Betaworks Coming Out Of Beta?

John Borthwick indicates a major change of philosophy at Betaworks, the NYC start-up incubator, along with announcing the departure of his co-founder Andy Weissman to join Union Square Ventures:

via Ben Popper, Andy Weissman Leaves betaworks For Union Square Ventures, quoting Borthwick’s internal email

First, after four terrific years, Andy will be leaving betaworks to pursue a career in venture capital at Union Square Ventures.  This is a terrific opportunity – we are all very happy for him and look forward to working along side him at USV.  Second, over the last several months Andy and I have been working on what comes next for betaworks.  We have had great success since we started betaworks; we’ve grown and sold companies such as Summize, GroupMe, Mobly, and TweetDeck, we’ve invested in companies such as Tumblr, Kickstarter and Ideeli, and we continue to build and work with promising new ventures such as News.me and Findings.  This year alone we have completed five transactions/exits.

We are now ready to move into the next generation of betaworks, #betanext, which is betaworks as an operating company.  Though we will continue to do seed stage investments, our primary focus will be on building the core capabilities of the companies that we acquire and grow in-house.  We are excited about the path that we are taking and have a lot of thrilling work ahead of us.

Andy has been a valued part of the team since the day betaworks was sketched out on the back of a napkin.  He has done a terrific job of seed investing.  He will be around until the end of the month and looks forward to catching up with all of you about his exciting plans, but I wanted to share the news with you first.

Tomorrow, like today and every day, all 82 of us here at betaworks will continue to work on innovative ways to connect people to information and to each other, and we will move forwards towards #betanext.  We wish Andy a the best of luck.

I’ve been working with Betaworks for a few years, as an advisor on News.me and Bitly. I’ve gotten to know Andy very well, and he’s tops. I know that Union Square will be better for his involvement, and with that crew, that’s saying a lot.

Borthwick’s comments about a new stage for Betaworks is perhaps even bigger news. He intends to grow a software company with a large and growing number of software products, as a way to gain maximum synergy across the pieces. Considering how many of the companies fit together, like Chartbeat, Bitly, and News.me, this makes a great deal of sense.

Related articles

• News for news.me - John Borthwick (stoweboyd.com)
• For 21C Malone, #whatsnext? (localglobe.blogspot.com)
• Fog Creek Software Becoming a Betawork’s Style Innovation Lab (betabeat.com)
• On Bitly Buying Twitterfeed (readwriteweb.com)

NYC Catching UP With SV In Seed Funding

Om pulls some interesting data out of CB Insights regarding seen funding of internet startups:

Om Malik, By The Numbers: Seed Funding is The New Black

Here is some salient data from CB Insights’ latest report covering the July-September time frame:

• Nearly $1.253 billion was invested in 233 Internet related deals. Series A media deal size was at an all time high of $3.4 million, once again proving that early stage investing is going through a frothy phase.
• San Francisco saw 36 Internet deals that brought in $131 million, while New York City saw 31 Internet deals garner $126 million. In comparison, Mountain View, San Mateo & Palo Alto saw 21 deals focused on the Internet and they brought in a total of $174 million.
• Early stage investing is dominating the New York area and accounted for nearly 63 percent of all deals. New York can thank folks like Chris Dixon and Fred Wilson for bringing investment dollars to area startups.

NYC is exploding, as I said in this piece last spring:

Hotbed

New York City’s tech scene is expanding at an astonishing rate these days, which raises the obvious question: why now? And, if New York has all the right ingredients to create a rich and deep technology culture, why didn’t it appear earlier?

My theory is that New York lacked, until recently, a critical factor: smart early stage investors.

The other parts of the puzzle were in place: great schools, brainy entrepreneurs, and abundant media and PR people. But without the manure that VCs provide, what looked to be a great greenhouse was cold, and very little would grow.

It is manure that makes greenhouses hot, that makes them hotbeds, and the critical factor is now being provided by folks like Chris Dixon, Fred Wilson, and John Borthwick. Chris Dixon recently made the case that the financial services downturn has dumped a lot of smart people out of financial sector, and also chimes in on the role that smart investors are having:

[…] why did New York City lag behind the West Coast this decade so much more than last decade?  Especially since the internet in the 2000’s has been more than ever about consumers, media, and advertising – traditional New York City strengths?

I think the only explanation is that the finance bubble of 2003-2008 was a giant talent suck on the East Coast.  The people I knew graduating out of top engineering or business programs on the East Cast were all trying to work at hedge funds or big banks or else felt like fish out of water and moved west.   Money was flowing so freely in the finance world that there was no way the risk/reward trade off of startups could compete.  Eventually it just became downright idiosyncratic to be a startup person on the East Coast.  The Larry and Sergey of the East Coast were probably inventing high frequency trading algorithms at Goldman Sachs.

But this is why New York City now seems poised for a technology startup boom. The finance bubble has burst and the industry will hopefully return to its historical norm, about half its bubble size.  The traditional advertising and media businesses are in disarray.  The people who work in them will no doubt find new applications for their talents.

