Last week, we stood in front of a packed house of 200-some eager entrepreneurs, operators, VCs and technophiles looking to further their stake in the NYC Tech ecosystem. The panel event, co-hosted with Work-Bench and RRE Ventures, featured myself, Steve Schlafman of RRE and Jon Lehr of Work-Bench, and was moderated by TechCrunch reporter Anthony Ha. The three of us are longtime practitioners in the enterprise tech scene in the city, and we’re widely known for our bullishness on this market. We were each boosters long before there was much of a market of which one could boast. The event’s turnout was truly a testament to the growth of the NYC enterprise tech community; Jon pointed out that when he started the NY Enterprise Technology Meetup five years ago, he had to troll TechCrunch and LinkedIn to get people to attend events. Now, the group is 5,000 strong, and NYC enterprise tech is most certainly on the map.
A main focus of the evening was, of course, how far NYC Tech has come, and together we took pride in the fact that New York has truly come into its own as a major tech hub. In the past five years alone, there have been a number of tangible changes that have propelled the city forward in its quest to gain ground on SF (my hometown of Boston now having been left decidedly in the dust). These changes, it should be noted, are a direct function of time and experience, as we now find ourselves solidly in the third wave of the city’s tech development, following in the footsteps and building on the momentum of the Doubleclicks, Medidatas, Etsys and Foursquares of the world. Below are a few of the key takeaways from our panel discussion:
- The sheer volume of the tech ecosystem in the city has grown exponentially over the last five years, and it’s now easier than ever to start a company. As Steve pointed out, there’s no shortage of brilliant entrepreneurs and enterprising millennials who, having grown up with the internet, are now feeling the pain points and limitations of existing platforms and are endeavoring to build their own solutions. But more important is the frequency with which experienced entrepreneurs are starting their next companies, building on the lessons of their first battle or two. We see multi-time founders seemingly 10 times as frequently as we did five years ago, and that’s a critical reality when it comes to a maturing marketplace. As investors, we do back many first-time founders, but we far prefer to invest in repeat founders - even those whose previous ventures were unsuccessful - who have lived the pain of making first-time mistakes, and whose learning cycles we expect to be far shorter the second time around.
- More experienced investors: Five years ago, at the height of the second wave of tech companies, there was a palpable excitement, bordering on mania, in the tech world. A lot of investors were just getting into the business for the first time, and many were throwing money indiscriminately at the hordes of hopeful entrepreneurs rushing to their doorstep. It was an exciting time, to be sure, but also a very insecure time, and really tough to be a disciplined investor in that environment. Now that things have returned to a more stable, down-to-earth pace, there’s more maturity on the investor side and genuine confidence that NYC’s critical position in the global tech community is here to stay. Investors have become more rational and patient, and are giving more careful consideration to the kinds of companies they will fund. And the smart entrepreneurs have figured out that while cash is a commodity, the source of that cash is not. These founders are increasingly discerning as they look for investors who have expertise in their sector and resources that go beyond the checkbook.
- More tech-savvy customers: The enterprise customer profile has changed drastically from those purchasing from first- and second-generation enterprise tech companies. Tech buyers of the 1990s and early 2000s had started their careers decades before the web was even a thing; today’s customers have been sending emails since they could write, and have no hesitation storing their company’s data in the cloud or purchasing from early-stage startups. This reality has helped fuel an explosion of new enterprise technology innovation, as yesterday’s kids become today’s tech purchasers. With our density of industries and customers being addressed by these innovators, direct customer access is what makes NYC unique among all other tech hubs. As the customer capital of the universe, Jon pointed out, we have software creators and founders working right alongside their enterprise customers, and many innovators even emerging from within the walls of the very customers they’re now seeking to serve. This ongoing engagement leads to unparalleled product insight, accelerated development and the ability to drum up excitement among customers in a way that remote companies cannot.
While we’ve worked incredibly hard and accomplished some amazing things as a community, these advances are - in no small measure - a simple function of time and the resulting maturity that accompanies a growing and increasingly experienced market. But part of that maturity must also involve objective reflection on our current status, and recognition of where we are versus where we want to be. Some material challenges remain on our road to becoming a fully proven, enduring enterprise tech powerhouse.
The first and most pressing obstacle is talent. The financial crisis did drive a surge in the tech talent pool, as many would-be banker-types fled to more entrepreneurial pursuits, giving the tech world the legitimate swagger that it desperately needed at the time. Still, the relative youth of this ecosystem means that we’re lacking a lot of the institutional wisdom that comes with fourth- and fifth-generation companies. We don’t have many big enterprise companies from which we can emulate online marketing tactics, for instance, and we’re only now seeing the emergence of hundreds of startups that will spawn the type of talent that will help these companies scale. For now, the talent supply is struggling to keep up with growing demand, particularly in the areas of engineering and marketing, and we’re still seeing companies turning to West Coast imports for these roles.
It’s no coincidence that the country’s largest enterprise tech hubs are also home to two of the leading engineering institutions: Stanford and MIT. The opening of Cornell’s Roosevelt Island campus should provide a much-needed boost, but we’ve got a long way to go before our talent pool will be able to fully serve the needs of our growing startup community.
The other ongoing obstacle that we face is a lack of potential acquirers. Specifically when it comes to enterprise tech companies, the most likely acquirers in almost any sector are not NYC-based, creating a challenge for M&A discussions. As FirstMark partner Matt Turck so eloquently states, each successful tech ecosystem must necessarily go through a succession of “rinse and repeat” cycles - of founding, financing, scaling and exiting - before they can truly come of age. “Post-exit,” he explains, “the hope is that successful founders, employees and investors then contribute back both money and expertise to the next generation of tech startups, a few of which eventually become highly successful themselves and then provide money and expertise to the following generation.” Each cycle takes five to 10 years to complete because it takes time to reach those large exits. We’ve seen a few of these - DoubleClick, Medidata, Tumblr, Jet - but few of them have been enterprise companies, and without a core nexus of large exits under our belt, we’re missing out on the critical network effect that Silicon Valley has been building since the 1950s.
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The good news is that many of these roadblocks, like those before them, will dissipate with time as future generations of startups emerge and learn from their predecessors. The challenge, of course, is that these things take time. With each successive cycle, we will become stronger, smarter and more confident, but we must balance our excitement with a healthy dose of pragmatism, and be brutally honest with ourselves about where we currently stand and where we need to focus our energies. Do that and there’s no reason we can’t succeed. Lose sight of reality and we risk falling victim to a hype cycle that, when it ends, could set us back to the very beginning.