NYC Venture Capital War

Posted on November 16, 2009. Filed under: Uncategorized | Tags: NYC, startup, venture capital |

I took a trip out to Larchmont, NY a few weeks ago to catch up with my friend and former board member, Rob Stavis.  Rob is one of the most thoughtful, down to earth VC’s I know, and extremely direct in his communication style.  After spending an hour fumbling through an unformed description of what I’ve been working on (developing a pitch is iterative…you need to cut your teeth and learn with the people who already think you’re smart, before perfecting it and exposing it to new ears), the conversation turned to recent developments in the New York startup community.  I argued that there is a fierce turf battle emerging amongst investors in this market, and that it is largely being won in the blogosphere/twittersphere.  Pioneered by Fred Wilson at Union Square Ventures, there is an emerging class of blogging investors who have realized that a blog is more than just a forum to express your thoughts and ideas, but rather it is a “must have” enterprise tool.  Fred recently posted some of the metrics around value USV has extracted from his commitment to blogging, and the points on the scoreboard are indisputable.

Stavis, much like my friend Neil Sequeira at General Catalyst, said that his firm has recognized the opportunity that a real social media presence presents, but still neither firm has really committed to it.  My guess is whether now, or two years from now, you will see most already established top-tier VC’s like Bessemer and GC come around to this new requirement.  In the meantime, newer firms like Spark Capital, Union Square Ventures, and First Round Capital are winning the war by capturing entrepreneurs’ mind share through the creation of insightful online content (both short form through vehicles like twitter, and long form through blogging platforms like wordpress, blogger, tumblr, etc…).

Venture Capital firms live and die by the quality of their deal flow.  In the last 18 months, Spark Capital, General Catalyst Partners, Polaris Venture Partners, First Round Capital, Matrix Partners, Flybridge Capital Partners, Venrock and a handful of other out of town VC’s have stepped up their commitment to NYC.  Some of these firms have put a “man on the ground” here in New York, as a means of sourcing the best deals, while others have joined together to sponsor Y-Combinator style collectives like First Growth Venture Network (architected by mover and shaker lawyer Ed Zimmerman).  The physical presence that many of these firms have recently established is significant, but one body on the ground is not nearly as scalable as one voice in the blogosphere/microblogosphere.

The most basic play book that I see blogging investors execute is dissemination of practical fundraising tips. Basically, investors share their domain expertise around term sheets, pitching, and preparing for VC funding as way to deliver value to aspiring entrepreneurs.  Although this is a real service to entrepreneurs, and a great way to build an “entrepreneur friendly” brand,  it just the first step in what can be achieved through this medium.  The more creative and insightful investors are using blogs as a way to communicate to the entrepreneurial community that they are smarter than their competitors.  That they “get it,” no matter what “it” might be.  They take stances on markets and trends and share opinions which distinguish them as capable of adding real value and expertise to a young company.

The most successful VC blogs, like Fred Wilson’s AVC, have gone even one step further than creation of insightful content.  They have actually created an online community around their blog, where ideas and insights are not just flowing from the author of the blog to his/her readers, but also from readers to the author, and most impressively from one reader to another.  The dialog that occurs in the comments surrounding Fred’s posts is what makes his blog special.  10 years ago, an entrepreneur would have had to attend a conference in some physical location, and potentially buy a $400 plane ticket, in order to enjoy the type of collective learning and discussion that occurs on Fred’s blog every day.  My hope is that this blog will turn into a forum for readers to communicate with each other as well.  I love reading everyone’s comments and responses to my posts, but I’m even more excited to see when readers comment on each other’s ideas.  So please do establish a voice in this community.  No idea is too small or stupid.  Just throw out your thoughts and questions and hopefully we can make some progress together.