There is also a nice ecosystem developing in New York City.  Union Square Ventures is one of the best VC’s in the country, with early stage investments in companies like Twitter and Etsy (that were followed on by top West Coast VCs at significant markups).   Bessemer is an old firm that has a managed to stay relevant with investments in Yelp, Skype, and LinkedIn among others.  There is also a new wave of scrappy Boston firms spending a lot of time in New York City – specifically Spark, General Catalyst, Flybridge, and Bain Ventures.  First Round Capital out of Philadelphia is extremely active in early stage investing in New York.  There are a bunch of veteran entrepreneurs actively investing in and mentoring seed stage startups.  Google has a big office here and many people seem to be leaving to go start companies.

Fred Wilson of Union Square Ventures, recently made the point that NYC has been slowly growing as a start-up hub for a decade:

Chris [Dixon] argues that for the past decade, hedge funds and wall street have been a huge talent suck here in NYC and now that they are scaling back, our kinds of companies will find it easier to attract the best and brightest. I agree completely.

But I take some offense to Chris’ view that NYC was “irrelevant” in the 2003-2008 internet boom. TACODA, Right Media, Gawker, Quigo, Delicious, Etsy, Meetup, Indeed, Tumblr, Return Path, etc, etc.  I don’t call that irrelevant. I call it misunderstood. Good thing people, including our Mayor, are waking up to what a good thing we’ve got going here.

I think a tipping point has been reached, though, where all the pieces are now connecting, and we are moving past an inflection point into explosive growth.

And the result will be a richer, growing, and more dominant tech scene in NYC.

Related articles

• Fred Wilson Says New Data Shows New York is More Efficient Than Silicon Valley (observer.com)
• Overall Investment Dollars Down, Says Quarterly Report, But Seed Deals Strong (readwriteweb.com)
• Why New York Will Challenge The Valley for Consumer Internet Supremacy (businessinsider.com)

News.me

The hush-hush News.me development project at Betaworks — based on technology acquired from the NY Times — has been leaked to the press, by Mashable’s Jolie O’Dell.  Few details have been revealed, but John Borthwick, CEO of Betaworks said “We’re building something wonderful and amazing in the social news space.”

No real details, just vague allusions to personalized and customized news. Seems like the news led Betaworks to launch the News.me stealth website on Thursday.

Update: I have been informed that it appears that Jenna Wortham at the NY Times (Betaworks and The Times Plan a Social News Service) was the first to break this story (thanks @mathewi).

[disclosure: I am an advisor to Betaworks, and have a financial interest in Bit.ly, one of the incubators product companies.]

Profile Of Betaworks

Jenna Wortham, In New York, a Tech Incubator Becomes a Hub of Collaboration

The company was founded by John Borthwick and Andrew Weissman, who worked at AOL in the ’90s.

“I was there when AOL bought CompuServe and Netscape and did the first content deal with Amazon,” said Mr. Weissman, chief operating officer. “You could start to see these new ways pieces of the Internet were coming together.”

He said he watched as one AOL project, MapQuest, gradually lost market share. Google Maps grew faster because it allowed other companies to add information to a map or use the service in other tools. “You could just see that model was going to be big,” “We said, ‘We think this is it, and we want to invest in these kinds of companies.’ ”

A little over three years ago, the two decided they wanted to create their own company aimed at that very idea. Thanks to tools like Amazon Web Services, Twitter and Google Apps, developers could more easily build and scale Web tools.

“We knew there was a big fundamental change happening on the Internet,” said Mr. Borthwick, Betaworks’ chief executive. “And we knew it was going to be social.”

They spent nine months deliberating over how to structure their company before settling on a hybrid of an investment firm and an incubator.

“The venture capital structure is banking on finding that one super-duper winner, and there’s nothing wrong with that,” said Mr. Borthwick. “But our goal is to create a network of companies with lots of connections between them that increases the likelihood of success between all of them.”

It’s not hard to see that spirit at work. The two dozen companies under Betaworks’ umbrella make a point of using one another’s creations and often incorporate them into their own services. At a recent meeting at Betaworks, about three dozen employees of Betaworks and its portfolio of companies crowded into a room, trading feedback, updates and the occasional good-natured zinger about their various products.

Betaworks has developed some Web tools from scratch, like Bit.ly, a URL shortener, and Chartbeat, a real-time Web analytics service. But the company is looking for entrepreneurs who have more than a vision.

“Anyone who shows up with an idea on a napkin, we’re going to tell them, ‘Thanks, but go build a prototype,’ ” Mr. Weissman said.

I find Betaworks to be impressively unorthodox, and more experimental in its outlook that conventional VCs, even the very smart VCs.

I hope that I will be able to twist John’s arm to join me in the fall as a guest of the planned Stowe Boyd Show, once I screw down details (and line up some sponsors).

[disclosure: I am an advisor to Bit.ly, and have a stake in it’s financial success.]

Hotbed

[originally posted at Hotbed]

New York City’s tech scene is expanding at an astonishing rate these days, which raises the obvious question: why now? And, if New York has all the right ingredients to create a rich and deep technology culture, why didn’t it appear earlier?

