Yeah, Don’t Move To NYC To Do Your Startup (Yet)

Let me tell you a little story my people. I had a friend of a friend get me in contact with a guy who ran a small NYC hedge fund. This guy was very nice and very professional and had an interesting idea he’d already implemented and which was making his fund fairly wealthy. What he wanted me to do was recreate the web site in Ruby on Rails.

He eventually went with a programmer he knew and trusted, which was probably a good thing since I didn’t want to do a site in Ruby on Rails. During the course of our meetings I asked him how much his “small” hedge fund was worth.

He told me:

30 BILLION DOLLARS

That’s right. His little hedge fund was worth more money than thousands of Silicon Valley startups combined on a good day. He wasn’t being modest either. It was “only” worth 30 billion dollars.

Here’s another fun experiment, do a search for say “capital -bank” or “fund”. You know, words found in hedge fund names. Here’s an example of just the few blocks of Manhattan near where I lived:

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There’s a few false positives, but that’s still a massive number of “small” funds in just a 12 block area of one stretch of NYC. We’re not even talking about the big boys in mid-town.

Or, how about this: A while back, Bloomberg (another guy who made a lot of BILLIONS off banks in NYC) got together with some funds and put up 2 million (yes “MI-LLION”) to get NYC’s startups going. They were going to give out 200k each through an entity called NYC Seed. Yes, they were going to kick start NYC’s startup scene with 10 companies and hand them barely enough money to pay rent for 3 months at NYC prices.

That same day, the CEO of BofA announced that he wanted to give back the 20 BILLION dollars he took in bailout money because he didn’t really need it.

Imagine that this 20 BILLION went to funding startups in NYC. That’s 100 thousand startups at the 200k financing rate.

The CEO of BofA basically was given the option of taking or leaving a sum of money that equaled 100000 startups. If each of those startups hired 5 people you’d have a startup culture the size of some large American cities. Yet, this dude was able to take it in a short amount of time and give it back the same way I might borrow five bucks from a friend.

Remember when the dot-com crash happened in 2001? Was there a bailout? Nah, no bailout for those damn nerds and hippies, even though the banks caused the crash by pulling pump-and-dump schemes with shit technology companies nobody should have invested in. Nope, your technology isn’t worth a bailout.

Meanwhile banks have received trillions, mostly through special lending and no-interest massive loans they’ll eventually pay back (cough), with the majority of that free money going to the few remaining big banks in NYC. You of course will pay for that with your taxes and not get a dime of it back.

These little tidbits of information should tell you something that is glaringly obvious about NYC.

Your Million Dollar Tech Is Chump Change Compared To Finance

Money is in limited supply. Well, unless you are Paulson and feel the Fed is your personal Goldman Sachs money press. Anyway, people with money have a limited amount of it and want to put it to good use. Now, imagine you got a spare 20 million to throw around and you want to invest it someplace so you’re going to look for some companies to fund. Here’s your choice:

Option A: A couple of nerds who kind of smell and have this really cool thing that you don’t really understand involving the interwebs which has a very high chance of failing taking all your money with it, or if it succeeds making a whopping few hundred million.

Option B: A couple of slick Harvard MBAs who take you out for rows of coke in Atlantic City, buy you a blowjob or two, and tell you they have a “tiny” hedge fund already worth 500 million and they can give you a return on your investment within one year, and in 5 they’ll be worth a few hundred BILLION. Oh, and if they fail the Fed will bail them out so there’s no risk.

Now, which one will you choose? Obviously, you’re going with the Option B: the guys who know how to make money already, can continue to make money, are rich already like you, and will most likely have a constant government safety net if they fail.

The guys from Option A are more than welcome to work the algorithms that make the Option B guys wealthy, but they don’t deserve your money.

The truth is, there are many reasons why NYC has a shitty technology startup scene, but the biggest one is that by comparison to Finance there just isn’t that much money in technology startups. When given the choice between a fine company like Etsy.com and a “small” hedge fund worth billions, investors will take the billions every single time.

Alright, So You Want To Move Anyway

Until the dominance of finance is completely destroyed you’d be wise to not move to NYC to run your business (with some exceptions I give below).

