Even if hard times are ahead, founders will continue to crank out ideas and chase funding.
That was the sentiment of Tim Devane, principal with New York- and Boston-based seed fund NextView Ventures. He spoke late last week during the Startups to Watch session of the Social Media Week conference in New York, where ten local startups, including some Techstars alums, and a team of students from nonprofit organization Code/Interactive demoed and discussed their creations (see slideshow).
In the midst of the presentations, Devane shared his thoughts on where the startup and investing scene is going, given talk of valuations getting too high and looming end times (for the latest economic cycle at least).
Even if things do take a sour turn, he said New York has a few things going for it that will help in the long run. For instance, consumer demand for brands they want and convenience has led to something he called the “Warby Parker effect.”
Prescription eyewear seller Warby Parker, which lets people try glasses on at home, has been shaking up a monopolistic, incumbent market, Devane said. The growth of Warby Parker also spurred the emergence of companies, such as FlyCleaners, which adopted similar on-demand models for other products and services.
“That has manifested now in the past two years, in over $155 million seed-stage, brand-first, convenience-first companies all founded here in New York,” Devane said. They have been comparatively small rounds of about $2 million each. The point, he said, is these startups are trying to cover every type of task or need that arises during the day, such as on-demand prescription drugs. But it does raise a question about how much room there is for companies that adopt a Warby Parker-style business model.
Food and meal delivery with Seamless, Caviar, Maple, and other such services has become increasingly familiar to consumers. “Ordering food has shifted dramatically over the past five years, from the telephone and offline to the Internet,” Devane said.
That trend, with even Domino’s seeing more and more people use its app to place orders, has led to more startups going after this space, he said, and investors have followed. There are challenges in the food ordering sector, Devane said. The popularity of such services in New York does not always translate to other parts of the country—even in other major cities. “There’s simply not as many people stacked on top of each other the way they are in New York,” he said.
There is more to New York than ordering eyeglasses or food with an app. Devane sees ongoing investment opportunities in this city in the media and publishing sectors. However, there are some who think the bloom is already off the rose. “A lot of people would claim BuzzFeed has succeeded and is the winner, and now there is a bit of a nuclear winter in new voices and startups,” he said.
The funding environment, Devane said, as well as the rise of more startups such as Gimlet Media defy such notions. “Almost $1 billion was invested over the past four years in this sector, in early stage,” he said. That was divvied up in deals of less than $50 million each, Devane said, not just mega funding rounds into BuzzFeed or Vice Media.
Finance is another native New York industry that has been embracing innovation such as cryptocurrency. “You can actually pay for yellow cab with Bitcoin; the Taxi & Limousine Commission has approved that,” Devane said. The state of New York has also issued guidelines for regulating Bitcoin firms. However, there is still a ways to go in the maturity and development for this type of fintech, he said.
(It must be noted that this niche is shaky; last year Bitcoin mining company CoinTerra, based in Austin, TX, filed for Chapter 7 bankruptcy, for example.)
Devane tried to further allay some of the doomsayers who profess we are headed into another downturn and difficult times. “There is no end to entrepreneurship,” he said. “There’s no end to innovation; there’s no end to ideas. A contraction is perhaps necessary.”
Billion-dollar valuations for “unicorns” that have yet to prove themselves do raise real concerns, but Devane said this does not mean a bubble is bursting. Entrepreneurs will continue to be scrappy and try to build up their ideas. If they stick with it, he said, they will get funding regardless of the changing winds. “Venture capital is not going out of business; entrepreneurship is not going out of business,” Devane said.