There is a sly, anti-New York meme in Silicon Valley, apparently, and it came up today on a panel at the Venture Forward conference in New York. It goes like this: New York thinks it will succeed as a startup hub, but investors are too cheap. Valley investors will succeed, because they make money a non-issue for portfolio companies. That way the companies have the capital to hire the best talent, and they aren’t obsessed with monetization from day one.
Naturally, a panel of early stage New York investors — Eric Hippeau of Lerer Ventures, David Tisch of TechStars, and Howard Morgan of First Round Capital — had some thoughts on that topic.
“Silicon Valley is a little full of itself, and that’s reflected here,” Hippeau said. “New York doesn’t have to be Silicon Valley to succeed. Silicon Valley is always going to have that deep well of technical knowledge, and we are working on that, but we have everything else. We have creative people, we have people with business experience, and people want to live in New York and love it here.”
Tisch agreed. “People are using New York and its diversity of consumers and users as an advantage. Whether it’s advertising, media, sports, fashion, or finance, you see businesses leveraging what New York has to offer and becoming huge businesses because of it.”
The investors noted that valuations haven’t crept to crazy levels yet in New York. Lerer Ventures tends to invest at a $3 million to $5 million pre-money valuation. “We know that has moved up in the Valley,” he said, “but not so much in New York.”
It’s possible to find good companies at $3 to $5 million pre-money valuations in the Valley, Tisch said, but you have to be patient. And Valley seed investors with caps on valuations are rare, Hippeau added. He noted that Valley investors were the ones to invent the uncapped note, which he called “an abomination.” Uncapped notes refers to the practice of venture capitalists agreeing to invest, but at a yet-to-be-determined valuation, often set across rolling closes.
Still, when asked to name a major mistake or regret, Morgan was quick to note that he wished he hadn’t passed on Twitter at a “rich” $20 million pre-money valuation after its first iteration, Odeo, gave his firm their money back. He didn’t make the same mistake when Jack Dorsey approached him with an offer of an equally rich stake in Square.
[Disclosure: Lerer Ventures is an investor in PandoDaily.]
[Image courtesy Wikimedia]