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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VCs who back the best* startups in NYC

Recently went through the exercise of creating a list of the best* startups in NYC.  The companies ranged from seed funded startups to Pre-IPO companies (so, all are still private).  The process was partially data driven, partially based on word on street and partially based on my interactions with the founders of those companies.  It was really more subjective than anything else.  Ended up coming up with a list of ~60 startups.

Decided not to share the list, as it was really more of exercise to see if it was possible to narrow the list down to manageable number.   The good news is that there are so many exciting companies in NYC, that is was a very tough process to get it down to 60 startups.

One insight I thought would be interesting to share, is which VCs most frequently show up as backing these best* companies:

  • Box Group – 7 investments
  • First Round Capital – 7
  • Lerer Hippeau Ventures – 6
  • Thrive Capital – 6
  • Google Ventures – 5
  • Founder Collective – 5
  • Index Ventures – 5
  • Accel Partners – 4
  • Iconic Capital – 4
  • Union Square Ventures – 4
  • Wellington Management – 4
  • Institutional Venture Partners – 4
  • RRE Ventures – 4
  • New Enterprise Associates – 4
  • Battery Ventures – 4

There were many other VCs that showed up, but the list above reflects the firms that are most active in backing the best* startups.

Now, I think the early stage VCs deserve more credit than the later stage VCs, as the late stage folks have data/revenue to hang their hat on.  So, just take that into account when reviewing the list.

PS If you put together a list of your top 60 NYC startups, happy to meet up in person and debate the list over coffee.

*this list wasn’t produced by any scientific means, was mostly subjective and we will likely disagree on the outcome.  Please send the hate mail to Santa Claus, PO Box North Pole 🙂

 

 

 

NYC sub-sector trends in 2016

Many people ask what is happening in the NYC startup scene and they still assume it is mostly adtech, commerce and content.  That might have been true in the past, but it’s not what is happening now, at least based on anecdotes and what I’m seeing.  Decided to do use some data to determine if this accurate.  Used Pitchbook to this query:

  • Seed and Series A rounds
  • rounds done in 2016
  • NY HQ’d companies

 

Below is the dollars & percentage breakdown of sub-sector activity.

The surprising trend will likely be that SaaS is leading all the sub-sectors.  Second, the trend in healthcare, big data, AI/ML will be an eye-opener.   Overall, NYC is really balanced in terms of sub-sectors and isn’t overly dependent on one to drive future returns.

I would like to see more VR/AR related startups, given how much content companies and studios are based here.

What are you thoughts on this?  What are we going to see more of in 2017?

Industry Vertical Capital Invested (in M) Percentage
SaaS $313.77 17.7%
E-Commerce $286.55 16.1%
Mobile $272.14 15.3%
FinTech $250.60 14.1%
HealthTech $135.28 7.6%
Big Data $100.43 5.7%
Artificial Intelligence & Machine Learning $72.75 4.1%
Marketing Tech $51.14 2.9%
Internet of Things $43.84 2.5%
Lifestyles of Health and Sustainability $36.84 2.1%
AdTech $33.19 1.9%
Manufacturing $30.75 1.7%
EdTech $22.08 1.2%
Cybersecurity $21.60 1.2%
Life Sciences $21.20 1.2%
Wearables & Quantified Self $20.75 1.2%
Virtual Reality $17.41 1.0%
Robotics and Drones $14.92 0.8%
3D Printing $10.05 0.6%
AudioTech $9.75 0.5%
Nano-technology $6.70 0.4%
CleanTech $3.00 0.2%
$1,774.74 100.0%

Fastest Growing NYC Startups?*

Although I’m familiar with Mattermark, I only recently started using the service.   As I got to play around with the functionality, I gravitated towards the metrics around number of employees and employee growth rate.

Given that startup revenue figures aren’t provided on any public databases that I’ve seen so far, the closest (but imperfect) way to measure the growth of a startup is by employee growth rate.  If a startup is doing well, generally speaking, they are hiring.   This is a broad statement but true in most situations. That being said, hiring a lot of people quickly, certainly doesn’t equal success and in some instances have actually driven companies out of business, due to spending too much money, but that is an entire blog post in itself.