My theory is that New York lacked, until recently, a critical factor: smart early stage investors.

The other parts of the puzzle were in place: great schools, brainy entrepreneurs, and abundant media and PR people. But without the manure that VCs provide, what looked to be a great greenhouse was cold, and very little would grow.

It is manure that makes greenhouses hot, that makes them hotbeds, and the critical factor is now being provided by folks like Chris Dixon, Fred Wilson, and John Borthwick. Chris Dixon recently made the case that the financial services downturn has dumped a lot of smart people out of financial sector, and also chimes in on the role that smart investors are having:

[…] why did New York City lag behind the West Coast this decade so much more than last decade?  Especially since the internet in the 2000’s has been more than ever about consumers, media, and advertising – traditional New York City strengths?

I think the only explanation is that the finance bubble of 2003-2008 was a giant talent suck on the East Coast.  The people I knew graduating out of top engineering or business programs on the East Cast were all trying to work at hedge funds or big banks or else felt like fish out of water and moved west.   Money was flowing so freely in the finance world that there was no way the risk/reward trade off of startups could compete.  Eventually it just became downright idiosyncratic to be a startup person on the East Coast.  The Larry and Sergey of the East Coast were probably inventing high frequency trading algorithms at Goldman Sachs.

But this is why New York City now seems poised for a technology startup boom. The finance bubble has burst and the industry will hopefully return to its historical norm, about half its bubble size.  The traditional advertising and media businesses are in disarray.  The people who work in them will no doubt find new applications for their talents.

There is also a nice ecosystem developing in New York City.  Union Square Ventures is one of the best VC’s in the country, with early stage investments in companies like Twitter and Etsy (that were followed on by top West Coast VCs at significant markups).   Bessemer is an old firm that has a managed to stay relevant with investments in Yelp, Skype, and LinkedIn among others.  There is also a new wave of scrappy Boston firms spending a lot of time in New York City – specifically Spark, General Catalyst, Flybridge, and Bain Ventures.  First Round Capital out of Philadelphia is extremely active in early stage investing in New York.  There are a bunch of veteran entrepreneurs actively investing in and mentoring seed stage startups.  Google has a big office here and many people seem to be leaving to go start companies.

Fred Wilson of Union Square Ventures, recently made the point that NYC has been slowly growing as a start-up hub for a decade:

Chris argues that for the past decade, hedge funds and wall street have been a huge talent suck here in NYC and now that they are scaling back, our kinds of companies will find it easier to attract the best and brightest. I agree completely.

But I take some offense to Chris’ view that NYC was “irrelevant” in the 2003-2008 internet boom. TACODA, Right Media, Gawker, Quigo, Delicious, Etsy, Meetup, Indeed, Tumblr, Return Path, etc, etc.  I don’t call that irrelevant. I call it misunderstood. Good thing people, including our Mayor, are waking up to what a good thing we’ve got going here.

I think a tipping point has been reached, though, where all the pieces are now connecting, and we are moving past an inflection point into explosive growth.

One of the other factors, that can’t be downplayed, was the cold water that got splashed all over the San Francisco tech environment in the fall of 2008.

Sequoia’s infamous ‘Good Times: RIP’ presentation — and the thinking behind it — infected Silicon Valley’s venture world like a zombie plague. In a nutshell, the venture firm had a secret meeting of its partners and key staff after the banking sector melted down, and shared a vision of rising financial insecurity and the need to decrease risk exposure. The result was a Valley wide cut back in deals, and a push to make portfolio companies more lean through staff cuts, decreased marketing, and slower technology roll-out. Over the next 18 months many companies would lose their funding, and thousands of developers, designers, and marketing folks would lose their jobs or contracts.

While the funded entrepreneurs and investors in the Bay area were busily patting themselves on the back for being so austere and forward-looking, the migration of start-up aspirants from Montana, Ohio, and Mumbai slowed. The big freeze stopped decades of software immigrants heading for the West Coast to start the next big thing. Now it looks like New York City might be the new tech Mecca.

Ron Conway, the great angel investor, made a presentation last November at a Betaworks brown bag lunch. He stated, more or less, that his group had made 25 investments in NYC companies by that point in 2009, out of 37 investments in total. (I may have the exact numbers wrong, but not by much.) In the previous year, he made only one investment in NYC, and in all the previous years he had been an investor, none.

Yes, this is a single investor, and it could represent a new-found willingness to invest outside of California on his part. Still, I find it indicative of the piling-on effect of smart money chasing other smart money in an environment that is creating enough innovation to justify it.

So, this new project, called Hotbed, is a vehicle for me to examine what is going into this creative frenzy, this exploding scene. I am an economic migrant, myself. In late 2009 I left San Francisco, a city I had used as my base of operations for 4 years, and I am now rerooting myself in New York City. This will be the journal of my inquiry into the peculiar chemistry of New York’s start-up explosion. I will continue to write about more global topics at /Message, as I have been doing since 2005. But Hotbed is all about New York tech start-ups, and the shifting, swirling scene that supports them.