New York’s Startup Scene

Posted on May 14, 2010

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I’ve recently had a chance to dive a little into New York’s thriving start-up scene.  I am a big supporter of this community.  As others have pointed out, this country needs less finance types (admittedly I am one of them) and more entrepreneurs who will actually produce something.  Economists call it the “real economy” and point out that it is our only hope if we want to get out of the debt crisis (which obviously continues, just now on the sovereign level).

It is somewhat disappointing to see, however, that even New York’s young entrepreneurs seem to want nothing more than work for a VC.  I have quickly learned that Union Square Ventures is the [insert big corporate employer everyone used to want to work for, e.g. Goldman or BMW)] of the local start-up community.  The partners seem to be relatively well-connected, cool guys (one is originally from Germany, as am I).

Disappointing, because VCs are really not producing anything, either.  They are finance guys, and much more similar to bankers than to entrepreneurs.  Yes, they support entrepreneurs, but so do banks (and have traditionally).  They provide a service (financing) and are paid disproportionately.  Look at Mark Suster‘s recent advice: “Everyone obsesses with dilution from investors. The biggest dilution comes from co-founders. If you have 2 co-founders, you’ve diluted 66% before doing any of the hard work. Start by yourself and bring in co-founders for smaller stakes once you’ve got initial momentum. Unconventional wisdom, but the most economically practical advice you’ll ever get.”  Clearly Mark Suster thinks that his contribution as a VC is more important than that of co-founders.  He thinks that naturally his financial contribution should be worth a bigger share of the mature company than that of a co-founder, i.e. the person that helped come up with the original idea.

My advice to New York’s entrepreneurs is:  See VCs as what they are – finance guys.  Their job is to provide a service to you, which is to come up with the resources to grow your business.  This is one of the oldest businesses out there (banks have been doing this for centuries, through their “merchant banking” departments).  Don’t throw everything over board if they offer you a job.  You are doing something much more valuable.

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