I set out a few parameters in order to find the fastest growing midsize VC backed companies HQ’d in NYC, here was the search criteria:

  • 100+ employees
  • HQ’d in NYC
  • VC backed
  • Still private (haven’t exited)
  • 20%+ employee growth rate in the past six months
  • 2%+ employee month over month growth rate

The results (sorted by Employees Month over Month Growth):

fastest nyc startups

One ratio I thought was particularly interesting, was (Employee Count / Total Funding). If this ratio is high, you COULD derive a few things: 1) they are more capital efficient 2) likely to be generating significant revenue.  For example, look at Movable Ink, an enterprise software startup.  They have 139 employees and only raised $12.3M to date.   If you want to use this ratio, it would only be fair to compare apples (Enterprise SaaS) to apples (Enterprise SaaS), as opposed to apples (SaaS) to oranges (Hardware).

*Again, this is certainly an imperfect way to find the fastest growing startups or most capital efficient, but it can provide some insights on these two fronts.

 

VCs who lead seed deals in NYC startups

Sent out a few tweets last night:

While there is a lot of discussions (and some clarity) on how the opaque VC world operates, it is still hard to get data for Founders who are fundraising.   In particular, getting information on seed rounds is challenging as many rounds are not announced and the specific VCs who invested, aren’t always listed.  To make things even more murky, who actually led the round isn’t always disclosed.

While fundraising is supposed to be challenging for startups, we could make it slightly easier for Founders to identify who the active VCs are and more importantly, who are actually LEADING rounds.   Many of my discussion with seed stage Founders are about fundraising and there is a lot of confusion as to who leads rounds vs those who participate rounds, a very important distinction.  In order for a round to really come together, you need a VC who will lead the round, which typically means they are setting terms (“pricing”) and writing the largest check in the round.

The criteria I’ve set is as follows:

  1. NYC HQ’d startup
  2. VC has raised a new fund in the past 36 months
  3. VC has led (or co-led) two seed deals in the past 12 months in NYC (see point #1)
  4. Check size of lead VC is $500K+
  5. Round size is $750K to $3M (could be an equity or a convertible note instrument)

So with the parameters outlined above, I have gone out to several data sources to see what could be found, although it has not been fruitful, at least on the point of who lead the round and how much they invested.

Given that many of the VC rounds haven’t been announced, the data isn’t actually available yet, so I also solicited feedback from the community on which VC firms fit ALL of the parameters outlined above (in alphabetical order).

  • Accel Partners (SF)
  • Bloomberg Beta (NYC and SF)
  • BOLDstart Ventures (NYC)
  • Bowery Capital (NYC)
  • Canaan Partners (NYC and SF)
  • Collaborative Fund  (NYC)
  • Eniac Ventures (NYC and SF)
  • ff Venture Capital (NYC)
  • First Round Capital (NYC and SF)
  • Flybridge (NYC and Boston)
  • Genacast Ventures (NYC and Philadelphia)
  • Greycroft (NYC and LA)
  • Homebrew (SF)
  • IA Ventures (NYC)
  • KEC Ventures (NYC)
  • Lerer Hippeau Ventures (NYC)
  • Metamorphic Ventures (NYC)
  • NextView Ventures (NYC and Boston)
  • Primary Ventures (NYC)
  • Resolute Ventures (SF and Boston)
  • SBNY (NYC)
  • Scout Ventures (NYC)
  • True Ventures (SF)
  • Two Sigma Ventures (NYC)
  • Union Square Ventures (NYC)

I’m actually surprised the list is this long, thought it was much shorter when I sent out the original tweet.  That being said, my sense is that there is room for more players as some of these firms are focused on specific sectors, while other sectors aren’t covered as actively.  In addition, the market is growing and there is an increase in the amount of seed stage companies being formed.  Lastly, most of the firms listed above are leading on average two deals per year in NYC, so that means ~40 NYC based startups would have lead every year.  I would assume there are more than 40 high quality companies per year in NYC that should have a lead, so again, room for more players.

If you think I missed your firm on this list, please send me a note at sgoldman at svb and provide specific information on which deals you have led in the past 12 months, thank you.

This list was purposefully focused on seed deals.  I think pre-seed is a distinct category and deserves a separate post/list, might work on that, stay tuned.

