New York startup funding on fire
– Connie Loizos is a contributor to pe HUB, a Thomson Reuters publication. This story originally appeared here. –
How hot is the New York tech scene? Maybe a little too hot, suggests Owen Davis, managing director of NYC Seed, a three-year old seed fund that provides up to $200,000 to New York startups via a partnership with the New York City Investment Fund, the New York City Economic Development Corp, and other local organizations.
Davis said seed rounds are up 50 percent from where they were a couple of years ago, and that valuations are up as much as 30 percent over the last year. “A startup says we want an X amount for our valuation, and all it needs is to get a few people to say yes to it. Then it can say to everyone else, ‘Look, this is what the market is supporting.’”
Davis said pricing is being driven in large part by West Coast and Boston-based firms now bathing the city’s fledgling startups in cash. “It’s no longer like one or two guys are qualified to be your seed investors. (Now) it’s like there are dozens of people (who are qualified), so the size of the cap tables is ridiculous.”
So is the quality of the deals, in some cases, suggests Davis. Because “there are a lot of large funds doing seed deals (to create options for themselves later), the bar for investing in seed deals has lowered in many ways,” he said.
Asked if he now rolls his eyes at the announcement of every new firm opening an office in New York, Davis suggests that everyone in New York is just playing the game on the field. They have to.
“Nobody should think, ‘This is our neighborhood. This is our market.’ It’s a free market, and you’ve got to compete. If deals and activity and momentum are in New York, obviously (investors from near and far) have to have a presence. You’re potentially missing a big market otherwise. But the market isn’t big enough to support all of the cash that’s coming in.”
Beer startup needs to create a buzz
As the jobless rate climbed toward 10 percent this summer, Erica Shea and Stephen Valand, quit their advertising jobs, took $10,000 in personal savings and started selling their 1-gallon home brew beer kits from a stand at the Brooklyn Flea Market, testing the theory that beer is recession proof.
“When you go from an actual salary down to $0 an hour, it’s quite an adjustment,” admitted Shea, who got the bug for beer making after she stumbled across her dad’s old home brewing kit. But when Shea and Valand went to brew their first batch they discovered there was no place in New York to buy the ingredients, so they created the Brooklyn Brew Shop. The kits take up only a foot of floor space and come with everything needed to brew your own beer.
Shea said they opened their stand, which they rent for $100 a day, on the July 4th weekend, but sold just five kits. By the end of the month they had moved 40 kits, which go for $40, or $30 without grain. The kits, which make about 12 bottles through a four-week process, include a 1-gallon glass jug, some tubing, a racking cane, a thermometer, sanitizer and the yeast, hops and grain. (read the full story here)
The U.S. craft brewing industry has weathered the recession better than most, with sales up nearly 9 percent in the first half of this year, according to the Brewers Association (BA). The BA, which has more than 1,500 members, also reported that overall U.S. beer sales were down 1.3 percent in the first six months of 2009.
Shea and Valand believe the trend of brewing your own specialty beers will continue to grow and that it will entice a younger, more urban demographic that enjoys the ability to experiment with different flavors.
“I just think that because there are really good craft beers now, there is really a drive for people to explore that and make their own really good beers,” said Shea, who has used ingredients as bizarre as lobster and jalapeno. “Our challenges as we continue to grow the business are time and space. There’s only so many hours in a day that you can be doing things and there are so many ideas that come up that we really want to pursue, but ultimately there are two of us and we get tired.”
Ex-Googlers seek traffic for how-to video startup
The Web is full of user-generated video, but for Sanjay Raman’s tastes most of it is too bland and poorly produced to actually watch.
That’s why Raman launched Howcast (http://www.howcast.com) – a high-quality, how-to video-sharing website – last year with former Google colleagues Jason Liebman and Dan Blackman.
While at Google the three Howcast co-founders noticed how popular do-it-yourself content was, but how little of it was in video format.
“How-to content is something that is really popular in terms of user search queries,” said Raman, who left his job as product manager for Google Apps to launch their startup nearly 18 months ago. “As video was really exploding online we saw the opportunity to marry those two concepts together.”
Unlike other DIY sites that predominate search engines, such as About, eHow, Expert Village, Videojug and 5min, Howcast utilizes a more entertaining and humorous approach. Some of its most-popular videos are less practical and more tongue-in-cheek in nature, such as “How to find out a girl’s name after you’ve slept with her” and “How to grow grass in someone’s keyboard.”
