The City of Founders Without Hackers
Every startup in NYC is looking for developers. Literally: Every. Single. One.
And this is a problem.
New York City has a shortage of entrepreneurially minded technical talent. It’s not that there’s not enough engineers. Hardly. Columbia, NYU and the rest of the eastern seaboard spits out engineers in spades each year. But somehow those aren’t funneled into, aware of or interested in the NYC startups, at least at the early stage. Local engineers, it seems, want to be employees, not co-founders.
Today, it is more possible than ever before for one person to effectively lead both building and selling during a consumer internet startup’s early growth phase. I’m seeing it done first hand by some of my single-founder friends, each of whom I believe will be wildly successful…In lieu of co-founders, these folks are instead assembling strong teams of employees, often in “co-founder-like” roles, after having established their companies.
via www.businessinsider.com (Emphasis Added)
Chris Dixon and a few other VCs in Twitter-land communicated a strong disapproval of this single-founder concept.
But if you look at seed-stage startups in NYC, I’d say 85% of them follow this pattern: Non-technical founder in search of a technical co-founder…or, absent that, a code monkey, technologist, intern, whatever––someone who can code, goddamnit!
I don’t know of any official statistics that track this, but as someone on the ground, it seems like startup formation is increasing at an exponential rate while the amount engineering talent is static or facing merely linear growth. However the specifics pan out, demand vastly exceeds supply, and the gap seems to be growing, not shrinking.
Unless we eliminate the chokepoint around technical talent, the NYC startup boom is going to turn into another bubble. And founders in my position will, if they’re clear-eyed and ruthless, realize that being here is a source of location risk.
(To be clear, this is not just a case of sour grapes. I did find recruiting engineers in NYC for SpeakerText to be a pain, but ultimately found success by looking elsewhere. We recently brought on board a new CTO, which gives us at a 3: 1 ratio of technical to non-technical founders. But he came to us by way of friends in Palo Alto who followed my blog).
There are two distinct but synchronous trends driving the NYC startup explosion:
- Secular contraction in traditional media <—Creates Founders
- Cyclical contraction in financial services <—Frees up Hackers
And this is all happening in a macro-context of high unemployment and general recession drives even the unwitting towards entrepreneurship.
Medium-term, expect to see an even bigger technical talent crunch when Wall Street and the financial services industry rebound––unless you think that Wall Street is undergoing a secular (rather than cyclical) contraction. But that’s another debate for another time.
But right here, right now, the problems break down as follows…
Segregated Social Networks
Startups in NYC tend to be run by first-time founders. The problem is that these first-timers (like me) are typically non-technologists coming from non-technical industries (like advertising or media). And they don’t actually know many engineers.
As it turns out, it’s relatively easy for non-technical founders to network their way to venture capitalist investors. (Previously, I had written that NYC lacked early-stage risk capital, which it definitely does relative to SV, but the gap is shrinking rapidly and it turns out you can get around this problem by simply hopping on a plane.)
On one hand you have what is becoming a relatively tight network of business-minded founders & investors; on the other you have a loose federation of hackers who seem to be not only disconnected from the business people in the community but also weakly networked amongst themselves. This is a HUGE problem.
When M2 joined SpeakerText, we didn’t just get access to his personal talent––we got access to his entire network at CMU. Last Monday, I told him we needed a new front-end developer––by Tuesday night we had a line on two strong candidates. Now, my experience is admittedly limited, but I haven’t met a lot of engineers in NYC who have networks like that that they can call on. And to the point, all of my friends who were looking for technical co-founders two months ago are still looking today.
Cash vs Equity Culture
As a startup ecosystem matures, market participants start to understand the value of equity. Essentially, after people have seen a few big exits, stock options start to seem valuable and take hold of the popular imagination. When people see their once-upon-a-time geeky-poor friends get rich seemingly overnight, the greed kicks in. This is a big part of what makes any startup ecosystem tick (also why Wall Street is so alluring).
The problem is, most people in NYC don’t understand the value of stock options. Payment in cash is the norm, both in NYC and everywhere else EXCEPT for startup land. Post-Series A financing, startups can typically afford to pay market rate for engineers. But pre-Series A, especially at the earliest formation stage, there’s little or no money whatsoever.
To get to that point where you can raise money, you need risk-seeking technologists who want to build cool shit. And when Wall Street guarantees six-figure paychecks on day one, the opportunity cost of doing a startup becomes very, very high.
Not only does Wall Street train engineers to value cash over equity, it’s that once you’ve worked at Goldman or a hedge fund for 2-5 years, you develop an expensive lifestyle that requires that same kind of constant cash-flow to maintain. The ole’ Golden Handcuffs, as they’re called. The problem is that Startups create (hopefully) discontinuous wealth––a long period of relative poverty followed by either total bankruptcy or a potential life-altering exit.
This needs to change. Junior engineers need to learn the value of equity if NYC is to be a sustainable over the long term. Sadly, competition for talent with Wall Street is a zero-sum game. The bigger Wall Street is, the greater the opportunity cost of doing a startup in NYC. And the smaller Wall Street is, the lower the opportunity cost of starting a company. No way around it.
True story: On my last trip to Palo Alto, I had beers with a very talented engineer who was being recruited by a very hot startup. Shit, I thought, how could anyone turn that down. But this engineer had his doubts. His reasoning: this startup had already raised a Series A at a high valuation. The company had to be really huge if his equity stake was ever going to amount to anything, and even then it was unlikely he’d get the kind of wealth that a founder would receive in even a moderate-sized exit. He turned them down.
I have never run across this kind of sophisticated thinking about startups in NYC or anywhere else outside of the Valley. It requires people to have been through the startup cycle multiple times. NYC simply isn’t there yet––nor are most places.
The Fundamental Problem: Academia
Cultural mores and social networks can change. And if NYC creates some breakout startups that make it big, those things will change. They are the problems of an immature, growing scene. Nothing a big exit or two won’t solve.
The real problem goes deeper: The connection between academia and NYC startups is very, very weak. The top universities send a mere trickle of talent into local startups, and then only by accident. Whereas Stanford pipes students into Silicon Valley startups at industrial scale and efficiency, Columbia (my alma mater) and NYU barely realizes the scene exists. And no one save for a few heroic folks inside the universities themselves (more on them in a later post) seems to take the problem seriously.
Unless local universities start piping engineering grads into the startup ecosystem in some sort of organized fashion, NYC will never be more than a bit player in the global startup landscape. Her destiny will be to forever rise and fall in size and import opposite the cyclical expansion and contraction of Wall Street.
The scene is out of balance. Founders are starting companies without hackers. Technology companies exist without technologists. It’s fucking crazy.
Tomorrow: All the good shit happening in NYC that involves people trying to address these problems.