I have received feedback from people on the parameters that I set out.  They were done thoughtfully based on discussions with stakeholders in the community.  Feel free to write your own post based on other parameters if you disagree with mine.

Series A firms in NYC

Recently, I had a conversation with a NYC based seed stage VC, who was lamenting that there aren’t enough NYC HQ’d VC firms who are leading Series A rounds for local startups.

Naturally, I asked the twitterverse a question on this topic, this was the response:

Series A firms

As you may know, the twitterverse can be wrong sometimes, so lets find some data. We did a query on Pitchbook with the following criteria:

  • NYC HQ’d firms
  • $100M+ fund that was raised in the past 3.5 years (typical deployment time frame)
  • Led investments in NYC HQ’d startups at Series A stage ($4M+ size rounds)
  • Excluded life science sector

The results provided us a total of 14 firms*:

  1. Bain Capital Ventures*
  2. Bessemer Venture Partners*
  3. Canaan Partners*
  4. Elephant Partners*
  5. FirstMark Capital
  6. General Catalyst*
  7. Greycroft Partners
  8. IA Ventures
  9. Lux Capital*
  10. RRE Ventures
  11. Thrive Capital
  12. Tribeca Ventures Partners
  13. Union Square Ventures
  14. Venrock Capital*

 

If you look at the number of Bay Area HQ’d VC firms, who are actively leading Series A investments in NYC HQ’d startups, that number is 20.

Ideally, you would have had more local Series A investors than non-local investors, so there seems to be room for a new Series A focused firm to set up shop in NYC.

*These firms have several offices across the US but have at least one investing Partner based in NYC.  Notably, only half of the firms listed have the entire partnership based in NYC.

Thanks to our summer Intern, Lorel Sim, for pulling up the data.

P.S. – if you believe your firm should be part of the fourteen firms listed, please provide data to support the assertion, email me at sgoldman @ svb.com

2016 Market Cooling

As you may have heard, the venture market has cooled in 2016, in terms of dollars invested and number of investments (deals) that are being done by venture capitalists (VCs).

There are a number of reasons for why this has happened.  The main driver has been the macro environment- forces that VCs can’t control.  It is a combination of a slowdown in China, challenges with several European countries, Brazil, ISIS, volatility of oil prices, upcoming US election, etc.  This in turn has created “bears” in the public markets, which has resulted in almost no VC backed IPOs and a correction in the SaaS sector as a result of the significant LinkedIn ($LNKD) price drop in February 4, 2016.   The chain reaction of all of this has led to VCs becoming more cautious and spending additional time with their existing portfolio companies.

The data below was pulled via CBInsights.  We analyzed deals/dollars in the US for 2016.

The most significant point is the drop of deals in Q2 ’16 vs Q2 ’15, a whopping 28% delta. We wanted to be predictive on what the 2nd half of this year would look like and it is a bit bearish.  The figures in green are just guesses, so could be totally wrong here but wanted to be on the record on what I think will happen.  The reasons on why the 2nd half may turn out to have a great delta between 2015 vs 2016 is that the markets are still facing significant macro issues, with the newest being #brexit, which has created additional uncertainty that will likely trickle down to the venture ecosystem.

There is good and bad news on the prediction.  When you put the numbers of both 2015 and 2016 into context, they are really high compared to previous years, so a lot of deals and dollars are still being deployed, which is the good news.  The bad news from an entrepreneur’s perspective, is that raising money from VCs has gotten a lot more difficult.

Now, lets focus our attention on the dollars deployed by VCs, see second image.  Similar to deals, the numbers are down, although not as pronounced.  What we are seeing is that round sizes have gotten slightly larger on average, which can be mean a few things.  One it could mean that VCs are putting more money into their better companies (i.e. flight to quality) and/or the runways are being extended as the forecast of macro environment is uncertain.

Similar to the prediction of deals for the rest of the year, the numbers will likely be down, although not as significant.

Although the outlook is bearish, the reduced numbers in 2016 (vs 2015) is positive for the venture environment, as the market was over-heated and the correction was needed.

dealscapital invested

Thanks to our summer intern, Lorel Sim, for pulling this data.

Q3 and Q4 2016 data are only predictions (numbers in green).

Data was only for US based private tech (all sectors) companies.