Monday, June 2, 2008

Sunday's Globe column: Y Combinator & New England VCs

Yesterday's Globe column explored the question of why start-ups that go through the Y Combinator "boot camp" seem to get funded by west coast VCs, but not VCs here in New England.

Probably it is the youth and inexperience of the founders. Twenty-somethings often fail the first time they try to start a company. (Of course, when they succeed, look out: Microsoft, Yahoo, Facebook, Google, Apple, iRobot, etc.)

Massachusetts venture capitalists, Y Combinator co-founder Paul Graham told me recently, think "like bureaucrats."

"Bad VCs think about covering their a**es if things go wrong. They want to minimize the downside. Good VCs chase high returns," he says.

"Silicon Valley investors know about Y Combinator and take it more seriously. They're much more curious about new things." In Silicon Valley, firms send partners to the YC demo days, where start-ups show what they've been working on. Here in Boston, he says, they send associates.

"I worry about the future of the city," says Graham. "What makes Boston not just Baltimore is technology. If Boston falls behind in investing, the city will fall behind." Each year, the Y Combinator team questions whether they should continue to hold their summer program in Cambridge, but Graham says, "I think we'll keep doing it in Boston." Getting investment from East Coast VCs isn't essential to the program's success, he adds, because the summer crop of start-ups also take a trip west to pitch investors there. (No YC company has yet gotten investment from a Boston-area investor.)

He gets more into these issues, and his advice for entrepreneurs, in the video clip below:

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Anonymous tom summit said...

Good interview Scott.

However PG never qualifies how the Boston VCs are falling behind. I assume he means in web companies. Check out the 2007 exits for local VC's and you will see they did pretty well with Wireless infrastructure, storage and datacenter technology. This is not to diminish the contribution of Y Combinator which is immense, but to clarify that I believe he is speaking of Web 2.0 companies.

Another point is that the local ecosystem lacks the angel community available in Silicon Valley.
As Nabeel points out in the post's comments, What theHub needs is loose associations of committed angel investors.

June 2, 2008 4:42 PM  
Blogger Ivan said...

The angel networks is one area where the opportunities Boston passes up will exaggerate the existing lead that Silicon Valley had.

There are many ex-googlers who are becoming angel investors. The famed pass on Facebook by Boston investors means an opportunity cost of perhaps hundreds of angels. Those angels will invest in companies that are near them. You can clearly see the feedback loop.

June 2, 2008 9:10 PM  
Anonymous Workpost said...

Thanks for the info. VC's seem to be chasing a very specific kind of investment opportunity and from what I've read lately, it sounds like the east coast / Boston investors are more risk-averse than their west coast counterparts. Perhaps this will change one day but if less VC action here means more angels are floating around, that's good too.

June 3, 2008 12:53 AM  

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