Getting Inside the Mind of NY VCs During Tech Week New York 2016
Last week, hundreds of entrepreneurs, technologists, and tech companies gathered on the outskirts of Silicon Alley, the dense corridor of startups serving as the home to New York’s cradle of tech innovation. It was around the kick-off of the fourth annual Tech Week New York, and ffVC’s John Frankel joined Jon Lehr of Work — Bench and Avi Savar of DreamIt Ventures to discuss the city’s VC and entrepreneurial landscape with AlleyWatch’s Reza Chowdhury.
In a wide-ranging discussion that shed light into the mind of how New York VCs are thinking in today’s shifting startup environment, we’ve highlighted three high-level takeaways.
Artificial Intelligence (AI) is among the top categories gaining traction in New York.
There was consensus across the board that AI-related technology is a dominating category in the city’s technology and startup ecosystem.
A strong network of universities in New York and along the Northeast means that New York has a consistently strong pipeline of engineering talent, noted John Frankel, who also cited ffVC’s recent joint program with NYU’s Future Labs — the AI NexusLab — which is aiming to make New York City a center of excellence in AI by investing in and nurturing a select group of emerging AI startups.
New York is the headquarters for many of the country’s core industries, such as media, financial services, advertising, food, fashion, and retail, to name a few. Jon Lehr rightly pointed out that more than 50 of the Fortune 500 companies are based in New York. The implementation of AI technology will become pervasive across all of these industries, with the potential to create exponential increases in efficiencies.
Other key areas to watch are augmented and virtual reality (AR & VR), infrastructure, and security. Avi Savar touched on VR’s ability to enable digital business transformation and facilitate connected experiences in areas like healthcare, education, and real estate. And given the breadth and depth of established companies headquartered in New York, startups in the city are increasingly able to work alongside them to help solve problems and gain valuable feedback in other deeply technical categories like infrastructure and cybersecurity.
First-mover advantage is important, but not paramount.
A breakthrough idea can grab people’s attention, but it means little without proper execution. All three VCs agreed that among the most important aspects when they make investment decisions almost always centers on the founding team — closely followed by the team’s understanding of market dynamics, aligning the solution with existing pain points, and execution.
In a world where most startups are striving to remove friction and make the user experience as simplified as possible, it can also be just as powerful to size up the landscape and offer a better solution than existing ideas.
After all, when was the last time you used Napster or MySpace?
Have defensible data and a clear path to monetization when approaching VCs.
First-time founders approaching VCs in New York can find the process intimidating; New Yorkers tend to be grounded in cynical practicality, as Lehr noted. The group agreed that it’s imperative for founders to come ready with proven metrics, a focus on solving practical problems, and an intent to build solutions alongside their customers.
In today’s environment, VCs are setting higher benchmarks for the companies they’ll invest in; Q3 saw a 32% quarter-over-quarter decline in startups receiving VC funding despite an increase in VC’s fundraising activity, putting 2016 on pace to be a record-breaking year in terms of total capital raised.
The panelists’ advice to entrepreneurs seeking VC support in this landscape: do your diligence. Reference VCs by talking to other CEOs, know the size of the checks they’ll write, and know whether they’re already invested in your competitors. Understand where they are in their investment cycle (would you be on the front or the tail end of their investment cycle; can they continue supporting you several years in?), and the dynamics of their investment thesis.
While the Tech Week panel demonstrated how the environment for venture-capital-seeking startups continues to change, at ffVC we think now is as exciting a time as ever to be building game-changing companies, and we look forward to continue being hands-on partners to the best of them.
