Venture Capital Is Having Its New York Moment

In the 1980s, venture capital firm Sequoia set a tone for the tech investing industry with a Silicon Valley-first mantra: if we can’t ride a bicycle to it, we won’t invest. Today, that motto’s playing out a bit differently: on the streets of New York City, over Citi Bike.

And it’s Sequoia, which opted to launch a London office last year but still has no permanent presence in America’s most populous city, that hasn’t caught up to the VC zeitgeist. Everywhere you turn in New York startup circles, you’ll find investors who have either moved in recent months or been hired by West Coast firms looking to plant a flag.

Historically West Coast-based firms including Andreessen Horowitz, Craft Ventures, Greylock, Lightspeed Venture Partners, Redpoint and Threshold Ventures now have check-writing investors living in New York. Others are rumored to be looking – or at least looking the other way, as younger employees stay there for long stretches unofficially.

“I think every firm will have a New York office in the next 18 months,” one partner at a prominent Sand Hill Road firm without such a presence confided (anonymously) in the Midas Touch newsletter this past weekend. “Every single firm is talking about it.”

Planting the flag

For Threshold, formerly known as DFJ Venture, planting roots in New York was a business decision, cofounder Emily Melton says. Six of the firm’s most recent investments were based in New York, while nearly 40% of its Fund III companies maintained an East Coast-based founder, says partner Chirag Chotalia, who raised his hand and moved to Manhattan’s SoHo neighborhood in recent months. The firm also hired Megan Kelly, previously of First Round, Thrive Global and J.P. Morgan, as a principal. (Kelly was unavailable for comment, having recently gone on maternity leave.)

“I like to call it the Brady Bunch view: we can still do a partner meeting [on Zoom] where I can see everyone’s faces in the boxes,” says Melton. “But at the end of the day, we also believe there’s something about physical presence.” 

One firm making waves in the city is Andreessen Horowitz, the supersized firm that maintained an executive briefing center and support staff in New York in past years, but historically insisted investors reside in the Bay Area. That changed during the pandemic as teams went remote last year or chose from several cities where staff clustered. Now the firm is becoming a visible — and vocal on Twitter — part of the city scene, across multiple groups. From Andreessen Horowitz’s fast-growing crypto fund, chief operating officer Anthony Albanese lives full time in New York, while general partners Ali Yahya and Arianna Simpson have lived in the city for long stretches.

Anchoring A16Z’s venture fund presence in New York is David Haber, who joined the firm in June from Goldman Sachs. Haber helped open Spark Capital’s office in New York nearly a decade ago before founding Bond Street and selling it to Goldman. Now he’s part of what peers say is a 20-person-plus team in New York; at least one other general partner, David Ulevitch, is in the process of purchasing a New York home. 

The recent success of tech companies going public in New York from ad tech to ecommerce and infrastructure has helped prove that New York must be taken seriously as a significant tech hub, Haber says. “The city feels really great. It’s not surprising to me that people are moving here,” he adds. “Venture is still a relationship business.”

Fintech frenzy

It’s no coincidence that Haber, Lightspeed’s New York-based partner Justin Overdorff and Greylock principal Seth Rosenberg all specialize in fintech. One of tech’s hottest areas by funding, fintech startups raised $39.2 billion for the year as of September 30, according to PitchBook, compared to $20.4 billion last year. And while Stripe and other fintech leaders historically grouped in Silicon Valley — in Plaid’s case, moving there from New York — a new generation of breakouts like Ramp is remaining in town.

Overdorff moved to New York just before the pandemic on behalf of Stripe, which saw benefit in having a veteran corporate development and strategy leader in the city, closer to Europe. Overdorff was already personally investing in a new generation of fintech companies increasingly based in the city, such as bank identity system Alloy. Overdorff’s pitch to Lightspeed to serve as its first East Coast partner was simple: “If you don’t have someone in New York, you’re going to miss out.” In September, he led a $100 million Series C funding round in Alloy on behalf of Lightspeed, valuing it at $1.4 billion. “I think fintech has rotated its headquarters to New York right now, at least from a talent perspective,” he says.

Fintech excitement is only being fueled further by the congregation of crypto and “Web3” founders in New York, says Rosenberg at Greylock. “The culture of crypto is even more decentralized and integrated into culture that’s outside of core software development,” he says. “The new mayor said he’s getting paid in Bitcoin for his first three paychecks. I think the underdog mentality here gives a renewed energy.” It’s not just crypto, either: other investors point to digital health and ecommerce as local startup hotbeds now minting unicorns like Spring Health.

No vests needed

There’s another, more personal reason for the trend as well: investors who prefer the city now don’t need to choose it over a job. “I chose to move to New York because it’s filled with arts and culture, diverse people and a massive economic engine,” says Lainy Painter, a partner at Craft Ventures. “It’s a new experience and I love having opportunities to meet with East Coast founders for coffee in the morning or even a show at the Comedy Cellar at night.”

“The reason VCs are moving here now is because they’re allowed to. The Bay Area has lost its stranglehold on tech,” adds Logan Bartlett, a partner at Redpoint who initially planned to move to San Francisco upon his hiring, before opportunistically staying put “People want to be in NYC for lifestyle reasons and because no one wears a Patagonia vest.”

What do New York’s longtime investors think of the competition to book lower Manhattan’s most popular happy hour spots? They’re welcoming, publicly — not that they have much choice. The good news: investors are following the deal activity, and more entrepreneurs are moving to New York or launching businesses there, they say. Union Square Ventures doubled down on a much larger office space for hosting events and techies passing through starting next summer, says partner Rebecca Kaden. At Lerer Hippeau, Caitlin Strandberg says she hopes more investors in town will lead to more collaboration, not less: “For me personally, it all means many more coffee meetings.”

Make no mistake: New York still has a long way to go to rival Silicon Valley. As of September 30, investors had poured $38.9 billion into area startups, 154% the city’s previous record, according to PitchBook; over the same period, Bay Area-based startups raked in $88.4 billion, itself up 133% from previous highs. And firms have declared themselves in the city before — Haber helped launch Spark Capital’s office a decade ago.

But few investors expect the momentum to evaporate this time, fueled by pandemic flexibility and the booster crop of founders now calling the city home. “The other day I caught up with three VCs from top firms and all of them were either moving or really wanted to move to NYC,” says FirstMark partner Matt Turck. They hailed from firms like Altimeter and Kleiner Perkins. “The level of energy in NYC right now is like nothing I’ve ever seen before,” he adds.

Some may blur the lines of what living in New York means, however. Accel’s Amit Kumar says that despite his firm’s history of backing local businesses, he considers his current stay in the city a Covid-19 influenced work-from-home experiment; he still calls himself West Coast-based. And Andreessen Horowitz communications chief Rachael Horwitz cautioned that if last year’s trend for her fund continues, “as the weather gets colder… a lot of that energy may move to Miami.”

At Eniac Ventures, firm cofounder Nihal Mehta proposes an unusual metric for determining who’s a New Yorker and who’s not. “Maybe a good KPI to define how ‘New York’ you are is how many Knicks games you’ve been to,” he says. You’ll spot the poser VCs across the river, he adds, cheering on another recent-arrival startup investor: Brooklyn Nets star Kevin Durant.