The East Coast startup scene, namely Silicon Alley, is unlike the West Coast, namely Silicon Valley. The West Coast scene is about being consumer-focused and getting a large scale user adoption. Take a look at Facebook that is connecting everyone in the world, or AirBnb which is helping individuals to belong everywhere. On the other hand, the East Coast startups are deeply segmented into multiple industries: fintech, healthtech, foodtech, fashiontech, edtech, and other industry-focused tech. With that deep segmentation comes a sharp focus. Check out Ordego that promises to deliver convenience-store items within a 15-minute timeframe, or Knewton, an adaptive learning platform that personalizes teaching method for every child.
Recently at Techweek, Reza Chowdhury, the CEO and Founder of AlleyWatch, sat down with a panel of New York Venture Capitalists (VCs) to talk about their approach to investments, the future of tech, and what resources their funds provide in addition to money.
Learn 10 lessons from these VCs:
- Jonathan Lehr, Managing Director, Work-Bench, an enterprise technology VC fund with a high focus on community and propelling the New York startup ecosystem.
- Avi Savar, CEO, Dreamit, “a global network of entrepreneurs, investors and corporate innovators on a mission to Find The Future.” Dreamit is focused on pre-early stage, “seed-to-soil” companies.
- John Frankel, Founding Partner, ff Venture Capital, “the most engaged technology venture capital firm in NYC.” The firm is focused on providing resources to help teams scale from 3-10 to 30-40 people.
Lesson 1: The East Coast Term Sheet Has More than Two Lines
Compared to Silicon Valley, the players are a tad more grounded in numbers and revenue in Silicon Alley. If your company is in the process of being evaluated by a New York VC, be prepared for a thorough due-diligence process. As Lehr pointed out, “New York is grounded on cynical practicality.” The notion of working on a project for three- four years prior to brainstorming monetization tactics does not work here. In New York, people are focused on making money; thus, be prepared to show how you plan to realistically make money with your venture.
Lesson 2: The future is indeed in AR, AI, and VR
If you plan to start a company in New York, learn these acronyms by heart:
- AI – Artificial Intelligence
- AR – Augmented Reality
- VR – Virtual Reality
Frankel calls Artificial Intelligence a dominant area for investments in the next 5-15 years. He says, “We normally look to invest in companies that make things ten times better. AI makes things a hundred, a thousand times better.” Savar is excited about AR and VR transforming education, healthcare, and retail, making digital experiences in these industries more meaningful and immersive. He brings up an example of a knee replacement embedded with a chip that informs a patient’s doctor about recovery progress.
Lesson 3: Evaluating with Few or No Metrics
When a new disruptive technology evolves, it is hard to put a finger on it, or measure and dissect it. Even if the metrics for evaluating your company’s success are not yet set or standardized, think about the impact you are making. Savar recommends mapping it to the pain point you are trying to solve. How are you making things better, faster, or cheaper? For example, take x.ai, a fully automated assistant. Today, less than 1% of workforce has a personal assistant. How many hours a day will you save by using this tool?
Lesson 4: De-Risk Assumptions with your Customers
Savar’s company places a heavy focus on customer immersion. “With ideas you can get emotional. – says Savar. “We have a model of de-risking any assumptions that we identify with a company’s business model by going through internal data and research, but primarily through customer navigation.” Get on a phone or meet a real person to validate and de-risk your assumptions.
VCs understand that obstacles are inevitable, but it’s best to fully analyze any potential risks before making a bet.
Lesson 5: Be the First and Be Needed
MySpace was one of the first movers in social media industry, but how often do we hear about it today? While bringing a novel idea to the market is still rewarded, it is important be first and needed. As an entrepreneur, you need to ensure that people actually want the product or service you are building. “You have to align your solution to the timing of the pain point. People are your buyers,” says Frankel.
