Five Questions on Tech in NYC for North Bridge VC Dayna Grayson

Dayna Grayson, principal at North Bridge Venture Partners in Waltham, MA, has been spending a lot of time in New York City of late. North Bridge wants to participate in the Big Apple’s technology renaissance, so Grayson has been spending one to two days a week scouting for investment opportunities. North Bridge’s New York investments run the gamut from financial technology (Reval) to social TV (Philo). And the firm recently made three seed investments in NYC that it’s not yet ready to disclose.

Grayson, who worked in software prior to joining North Bridge five years ago, recently sat down in Times Square with Xconomy New York to chat about the city’s booming tech industry.

Xconomy: What opportunities and risks do you see in New York’s startup scene?
Dayna Grayson: New York has a lot of things going for it. Most importantly, there is a lot of activity at the really, really early stages of a business. Being an entrepreneur is really in vogue in New York. It’s a blessing and a curse.

It’s a blessing for the overall economy in that we’ll see a lot of good businesses come out of that trend. But there are just so many ideas that are started up quickly, and you’re just not going to see a large ratio of companies make it to sustainability.

The one thing I worry about in the New York environment is it doesn’t have a long history of turning out big successes in the technology world. This might be a product of the bubble crashing in 2000. But as a result, there isn’t a huge mentor base of existing, successful founders that can work with the 25- to 30-year-old founders today to teach them how to get beyond the product-market-fit phase and build the big vision. There’s a lot of mentorship at that product-market-fit phase. There isn’t a lot beyond that.

X: What segments of the tech industry in particular are attractive as investment opportunities in New York and why?
DG: I spend most of my time looking for opportunities in digital media. We break that apart in a couple of areas. One is B-to-Cs, which are the consumer-facing businesses. But our focus is more on B-to-B enabling technologies. Certainly ad tech would fall in that category. I think the industry is now ready for real automation around ad technology—both social and mobile. We’re still in 1999 in mobile vs. what it’s going to become. It will be used for everything. Then the question is, how are the ad exchanges today going to evolve?

Another trend is what we call “big data.” Just think about the amount of new data that we have access to now that we never thought about getting insight from before. There’s shopping data, personal data, marketing data. That’s a dramatic shift in the data-analytics world and it presents myriad opportunities for new applications. It’s a different paradigm—and great for building new companies.

X: You recently had a successful New York exit when LocalResponse bought one of your portfolio companies, Philo, which was a social TV startup. What do you like about that space?
DG: We really like the social TV space. There are not a lot of competitors in it. When Philo decided to be acquired by LocalResponse, it was more of the right fit in terms of an opportunity. We would take another swing at bat in the social TV space.

The fact that it’s still so hard for the average consumer to connect a wired computer to their TV is just mind-boggling to me, given all the devices we have, from tablets to phones. We’ll see what Apple does with TV in the next few years. But somebody’s going to make that platform—social TV is just at the beginning stages.

X: Do you think venture capital valuations are getting out of control?
DG: No. Five years ago, every entrepreneur came in saying, “I’m raising $3 million to $5 million,” which means their expectations for the value of their business was at least $5 million. Now it’s $2 and $3 million. There are a few breakouts in there that will jump right to the $20-million-plus valuation, but I don’t think it’s a trend. It’s not clear you will actually make money in the public markets after that. That’s because investors are recognizing that they don’t want to get swept up in that mayhem like they did 10 years ago. They want to see real, sustainable companies. It’s encouraging and discouraging at the same time.

X: What’s your top advice for tech entrepreneurs in New York?
DG: Don’t over-ask for an amount of capital that you know you’re not ready for. Everyone wants more capital. But be realistic about where your business is today.

The biggest mistake I see is that people think raising VC money is an award—a stamp of approval on their business. It’s certainly not how we look at it. We want to see potentially big, disruptive ideas.

There are businesses out there that should not be on the VC path. They hold themselves to a very high bar: “If I don’t raise VC I have to pack up and go home.” But there are alternate paths for building great businesses. Just because you’re a tech company doesn’t mean you have to go the VC route.

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