We get asked a lot about the New York startup scene.
In particular, people want to know what will happen to startups when investors close their checkbooks.
Based on everything we’ve seen, here’s what we think will happen.
What’s been happening to startups
According to a study by Gridley & Company, more than 200 New York digital startups have been founded in the past few years.
The 200 startups are attracting much-needed talent to the tri-state area. But, instead of joining high-potential startups, engineers are founding mediocre companies.
There are a lot of small teams building small ideas. The companies won’t amount to anything; they’re able to exist because investors have been giving them cash.
Facebook cofounder Dustin Moskovitz said that if Facebook was founded today, it wouldn’t survive. It would struggle to attract talent because it is no longer cool to join someone else’s startup. Everyone wants one of their own.
What’s been happening to investors
Venture capitalists are spending more money on weaker business ideas; they’re over-contributing to rounds because of pressure to stay relevant and competitive.
The trend can’t continue forever. Some investors have already begun to get spooked by the frothy market.
The founder of SEOMoz recently said he had term sheets signed for a $24 million round. Then, the market dropped 500 points. The lead investor pulled out of the deal, and SEOMoz lost the entire round of financing. More and more stories like that have begun to emerge.
What will happen to NY tech:
Like always: most startups will perish. Their money will run out, and they won’t be able to raise more.
Their deaths will be great for New York tech.
The tech gold rush has attracted a lot of talent to the area. Once startups begin to fail, the talent will be forced to join bigger, better startups that really need it.
All of the non-innovative, Foursquare and Gilt Groupe wannabes will join the Foursquares and Gilt Groupes.
When that happens, New York will be able to build bigger businesses than ever before, and it will become a startup powerhouse.
That’s just what we predict, of course. Let us know what you predict in the comments.
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