Finding the Right Partners for Start-Up Success.

2014 saw 478 venture deals in NYC worth $ 5.0 B.

It has been reported that over $5 billion in venture capital funding flowed into the NYC “Silicon Alley” start-up sector in 2014. This represented 478 venture deals for the region according to a report issued by PWC and the National Venture Capital Association using Thomson Reuters data. It is likely that the level of venture financing in 2015 will equal or exceed that number.

A host of high-profile NYC-based venture capital firms including Union Square Partners, Thrive Capital and Lerer Hippeau continue to make venture investment in start-ups hoping for successful outcomes, a few big winners and maybe even the elusive "unicorn" - a firm that achieves a billion dollar plus valuation. 

Yet many start-ups who find seed and even series-A financing end up failing. One of Silicon Valley’s most striking mantras is “Fail fast, fail often” and it is widely circulated at tech conferences. Many tech entrepreneurs view failure as a right-of-passage.

The estimated rate for the failure of start-ups goes as high as 90%. Companies typically die around 20 months after their last financing round, and after raising an average of $1.3 million according to a study from CB Insights titled The RIP Report – Start up death trends.

A venture capital firm that that takes a deep and active role in its portfolio companies after the investment is made is Greycroft Partners, based in NYC and Los Angeles. The firm currently manages 120 investments, and has $ 600MM under management. They have also done $2.6 billion in exits over the last 24 months. Recent deals include Maker Studios - a global leader in short-form video, which was acquired by Disney for $950 million; and a personalized clothing service for men called Trunk Club which was acquired by Nordstrom for $350 million.

Eliie Wheeler

Ellie Wheeler – a NY based Principal with Greycroft noted recently “We don’t leave entrepreneurs asking ‘Now what?’ after we’ve made an investment. We take a very active role in business development for our portfolio companies.”

Wheeler went on to say “We typically focus on Series A investments worth $1-3 million. We then often syndicate the investment to a second party to add additional perspective.” She continued “We focus on sales and marketing KPI metrics, like B2B companies having paying customers and audience / engagement data for media companies.”

She said that they also make introductions to larger companies (like GE) through the company’s extensive network to help them gain visibility, build strategic partnerships and plan for successful exits. “We want to see portfolio company KPI data points move to the upper right quadrant.”

Good legal counsel is also of paramount importance to start-ups. A Palo Alto, CA -based firm (with a big NYC office) that is offering great online advice to start-ups is Cooley and its website cooleygo.com.

The Cooley GO website offers a wide range of legal resources to entrepreneurs of all sizes, tracking their life cycle stage from formation to M&A and sale. Launched in 2014 the site delivers legal and business know-how. Content covers issues like financing, building a team, working with directors and advisers, intellectual property and is updated by Cooley partners on a regular basis to keep it fresh and engaging.

“We work with the innovation community 24/7 and we’ve listened” said Craig Jacoby, chair of Cooley’s Emerging Companies Group. “In Cooley GO, we have developed a platform to assist start-ups though all states of growth. Cooley GO is designed to help entrepreneurs fulfill their goals with a toolkit that is easy to navigate and use.”

Many tech start-up firms are founded by visionary entrepreneurs, who are adept at digital development and IT related skills, but may have missed attending a business school. As a result they may lack finance and accounting acumen. Enter Marks Paneth  - a NYC based financial advisory and accounting firm. 

Jeanne Goulet

Jeanne Goulet is the Senior Consultant at Marks Paneth (MP) that oversees the firm’s tax and accounting practice for NYC tech start-ups. Jeanne spent the majority of her professional career at IBM, so she’s no stranger to tech. In her role at MP she’s developed a series of Marks Paneth webinars / white papers addressing the finance, tax and accounting needs of start-ups, with MP being able to play the role of a “scaling CFO” for start-ups.

She’s focused on issues such as how to build the financial infrastructure of a new business and relevant topics such as “How to craft a better exit” with six steps that help entrepreneurs maximize their return on time, effort and money. Her recommendations include how to establish a solid foundation in terms of structuring a start-up, how to minimize tax liability risks and cash outflow, and how to take advantage of tax benefits to increase current or future cash flow. 

Then there is the tech-talent pipeline issue in NYC. The huge demand for high quality web and smart-phone app developers has created a shortage of qualified developers. In response to this need, a whole host of “coding academies” has sprung up in NYC including TurnToTech, General Assembly and the Flatiron School, which just raised $ 9 million in Series B funding.

In May 2014, Mayor de Blasio launch of the NYC tech talent pipeline to support the growth of the tech sector and train New Yorkers to be tech companies' premier hiring choice.

Building on existing relationship with CUNY and the Department of Education, and the Department of Small Business Services, the NYC Tech Talent Pipeline will combine city, state, federal, and private funding to reach a budget of approximately $10 million, distributed across three years, to recruit and train New Yorkers; design new curricula to meet employer need; and engage employers in building the talent pipeline.

In the end savvy entrepreneurs should work hard to find strategic business partners that will help keep their best interests in mind, and offer complementary skills and expertise to the founders. By selecting an engaged VC, a good law firm, smart accountants and by working with the likes of the NYC Tech Talent Pipeline and leading coding schools for developer talent - there is a good chance that aspiring NYC-based entrepreneurs will be able to avoid the “fail fast, fail often” scenario.