By Katya Dorozhkina, CEO and Co-Founder of Starta Ventures
2017 was a record in the history of American startups, which attracted more than $67 billion from venture capitalists — and 20% of this amount fell to New York. Should a startup choose the East Coast for its headquarters and, secondly, is it difficult to settle there?
Ekaterina Dorozhkina, Co-founder and CEO of Starta Ventures, which includes its pioneering cross-border program, the Starta Accelerator, would like to list some specific factors and practical tips that should be considered when developing a start-up in New York.
Startup ecosystems in New York — figures and facts:
n 2007, Google acquired DoubleClick for $3.1 billion. The project was created by pioneers of online advertising Dwight Merriman and Kevin O’Connor. With this transaction, Google initiated the boom of innovative projects in New York.
New York attracts start-ups from the US, Europe and Asia. The city ranked second in the 2017 Global Startup Ecosystem Ranking ranking, behind only Silicon Valley. At the moment, between 6.3 to 7.8 thousand startups work in the city. The market itself is estimated at $71 billion. Another significant indicator — 50 companies from the Fortune 500 list are based in New York.
Startup Genome, in the 2017 Global Startup Ecosystem Report, states that to search for an engineer to work in a start-up company, it requires only an average of 24 days. This is 3 weeks faster than in Silicon Valley. New York is also the largest city in the US. The population of the whole metropolitan area is 24 million people, and the industries within the city are much more diverse than in the Valley.
In 2016, the Mayor of New York, Bill De Blasio, reported on the design of Union Square Tech Hub. The project will become the technical center of the city, which will attract start-ups and talented engineers. Organizers plan to start construction in 2018, and complete it by 2020. Inside the complex will be incubators and accelerators, coworking spaces and offices for young companies.
Nevertheless, the cost of housing in New York is one of the highest in the nation. The developer, Georgy Gobozov, who moved to the city, remembers that he spent the first 2 weeks in a rented apartment, which he found through Airbnb and paid roughly $1,200. Most of the living quarters are rented for a period of one year and without furniture, with the monthly payment starting at $2,100.
Participants in the start-up ecosystem of New York:
The startup ecosystem of New York brings together startups, investors and consultants. All of them interact with each other.
In New York there are large accelerators and incubators. For example, Grand Central Tech, which this year launched the fourth start-up accelerator, is currently hosting 18 companies in its program. You can also find niche accelerators, such as Manufacture New York or New York Fashion Tech Lab. These accelerators work with startups in the field of fashion and design. Then there is Starta Accelerator, for founders from Russia, Ukraine, Belarus and the rest of Eastern Europe, who come to the US to expand into new markets.
To find angel investors, there is a special resource called New York Angels. It unites 100 entrepreneurs who have jointly invested more than $ 100 million in various companies. Angel investors organize meetings with start-ups, and projects that the angels like receive anywhere from $ 100,000 to $ 1,000,000.
Bill de Blasio, in partnership with IBM, has established the Digital.NYC resource, where, as of March 2018, more than 10,700 start-ups, about 240 investors, as well as accelerators, incubators and various organizations of the New York technological sector are united. On the site you can find a base of startups, job offers and events schedules, as well as news for entrepreneurs.
The ecosystem includes large American corporations that launch programs to invest in projects of interest. Microsoft Corporation, for example, launched the Microsoft Ventures Foundation. It works with accelerators, arranging mentoring sessions with startups. The company chooses projects that would be of interest for cooperation or mergers.
Methods of developing a project in New York:
In New York, startups have two paths of development: independent expansion or access to the U.S. through an acceleration program in one of the local incubators or accelerators.
For an independent entry into the U.S. market, a startup will need to spend an average of 1 year and $500,000. These resources will be spent by the project on adapting, making the necessary connections and attracting the first clients. The founder of the startup must simultaneously solve several issues: registration of the company in the U.S., the organization of accounting and bank records, the search for office space, and hiring a team of developers and sales managers.
