Diversity, why international startups love NY, and why NY VCs love international startups

New York is now the second-most-active tech ecosystem in the US on all key metrics, after the Bay Area.  One of the drivers for that growth is that for European, Israeli, Latin American, and Eastern Canada-linked companies, the East Coast is much closer than California.

New York venture capitalists like me recognize this trend, and more and more of us are opening our doors to invest in startups with international roots.  I see four main reasons for this:

  1. Less capital intensive (and consequently lower valuations)

Tim Schumann, Founder & CEO, Buddy Ventures, highlights that typically less investment capital is required to get into foreign startups at the same stage of development as a comparable US startup.    

  1. Easier and cheaper recruiting, with less attrition compared with the heated New York tech talent market

Olivier Mougenot, Investment Director, NUMA Paris, points out if you start with an offshore tech team, it’s easier and cheaper to expand it than start a new office from scratch.

  1. Founders’ determination

For non-US citizens, often their right to stay and work in the United States is dependent on the job. They burnt their ships behind them.

  1. Easier to scale internationally

If you want to start selling abroad, an international founder is an advantage. A recent example is Arcus (HOF portfolio company), a NYC startup founded by a Santo Domingo immigrant which has expanded rapidly to work financial services clients across the US and Latin America..

Strikingly, there are now several state and city government programs specifically designed to make it easier for non-Americans to found companies in NYC.  In early 2016, New York City launched the International Innovators Initiative (IN2NYC).  This is the first citywide program in the US that allows a city (New York) to retain and attract foreign entrepreneurs by offering access to uncapped H1B visas. In its first two application periods, the initiative received over 215 applicants.  Colorado and Massachusetts have similar programs.  Other New York initiatives include the World Innovation Tour to Asia organized by New York International and four Asian governments; Startup Global New York City; and the GlobalNY program.  

There are at least a dozen private businesses and organizations in NY whose mission is strengthening links between NY and other countries’ innovation ecosystem, including Ellis AcceleratorICONYC Labs, Global NY, NYCEDC, New York International, Nordic Innovation House, Silicon Dragon Ventures, SOSA, Startuphub.nyc,  SwissNex, and VentureOut.  In addition, many of the local consulates, chambers of commerce, etc. run technology-focused programming, e.g., the German Accelerator Canadian Technology Accelerator Initiative, Switzerland Global Enterprise Fintech Trade Mission.  Entrepreneurs have created such Meetups as La French Touch, the NY Latino Tech Meetup and Japan NYC Startups.  Lastly, the numerous local accelerators serve as platforms for internationals coming to the NY.

Get invites to exclusive events, jobs, and research.

The role model for most of the international innovation communities I meet is Israel, the “startup nation”.  An increasing number of Israeli companies are now building their US presence in NY.  New York’s startup community includes at least 270 active startups founded by Israelis alone, including success stories such as Conduit, Taboola, Kaltura and Fiverr.  ISRAELIMappedinNY tracks all of the local activity, and people meet through such groups as Israeli Startups NYC and Israel Tech Meetup Group.  

Relatively few US VC funds have a systematic focus on non-US based companies.  The exceptions in New York include some of the dual-nationality VCs with non-US offices; e.g., HOF Capital, Alrai Capital, Arieli Capital, Bleu Capital, Blumberg Capital, Cathay Capital Private Equity, Cornerstone Venture Partners, Elevator Fund, Fifth Wall, JANVEST Capital Partners, iNovia Capital, Innovation Endeavors, Northzone, Pereg Ventures, Richmond Global, Silicon Badia, Vaizra, and White Star Capital. 

HOF Capital is particularly interested in investing in companies with international roots.  Out of 18 companies (including special purpose vehicles), HOF Capital has backed 10 founding teams with roots in underrepresented regions: MENA, Latin America, Turkey, and Africa. In addition, HOF has backed 7 companies with roots in Canada, China, Estonia, Finland, India, Germany and Russia. Two of HOF’s companies have African-American CEOs; two have Latino CEOs.  (I should mention four HOF companies have female CEOs/cofounders; two of the firm’s eight full-time staff are women.)  HOF’s acceleration resources are relevant for any startup, but particularly for those led by recent immigrants, who typically do not have experience in building a US company.

In addition, the NYC government recently entered into a partnership with B.New York City, a Dutch co-working space.  Once fully operational, it will be a 140,000-square-foot space meant to serve as a landing pad for international startups looking to expand to the United States.  This is anticipated to bring 500 new jobs to the NYC economy.   Marjan Blumberg, Managing Director, B.NewYork City, observes, “The number of startups that have set up shop from Europe have increased drastically after the recession.  At the Dutch Consulate alone, we saw more than double the amount of companies interested into scaling into NYC between 2014 and 2015. Of the 110 in 2015 who expressed interest, 1/3 ended up setting up a presence in NYC.  B.NewYork City is currently planning a research study to dive into a number of topics related to the nexus of international startups and NY, including job growth both in NYC and the European cities where companies originate.” [Update: no longer active in NY]

Despite recent anti-immigrant rhetoric, we hope that the federal government will maintain America’s historical openness to talented immigrants.  The US economy will benefit, and particularly the cosmopolitan New York economy.  As the immigrants and other people with international ties arrive, we will be waiting with open checkbook.  

For further reading:

Thanks to Andrew Ackerman, Dreamit; Alessandro A. E. Anzani, Louis Coppey; Alia Dedhar; Brian Frumberg, VentureOut: Marc Lemcke, New York International; Gianluca Galletto; Justin Kreamer, NYCEDC; Andrew Sudol; Ben Zlotnick, Eden; and Yordanka Ilieva, Columbia Business School for thoughtful comments.

Posted as a guest op-ed in Crain’s.

Get invites to exclusive events and research.