Will Oremus, a staff writer at Slate, cut right to the chase.
“Is there a tech bubble?” he asked.
Oremus was moderating the “Show Me the Money” panel at this week’s Make It in Brooklyn Innovation Summit. (In case you missed it: Protestors showed up at the summit’s pitch competition, which an Indian sauce company won. Earlier that day, Dumbo tech folks talked about how to grow Brooklyn’s tech scene more equitably.) The panel featured five area venture capitalists: Shawn Cheng of Vayner/RSE, Michael Duda of Bullish, Rachel Haot of 1776 (which just recently opened an office in the Navy Yard), Peter Boyce II of General Catalyst and John Frankel of ff Venture Capital.
Unsurprisingly, the answer from all five was a resounding no. Their immediate rebuttal was based in part on technical definitions (“First of all, tech bubbles are rare,” Frankel said. “You don’t find one every week.”), but even more, it was a testament to what they see as the New York tech scene’s key advantage. That is, cutting through the hype.
“There are not as many companies operating on a dollar and a dream,” Cheng said. “Will it all fall down at once? I think that’s unlikely.”
One overarching theme of the discussion came up early: with all the talk of New York’s tech boom, why haven’t there been more billion-dollar exits? Cheng answered by pointing to the relative youth of the area’s VC scene, as compared to Silicon Valley. Plus, Frankel added, capital is still scarcer here than on the West Coast, meaning founders are more likely to be content with slightly smaller exits.
The billion-dollar mark may also just be less of a fixation here. Oremus pointed to a quote from MakerBot founder Bre Pettis: “The great thing about New York is no one cares about your stupid startup.”
Of course, Brooklyn does have some unicorn companies, including Vice Media and Etsy, which as of now has regained its horn after losing it earlier this year. Cheng said he believes more are yet to come as the local tech scene matures.
“We’re just getting started,” he said. “Soon, we’ll have our own PayPal Mafia, our Facebook Mafia.”
In fact, the conversation turned to how much location even matters these days when launching a startup. Duda singled out Marc Lore of Hoboken, N.J.-based Jet.com, which Walmart bought this summer for $3 billion. (Lore, in fact, might be a contender for building an East Coast version of the PayPal Mafia, having previously founded Quidsi, the company behind Diapers.com and Soap.com, which was sold to Amazon.) Duda also gave a gushing compliment to one of his fellow panelists.

“I don’t care if Rachel Haot was in Winnipeg, I would want to know what she was doing,” he said. “She’s a star.”

What’s next for NYC investment

Location might not matter for a select few, but the local tech scene has lots of things that make it especially attractive, the panelists agreed. One significant factor: tech isn’t the end-all, be-all of the city, so it ends up interacting with many other disparate fields, from architecture to fashion.
“When we go to dinner parties, we don’t only talk to tech people,” Cheng said. “That’s a strength.”

As a result, the various subcategories of tech that have emerged in New York, and Brooklyn specifically, straddle the lines between old and new. The panelists’ areas of interest reflected this diversity well.

Frankel, for instance, is bullish on artificial intelligence. His firm, ff Venture Capital, partnered with NYU Tandon to launch the AI NexusLab accelerator this summer. The program has already received more than 150 applications for just five openings, and Frankel told Technical.ly he expects that number will surpass 200 by the time the application period closes on Monday.
On the other hand, Haot has spent much of her career bringing new tech savvy to old-school domains, notably in her roles as chief digital officer for New York City and later for New York State. In her current position, as managing director of DC-based venture firm 1776’s office in the Brooklyn Navy Yard, she’s seeking to crack open highly-regulated industries such as energy, education and transportation. (That tracks well with what Common’s Brad Hargreaves has said about new business opportunities: “You can’t just go and start a company by building an app anymore.”)
One key challenge founders in those sectors face, Haot said, is navigating relationships with the government as they develop new products of services — in her words, whether to “ask for forgiveness or permission.”

“We tell founders that at some point you will have either a face-off or a wonderful collaboration with the government,” she said.

Haot added that 1776 is looking to enter new geographical markets as well. The firm will soon open an office in Dubai, and it’s looking to invest in other cities abroad, in order to create greater access to those markets for American customers, she said.

Boyce also made a nod to traditional industries, pointing out how tech has taken over retail. His firm, General Catalyst, has invested in hot consumer businesses such as The Honest Company and Warby Parker. In a way, those companies have taken a reverse approach as they’ve grown: first launching as online-only brands, then gradually building a physical retail presence. That’s likely the path that many other companies in traditional industries will take in the future, Boyce said.

“So many companies that were previously brick-and-mortar are now omni-channel,” he said.

NYC startups our #makeitinbk VCs have their eyes on: @RadiatorLabs @SeamlessDocs @plated @OutdoorVoices @mikmaktv

— Downtown Brooklyn (@DowntownBklyn) September 28, 2016

The panelists also pointed to specific investments of theirs that particularly excite them, and several of them have Brooklyn roots. Cheng gave a shoutout to Bushwick’s MikMak, which offers a youthful, mobile-focused bent on Home Shopping Network–style pitches. (Fun fact: the company started out in Haot’s old apartment.)

Haot spoke about Radiator Labs, which makes a radiator cover to regulate steam heat in old buildings. The company currently works with the New York State Energy Research and Development Authority and estimates that its covers could help building owners save 30 percent in energy costs.

How to greet your neighborhood VC

So if you’re interested in joining the ranks of those companies, what should you do? The panel wrapped up with a discussion of dos and don’ts for approaching investors. Frankel piped up with a pet peeve of his, which drew laughs from the audience.

“It’s bad when [founders] can’t articulate their business in one sentence without saying they’re the Uber for, I don’t know, lettuce,” he quipped.

Boyce spoke about the importance of building relationships, rather than just asking for money straight out. In fact, he gave this tip: ask for informal advice first.

“That’s my favorite, when they’re coming to you before they’re even raising money,” he said.

On a similar note, Cheng advised founders to seek “warm introductions”: finding someone who knows the investor you’re seeking to connect with. (Brooklyn Bridge Ventures‘ Charlie O’Donnell, notably, has a different take on this.) Cheng explained that investors source most of their deals through their network, through an approach known in the VC world as “hunting, trapping, farming and trading.”

Haot chimed in with a straightforward suggestion: don’t be desperate. It’s much easier to raise money, she said, when you’re not on the verge of running out of it. That’s not just a matter of the company’s books. Like Boyce, she emphasized the importance of building quality personal connections.

“You’ll have a more substantive relationship with investors when it’s not based on stress,” she said.

Duda had a starker take on the warning against being too money-centric. To him, he said, the most attractive founders are those that aren’t really looking for money at all. On the face of it, that sounds counterintuitive — why fundraise if you don’t want the money? — but Duda said he likes to see founders that still have a bootstrapping mentality. (Plus, there’s the maxim about investors’ advice and connections being even more valuable than the money, which the panelists also echoed.) He pointed to one of Bullish’s limited partners, Kevin Plank, the founder of Baltimore-based Under Armour, who started his company as a college student.

One of Duda’s pet peeves? Seeing bold headlines about how much money a company has raised. (Sorry.)

“It’s not the goal, it’s just the means,” he said. “You shouldn’t be celebrating your cap table.”