Am I On The Wrong Coast?

At the end of last year, Dharmesh Shah wrote a depressing post about east-coast versus west-coast entrepreneurship, especially fundraising. It, and its many thoughtful comments, are well worth a read.

I’ve never had the pleasure of meeting Jim Matheson of Flagship, though earlier this year he and I amused ourselves trading a bunch of emails about the French Foreign Legion (don’t ask). Jim had an interesting article at Mass High Tech this week, which rekindled my thinking about Dharmesh’s blog post.

This particular section of Jim’s article made my stomach turn:

During one heated discussion on the funding market, it was said to me very matter-of-factly, “The Boston establishment is about preserving wealth, not creating it … and it’s been this way for a long, long time.”

While I hope that this is an untrue statement, my gut tells me it may be very accurate.

Jim asserts that in Boston…

[t]here are … sufficient VCs who are well versed in the Web 2.0 space and ready to fund highly capable teams with viable business models.

The key word in this sentence is ‘ready’ in the phrase “ready to fund”. When I saw this, my neurons immediately started playing back the hilarious Seinfeld piece of Jerry at the car rental counter screaming “Anbody can take a reservation…”. The gap between “ready to fund” and “funding” is non-trivial, to say the least.

There is a capital gap in New England. Early stage companies in Boston have to work harder than their Valley counterparts to close seed and A stage funding here. As Dharmesh points out, this is a major time-sink, comparatively speaking. I don’t know what the stats are, but I would bet that in the Valley, the proportion of total venture dollars being put to work versus total seed and A stage dollars being put to work – actually put to work, not “being poised to be put to work” 😉 – is much much higher than in Boston.

I don’t know jack about Xobni, but in reading their blog, I could make two observations about their move west. First, if Vinod Khosla wants to write me a seven-figure check, I’ll be on the next flight to SFO. Second, it apparently took Xobni five months to raise a ~$4M round, and I’ll bet that included their cycles through the Boston VCs. If you cut out their Boston wheel-spinning, that’s a relatively time-efficient round of fundraising. The question isn’t “why did Xobni leave” the (much less pleasant) question is “why would they possibly stay”?

The Boston startup ecosystem is hardly in shambles, but it does need attention.

With props to Seth for the pointer to Jim’s article.

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5 comments

  1. Pingback: Fear vs. Greed / East vs. West « Myriad Missives
  2. Pingback: I _still_ owe Scott Kirsner a beer! « Myriad Missives
  3. Shawn

    I said it’s “HARDLY in shambles”! But it sure ain’t optimal regardless of how you want to skin the cat.

    I disagree with you (Nabeel & Dharmesh) that it’s largely an issue of showing some successful exits. I think the challenges are more infrastructural – but that’s another blog posts 🙂 .

    S

  4. nabeel hyatt

    i think i differ a little on the fact that Boston is in “shambles.”

    I think the Boston VCs are in the best shape they have been for early stage startups. They’ve come a long way when you see things like Going.Com, Wis.dm, and others getting seeds and A rounds.

    But yes, although it has gotten better, it is still greatly lagging the valley — different stratosphere’s actually. There is a trickle of consumer startups funded in Boston, and as we see successful exits from those the number will rapidly increase.

    Unfortunately in the meantime that means it is a huge tease of having a bunch of VCs “interested” but not really deploying much capital in seed and A round opportunities in this space.

  5. Dharmesh Shah

    Shawn,

    Just when I had finally gotten over the sad realization that most Boston VCs are just not that “efficient” in getting deals done, you have to bring it all up again.

    What we need are a few big hits in the Internet startup arena in Boston and hopefully that will changes things for the better.

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