What the NYC Startup World Needs (and Doesn't Need) / by Nate Westheimer

Chris Dixon wrote a post a few days with the same title as this one. Fred Wilson has chimed in and there's a larger debate on the NY Times. Chris is a well respected guy who obviously thinks about this stuff a lot, but I think he got one or two things wrong in his assessment. Anyway, I wanted to respectfully counter a few of his points and add a few points to the conversation.

The first thing I want to counter is his notion that spending $100M on "Expensive projects like big engineering universities" is a bad idea. As I said Tuesday night at the NY Tech Meetup, I think this project is the first large, truly disruptive, outside the box plan I've seen from the NYC government. I've always advised the City to do things that truly leverage its unique abilities (i.e. stay away from incubators and incremental investment funds, which the market can and is taking care of just fine). Getting a major engineering school to move itself to NYC would return over $100M in value to the greater City in very short order -- we're talking only one big startup coming out of this -- and would change the face of the City in a big way.

Chris also mentioned he thought of other ways to spend $100M. I think he and I would agree that the City should only spend resources on what they can do uniquely and that provides leverage in the market. This plan fits that squarely. I would love to know what suggestions Chris has that also fit that mold.

Lastly, I think Chris may be underestimating the impact the students of a major engineering school will have here. In other places (hi Boston/Stanford culture!) innovation seems to come from the researchers and professors. Two years ago I was also on the record saying how much I hoped innovation would come from our researchers and public/private relationships between startups and universities.

But today it's clear: HackNY has been the single most important thing that's happened in NYC over the past two years. Single most important thing. University-based innovation in NYC will be lead by its students. Hell, startup innovation will be lead by its student interns! And a school the brings in hundreds of new engineers a year to NYC will make a big big difference. I think it's a great investment.

Past the university issue, I totally agree with Chris on what we don't need. On the front of "what we need" I think he left out one huge, huge issue: we need a plug for NYC's leaky M&A bucket.

Much more than "More marquee tech companies opening large tech offices here," we need A marquee tech company to actually be headquartered here -- to be a real NYC company. I wrote about it last year and I still think it's the single biggest vulnerability for our tech ecosystem: when a company gets bought -- and despite this IPO market, that's still what happens for 95% of startup "successes" -- there is not a single TECH company that could buy them in NYC. This is a huge problem.

How huge? I think losing Justin Schafer and Sam Lessin to Facebook was damaging to the NYC startup ecosystem. Sam was making super smart seed investments, driving its culture with Y+30, hiring amazing developers; Justin too was building a world-class team (some of whom are already back out in the market building great companies).

Now Sam and Justin are gone and while we're a vibrant and diverse community here, I feel there was a real hole left behind. And they're just two examples. I'm still worried about what happens when/if Foursquare sells. In 2011 NYC tech is bigger than any one person or company, but these are all damaging, and in the long-run its a problem.

So what to do about it? Our media companies -- for their own sake, not ours -- need to become tech companies. Real exit opportunities for NYC's startups are those that allow them to stay in NYC doing interesting technical things. Last year I wrongly suggested that IAC could be the most-likely-yet-still-unlikely saving grace here. Sadly, and with almost no more faith that I had in IAC, I think AOL is the more likely hero. They say they want to be a media company and so, again, I have very little faith here, but if they would somehow pivot and embrace their technology roots and choose to be a world-class technology company then I think NYC would finally start plugging its M&A hole.

Lastly I should point out that while I have little faith that AOL or IAC will make this shift, despite being the closest of the media companies to being that big tech player, I actually have a lot of faith in the market that SOMEONE will emerge.

Soon enough? We'll see.

But, if you've been at the last few NY Tech Meetups you will notice that Conde-Nast, Hearst, and yes, AOL, have all demoed great skunkworks projects. As Marc Cenedella pointed out at Tuesday's NYTM, Idea Flight isn't your father or mother's big company skunkworks project -- it's elegant, simple, not over-thought. I'm officially on the record with Marc (and smart folks like Anil Dash are too) that this is a very good thing for NY tech (and I think the wider world -- but that's another blog post).

So will it be IAC or AOL? Probably not. But the NY Times has an incredibly impressive R&D team and I'm quite certain that if Conde-Nast and Hearst are smart and 1) keep giving these skunkworks teams as much leeway as they want; and 2) compensate the heck out of these entrepreneurs with serious equity in their own projects, then A big media company could emerge in the next 10 years as a big tech company.

Let's just hope it's not too late.