“We try to take the format of a how-to and make it more exciting and engaging than it would normally be,” said Raman.
In order to boost its video content, Howcast pays filmmakers, mostly students, between $50-100 to produce videos for them.
Assuming to begin with that the hunger for how-to videos is sufficient to be monetizable, I think its safe to say that the market will have to weed out a few of the players here. Thus success over the other video sites that can do the same thing seems to rest with their differentiation. It seems like this differentiation is the quality of videos and entertainment value of the videos–so they have to be able to establish some sort of loyalty from the most creative and talented video producers. Given the immense competition in this area, it seems like this is an exceptionally difficult goal. Furthermore, this seems like a differentiation that is more aligned with some sort of entertainment video site–say one focused exclusively on comedy or drama–than one that ostensibly has a practical “how-to” purpose. Perhaps a focus on making it easy to learn and teach through the site would be more strategically aligned than making the videos funny and in claymation.
Betting the farm on your customers
Organic dairy farmer Dante Hesse is hoping the customers who lap up his milk by the quart at local New York farmers’ markets will also invest in his future.
What started as a series of “low key” one-on-one conversations with customers at local farmers’ markets near his Ghent, New York farm, has escalated into a serious attempt to raise $850,000 – in as little as $1,000 increments – directly from his dairy-loving consumers.
“I learned pretty quickly that there was a lot of interest, but I also needed to find some council who could tell me how to do this legally,” said Hesse, who founded Milk Thistle organic dairy farm with his wife, Kristin, three years ago. He intends to use the bulk of the money to build an onsite processing plant that will help him ramp up production and diversify into making other milk-based products like yogurt, butter and ice cream.
“If it has to be 850 people at $1,000 each then that’s what we’ll have to do and I think we could get it,” said Hesse.
Hesse knows the math behind the milk and feels if he’s properly capitalized, he can move into more “value-added” products like butter, yogurt and ice cream, where the gross margins are 20-30 percent higher.
According to the Organic Trade Association, sales of organic milk in 2007 totaled more than $1.3 billion in the United States. While organic accounts for just 3 percent of the U.S.’s total milk sales, it has been growing at an annual average rate of more than 20 percent over the past decade (last year it dipped to 10 percent).
A smart out of the box thinking entrepreneur, what a clever idea to use your products to build trust in the business and to raise cash.
from Trading Places:
A time for change – part II
Last December, Reuters reported how one innovative New Yorker's desperate search to find a job had paid off big. Joshua Persky, known to many as the "Sandwich Board Guy," found employment at accounting firm Weiser LLP in midtown Manhattan. Persky, who wrote for Trading Places about his search for work last year, explains how he ended up leaving Weiser to start his own business:
When I received the offer from Weiser, my wife and I were ecstatic. I had been unemployed for 10 months. We had quite a sincere Thanksgiving celebration in Omaha where she was living with our children, but they decided to remain in Omaha to finish out the school year. It was difficult to leave my family, but I returned to New York to get my feet on the ground and focus on my new job as Senior Manager, Valuation & Corporate Finance.
When I started working in December, I was treated to a second round of viral publicity and became a feel-good “Happy Ending Holiday Story.” Whereas before I had been the “Face of the American Economy”, a “Sign of the Times” and the “Sandwich Board Guy,” suddenly I was an inspirational and extreme job hunter who could give expert job hunting advice – and I did:
Be creative. Be open to change. Get professional help. Redo your resume. Figure out your brand and sell it. Don’t give up. Get your family on board. Be patient. Lower your expenses as much as possible. Do what you need to do to keep your spirits up (exercise, eat right, meditate and/or pray). Don’t lose hope!
It has been quite a challenge living 1,300 miles away from my wife and children. I visited them several times on weekends. They visited me during spring break and are with me now for a few weeks.
Then the group at the accounting firm where I was working underwent a restructuring. Now I’m taking my career to the next level by working for myself. Things are very different for me now than when I left my previous job and walked straight into the global economic crisis. I think the worst of the Great Recession is over, I have a much expanded network and some exciting opportunities on my plate.
Smart tips. Don’t ever give up!
Eventually, waiting longer means you may appreciate the job you get even more than it comes to you so easy, almost as a free shopping coupon.
As much interest and money as there is,cash is still king. If you believe in your product, stay away from going after financing too early. The key is to go to venture to grow and not to start. Start bringing in customers and then head to the funding table. It makes it much tougher to be taken advantage of.