Lesson 6: Seek Warm Introductions
VCs are swamped with a myriad of emails, meetings, and work functions. They are drowning in the deal flow, says Frankel. Thus, a warm introduction, when someone introduces you to a potential investor, works best. Check your LinkedIn, Facebook, or Snapchat account to find out how many degrees of separation there are between you and the investor you are trying to contact. Good news – there won’t be more than six! Your best bet is to find someone who looks like a present or a former colleague of the VC you are targeting or a person who works for the VCs portfolio company.
Lehr says that there are over 200 events that Work-Bench organizes every year in their large workspace on 5th Avenue. Polish your pitch, get up, and head to those events. The standard pitch is 30-seconds, but I highly recommend to shorten it to 10 seconds – if modern advertisers can do it with 6-10 second video ads, you surely should be able to do it with your pitch.
Lesson 7: Do Something Original to Get in Front of the Investors
Savar recommends doing something that will make you stand out and fluff the VCs ego (Really? Does their egos need any more fluffing? :)) “If you can get in front of me in an interesting way, do it” says Savar.
Lesson 8 (a long one): Do your Homework and be In the Know
The VC game is for smart guys and gals. You need to do your homework and know your potential investor inside out.
Prior to asking for an introduction or making your one-of-a-kind appearance in front of a VC, research the following questions:
- In what stage of the investment cycle is the company? Will you be the first or the last to apply for the investment? Timing matters!
- How many investments has the company already made? The deal flow increases with a span of time, says Frankel, and VCs need to continually re-evaluate their existing investments.
- Does the fund invest in companies similar to yours?
- Does your team meet the criteria the VC is looking for? Some VC funds are very specific about founding teams; for example, some won’t invest unless the team is diverse enough.
Doing this homework will ensure that the VC swipes right when they get an intro to you, and may even throw a poke-ball at you to add your company to their portfolio.
Lesson 9: Ensure 100% Accuracy in Everything You Send to a VC
While 80% is “good enough,” when sending decks, emails, and other resources to a prospective VC, you need to ensure you are maxing it out to the perfect 100%. While your idea might be excellent, if the VC encounters misspellings or other errors in emails or materials you provide, it can turn them dawn. Notice, you almost stopped reading my article and were ready to throw it into a virtual trash-can when you saw “dawn”; it obviously should have been spelled “down,” but I wanted to highlight the effect your typo/misspelling could have on your dream VC.
VCs want to see effort and thought put into your work from day 0 – before you even meet.
Frankel advises, “Spell-check everything you send. Grammar-check everything you send. Be thoughtful and then be lucky.”
Lesson 10: Investors Raise Money Just Like You Do
“Raising money always sucks on either side,” says Savar. The VCs need to make a pitch to their investors and engage in a fundraising process that is very similar to the fundraising process of a new startup. “Fundraising process is about a narrative – what is your story, who is resonating with it, and why should we believe in your thesis.”
Frankel adds that the VCs goal is to explain why we live in a startup economy and how meaningful returns are made. He observes that VC-world is the closest to capitalism in highly regulated financial markets: “It’s about the efficient allocation of capital. Good companies get funded. Bad companies don’t.”
Lesson 11 (Bonus): How Investors Can Help Beyond Making Investments
Chowdhury points out that smart money is better than dumb money, but dumb money is better than no money. However, what else do VC companies bring to the table besides money?
Savar says that Dreamit has created a highly validated clustered ecosystem that can help entrepreneurs bypass the building steps – that usually take a long time – and get you in front of the enterprise buyers within two to four months. In addition, Dreamit focuses on the aforementioned customer immersion with a strong syndicated and co-investor network.
Lehr highlights that Work-Bench helps companies navigate banks and big buyers. Work- Bench has fostered a large community, and produces summits and meet-up events that brings people together to create shared learning experiences. If you are one of Work- Bench’s portfolio companies, you will be placed in front of that talent. New York Enterprise Technology Meetup is among the most popular startup meetups in New York.
Frankel describes a suite of services that ff Venture Capital offers to help companies scale. These include financial planning, accounting, help with logistics. The VC fund is willing to help with high-cost resources and bringing its portfolio ‘babies’ to success and yielding a high ROI.