The project will have to be re-explained at every meeting with investors. On the day of such meetings, there may be 4–5 investors or more.
It should be borne in mind that investors are critical of projects and are ready to point out all the errors and shortcomings visible to them. The total cost of trying to enter the US market independently will be $500,000 and more.
Another way is to turn to an incubator or accelerator. If they have an interest in your venture, these participants in the start-up ecosystem pay the costs of the acceleration program and invest cash into your company. The total amount of investments is about $ 100,000. In exchange, the startup provides shares in its company to the accelerator or incubator, with anything from 5 to 15% being the norm.
You can also turn to an incubator at the idea stage and get funding at an early stage of project development. Incubators also deal with registration and support of the startup, and accelerators work with already ready projects. In accelerators, the program of work is short and intense for a few weeks, whereas in incubators, the project is driven from the idea to the first investment. The most famous incubators in New York are NYU Poly Incubators, Fordham Foundry and Urban Future Lab.
You can find accelerators of general direction, where mentors will share their experience in PR and trade, will teach how to formulate a product and marketing strategy. Among such, for example, Starta Accelerator, Entrepreneurs Roundtable Accelerator, Ycombinator or TechStars. In the role of mentors are representatives of large companies, for example, Microsoft and Google, as well as entrepreneurs who successfully developed their own start-ups.
Another option is to turn to niche accelerators. For example, if you have a medical or pharmacological project, you can come to an accelerator working with hospitals and clinics. The entrepreneur will be able to receive not only investment, but also feedback on the practical use of the service, product or technology. Industry accelerators include New York Digital Health Accelerator and StartUp Health.
Tips for start-ups:
When meeting investors, founders of a startup should prepare for feedback and learn how to treat it correctly. In New York, investors prefer to express constructive criticism and question the profitability of the startup. If in Silicon Valley, when a startup is presented, you are patted on the shoulder and promised a call back, then this will indicate the weakness of the project not an actual desire to move forward.
The founders of the project must independently understand how they can best sell the product, and get feedback from potential customers. In the Starta Accelerator, for example, there is a practice of prohibiting the hiring of sales managers for the duration of the training program. When the founder has already been engaged in sales, he will be able to explain to his managers how to offer his service to customers.
When hiring employees, you need to be careful and monitor the terms of the employment contract. Otherwise, contracts can be drawn up so that after the dismissal you will have to pay a former employee a salary for another year or compensate them for other losses.
To adapt your project in the context of the New York start-up ecosystem and attract funding, a number of features need to be considered. Among them: the difference in mentality, the difficulty of finding housing, unusual conditions for doing business, and the complexity of taking risks.
To work in the US market, one must be able and willing to put everything at stake. Only in this case, you can count on success, because to find investors in a territory where you do not know anyone is a great achievement.
Examples of projects that managed to attract investments through acceleration programs:
The GeoCV project, which uses virtual reality for 3D modeling of premises, received an investment of $1.8 million after Starta Accelerator. Creating an apartment plan with the help of this service will cost $149, which is cheaper than competitors with expensive equipment. From the investors’ perspective, the project expects to dramatically scale the sales of its solution to realtors in the US.
The Farmshelf start-up does not deliver from farms to cities, but instead from places which grow crops via hydroponics. The project was supported by the accelerators SOSV and URBAN-X and received investments of $60,000.
The AgriEye start-up, which passed acceleration in New York and created a base for business development in the US market, was selected in the summer of 2017 for the accelerator Katapult in Oslo and attracted investments of $200,000.
The Belarusian Startup Friendly Data, after its move and adaptation to the New York tech scene, was selected for one of the largest international accelerators, 500 Startups, and attracted $150,000 from the accelerator. FriendlyData creates technology for instant access to data through its natural language interface, which should increase the conversion of users and improve the productivity of employees. In the US market, this system can be useful to customers from the sphere of trade, business intelligence, and CRM and ERP-systems.