New York City has plenty of money to fund startups, argues Path 101 cofounder (and former Union Square Ventures associate) Charlie O'Donnell -- deals easily get done by "random groups of angels, hedge fund managers, and other out-of-the-way pockets of cash." But, he says, we're still missing out on part of the tech scene that works better in San Francisco and Silicon Valley: A "Silicon Valley VC mafia." O'Donnell:
I was talking with a banker today about it, and there's definitely something to the "Silicon Valley VC mafia" phenomenon--that they all know each other and do deals together. What they also do, which is incredibly valuable, is work with local universities, tech counsels, entrepreneur groups, etc., and actively participate in the community. Their deals get huge press at funding time. Their reputation of success is the community's reputation.
By being consistently active, they draw startups closer to them geographically. That doesn't happen when a random hedge fund guy and his buddies put two million in a startup here in New York, because only that startup knows them. That money builds a company, not a community. Sure, money is nice, but VC's provide glue for the community in terms of the networks formed among deals they've invested in and support of the local community.
Unfortuately, we don't have much of that in NYC. If you're an early stage technology company, you're going to Union Square Ventures, Greycroft, Venrock, DFJGotham, SAVP, RRE, Softbank...and... and who else? These are good firms, but they don't represent enough of a critical mass--a mafia, if you will--to attract companies and talent here from the outside the way VC firms in the Valley do. ...
One major difference is community presence. A lot of NYC-area entrepreneurs can't name more than a handful of NYC area funds and have never met a VC in person at a startup event. I think a lot of NYC-area VCs could stand to be a lot more visable--attracting more deal flow by participation the way Union Square Ventures does. Two or three NYC firms blogging and being transparent they way they are would count like 8 more firms doing deals here.
One firm O'Donnell singles out is Boston-based Spark Capital, which has recently done a bunch of New York deals, often together with Union Square Ventures, such as Bug Labs, Covestor, and Tumblr. "Perhaps Spark should open an office here," O'Donnell posits.
Probably not imminent, Spark partner Bijan Sabet replies on his blog. "Our NYC entrepreneurs tell me that they interact with me and my partners as much as if we were actually living in NYC," he says. And Sabet notes, he's bringing in another partner that keeps an apartment in Gotham. That doesn't quite solve O'Donnell's original problem -- that there needs to be more VC community in New York. But, as Sabet notes, "I think traveling is just part of the job. For all of us in this business. Startups and investors alike."
