIn, Glassdoor and CB Insights.  If you want a TLDR, scroll to the bottom.

As many of you are aware, they are so many listicles circulating online about the top companies, they are rarely data driven and read like who is the most popular, not who is best or fast growing.  They typically are about driving pages views.   Wanted to take a look at PUBLIC data to see if I could derive some signal from the noise.

Another lens that I thought about was, if I was going to join a startup, how would I choose which startup to join?  It is a very difficult process to narrow down the list.   As an example, on AngelList, there are ~2,900 startups in NYC, of which ~700 have posted a full time job on that site in the past seven days.

One of the public data sources is Glassdoor.   If you aren’t familiar with this service, it is essentially Yelp for employees.  Before you get up in arms, I realize that some disgruntled employees will post negative items on there but I think if there are enough inputs, it can provide some signal on the health of the company.  Not only can you provide input on the company but on the CEO as well.  For this exercise, in order to qualify, you had to have at least 20 reviews, which I thought was a large enough sample size that if there were some disgruntled employees with an ax to grind, it could be balanced by happy current/past employees but I do realize this can be gamed.  Regardless, there is some signal that you can derive from this service.  In addition, the startup needed a ranking of at least 4.6 or greater (max number is 5, larger the number, the better).  See example below.  As a side note, Glassdoor was recently acquired for $1.2B, congrats!

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The other data source was LinkedIn.  If you are in the tech community, LinkedIn gets trashed a lot, primarily by engineers/developers, who get a lot of unsolicited emails from recruiters,  but I can see how that can be annoying.  I don’t think LinkedIn has figured how to deeplink yet, you will see my tweets ranting about this 🙂 .  That being said, if you are in a sales or relationship driven role, this service is invaluable.  If you pay for their subscription, you get access to two data points that I used for their exercise,  number of employees and growth rate.  See below as an example for a NYC startup, Lemonade.

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Number of employees is an important data point, as it CAN provide some signal on potential top line revenue.  If you are a startup that has a clear revenue model, I assume that every employee generates at least $100K in revenue, which takes into consideration their salary, benefits and overhead (office space, taxes, electricity, etc).  So in this example, I would assume that Lemonade is generating ~$9M ($100K x 91 employees) in top line revenue.   I don’t know if this is accurate in this particular case but that would be my assumption.   For companies who don’t have a clear revenue model, I would obviously assume no revenue.  Feel free to disagree with me on this, comments are open and would like your feedback on this.

The other data point that is important is growth rate.  For this exercise, I took a look at the 1 year growth rate, in the example above, it is 69%.   In order to qualify for this exercise, I took a look at companies that are growing at least 20% in the past year.

Lastly, utilizing ChubbyBrain Insights (aka CB Insights), I took a look at a how much VC funding the company has raised.  Two data points that you can generate some signal, total funding amount and last round of financing.  If I were to join a startup, knowing when they raised their last round is critical, as it provides some signal on how much cash they have remaining.  How much total funding can provide some signal as well, especially if have ownership in the company is important to you.  Generally speaking, the more the company has raised, the less ownership they will provide to a new employee.  So if ownership is important, you might want to take a look at this data point.  For this particular exercise, I didn’t require the company be VC backed or that it has raised a new round of financing but I did provide info on that for you on Airtable (PS, I love their service)

So without further ado, here are the companies that qualified based on the all the criteria provided above (PS, if I missed you by accident, please lmk and I will update the post).

In alphabetical order:

  • Augury
  • BounceX
  • Button
  • CB Insights
  • Compass
  • Convene
  • Dataiku
  • Elite SEM
  • Fundera
  • Greenhouse
  • InVision
  • Justworks
  • Kustomer
  • Lemonade
  • SeatGeek
  • Updater

Special thanks to Bella Rubin for helping with gathering data for this post.

PS, another signal that was derived from this exercise, is looking at which VC firms were the most prevalent in backing these companies in the early days (Seed & A rounds only).  See the Airtable referenced above for a link to that information.  There were five firms (all NYC based) that showed up on two occasions: Lerer Hippeau, First Round Capital, Thrive Capital, FirstMark Capital and Box Group.  The signal strength is a bit low as 2 out of 15 is not substantial but still wanted to highlight it.

PSS, this comment from the CEO of CB Insights is a worth highlighting.  Looking at capital efficiency is good lens when taking all the data points into consideration.

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Cloud 100 – NYC !

As you may have seen,  Forbes published the Cloud 100 , here is their description: Forbes Cloud 100 recognizes the best and brightest of the cloud. Compiled with the help of partners Bessemer Venture Partners and Salesforce Ventures, the list tracks candidates by operating metrics such as revenue and funding, with the help of 25 of their public cloud CEO peers.

Out of the 100 companies, 13 are based in NYC, specifically in Manhattan, see images below.  One of the great things about the startup scene in NYC is the density of companies, these companies are all in walking distance, less that 4 miles separates the most northern company to the the southern company.  I highlighted the density aspect in a previous post when looking at the locations of Fortune 500 companies (spoiler alert, 42 are based in Manhattan).

Startups (& VCs) have realized the sales opportunity that NYC provides and we are going to see an acceleration of SaaS companies being built here.

 

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