However, if you do, here’s some important things to watch out for:

  • There are a huge number of con-artists running shitty little startups. If it feels like they aren’t well funded and gonna take you for a ride then avoid them.
  • You will only get respect if you have an Ivy League degree or one from Stanford. A state university is laughed at, and you better start working on your sales voice because tech does not matter there.
  • NYC is a marketing town so looks are way more important than substance. Don’t demo tech, demo design.
  • Office space is expensive as shit in Manhattan, go to DUMBO with 10 buddies and share a massive warehouse loft.
  • You will not lure quants and banking programmers away from Banks. You will only get the bad ones who can’t hack it at their already pretty damn easy job. If you do they’ll expect to be paid tons of money you don’t have and insist on using fat bloated tech and won’t learn anything outside of their tiny little banking world.
  • Trying to bootstrap is stupid. It’s too expensive to live in NYC and nobody gives a shit about you so you have no support group.
  • Every person you talk to about financing will try to shove your tech into banking, marketing, publishing or government. Those four sectors of the economy run the town.
  • If you get into banking, marketing, publishing or government then do Java or .NET. DO NOT DO AN OPEN SOURCE LANGUAGE. Languages like Python and Ruby are increasing in use, but vast amounts of software is already written in Java or .NET so integration is way easier.
  • NO BANK, MARKETING FIRM, GOVERNMENT AGENCY, OR PUBLISHER WILL EVER PUT THEIR DATA ON YOUR FUCKING CLOUD SERVICE. God I hate telling people this but sorry, those four types of businesses are either deathly afraid of competitors, legally obligated to not give you their data, or just too damn old to even pull it off. Out of the four, publishing is your best bet.
  • Let me say that one more time: DO NOT SELL CLOUD TO THE BIG FOUR SECTORS. I’ve seen many a startup from the west coast fail because of that simple thing.
  • If you do try to sell to these types of organizations be prepared for incredibly long internal sales processes where the technology matters much less than your sales ability and how well it can integrate with their shit technology.

Given the above advice, you can probably guess the kind of business that would work in New York:

  • If you have an existing market product (learn the difference between “new market” and “existing market”)…
  • and you focus on banking, marketing, government or publishing…
  • and you can either demonstrate massive returns on investment or sell the shit out of it…
  • and you are willing to do inside sales with a solid marketing and sales team…
  • AND you are run by a slick looking Harvard or Yale MBA who’s male and 6’4" tall with a deep voice and pepper gray hair…

THEN, and only then, will your technology business take off in NYC.

If you don’t meet any of the above, and especially if your product is very “new market” or you need a long runway to bootstrap it, then avoid NYC like the plague. Move to San Francisco, Chile, Argentina, anywhere but NYC.

Then again if you do have those things you could just go into Finance and make billions instead of millions.

See how that works?

Why New York Is Awesome

The entire previous part of the article makes it seem like NYC sucks compared to say San Francisco or “The Valley”. My opinion though is that NYC is awesome for different reasons, it’s just the tech scene that sucks there. Nearly everything else about my life is better in NYC and I loved living there for five years. The people are great, the action is fantastic, and living there makes you tougher and smarter.

My only reason for leaving was the technology startup scene just wasn’t there. What little of it that did exist was completely dominated by Finance with no hope of getting recognized. It was either move out to the Valley and try my hand at interesting fun things or sit down and write an Enterprise Java Document Management system.

Take my warning, if you go out to NYC, admit to yourself it’s not for the tech. In fact, I think Fred Wilson would be way more successful selling NYC if he just said this:

“Geeks can get laid in NYC.”

Seriously, all that talk about some imaginary booming startup scene is bullshit.

The (Yet) Part

I added a (Yet) to the title of this post because the gravy train from Finance can’t last forever. Already people absolutely hate bankers and money men. If you have an MBA you can’t get spit on. There’s only so many times the Finance industry can pull a repeat of LTCM and AIG before people revolt. When that happens New York is absolutely screwed.

Manhattan has a serious addiction to Finance money. I bet the special NYC-only salary taxes from high paying finance jobs alone pave the roads and keep the schools going. Real Estate taxes on the buildings run half of New York State.

Finance is New York’s heroin and it can’t kick the habit no matter how bad it needs to.

I predict that either NYC is going to have to go cold turkey, or it’s just gonna die. Marketing is already tanking along with Publishing. If finance goes there won’t be any government sector to care about. The only thing that’s left is Fashion, and that’s fairly mobile. Without something ready to fill the void my favorite city will go belly up very quickly.

I see New York trying to kick the monkey. NYC Seed is one attempt. Fred Wilson trying to get startups to move out there is another. But they’re all just tokens with no real substance.

If you are dying to move to NYC to do your startup, then wait until NYC has kicked the Finance habit or you have a thriving business that can make it there.

Until then, you’ll just be wasting valuable runway on a city that really doesn’t give a damn about you and your tiny little millions (even if they should).