If it attracts Austrian startups to the United States, then the Silicon Valley is often the big goal. This is not always useful. New York is home to big banks, hedge funds and insurance companies – a paradise for fintechs. Even interior design, fashion or media startups are better off here than in the deep tech region of San Francisco.
“The New York startup ecosystem is very dynamic and fastest growing of all regions in the US,” said Florian Krisch in an interview with Trending Topics. The young Viennese has made the Big Apple his second home – he is responsible for startups in the office of business delegate Michael Friedl. In New York, the ecosystem is not yet so ripe, the cycle of exits and reinvested startup millions has been through the Valley much more often. The biggest startups in New York are WeWork, Etsy or Oscar Health Insurance.
“There is a lot of old money in New York”
In New York, there is the highest concentration of the largest listed US companies from the S & P 500 index. “New York is a very good starting point for startups that want to work together with large companies,” says Krisch. “There is a lot of old money in New York and young money in Silicon Valley. The bridge to the younger generation is happening in New York. ”
The Foreign Trade Center New York is also the first point of contact for Austrian startups on site. Friedl and his team help with a large network, but also with legal questions or the search for consultants and lawyers for startups. Außenwirtschaft Austria even organizes its own startup program, the Pitching Days New York, in which selected Austrian startups go through a mini bootcamp for market entry in the USA (Trending Topics reported).
Where is the startup ecosystem in Vienna compared to New York?
Florian Krisch: The comparison between Vienna and New York is exciting. In some areas, Vienna in my opinion performs even better. We do not have to hide. Access to talent is often easier in Austria. In New York you are in direct competition with Hiring to Goldman Sachs, to IBM, to Google. They’re taking the top workers out of the startups by offering very good salaries. Finding talent is certainly easier and more affordable in Vienna. This also applies to working space – Coworking Spaces in Vienna are financially viable.
In Austria we also have very good funding, almost too good. It’s helpful for startups to get funding early, but it shifts the proof of concept backwards. In New York there is no such funding. This forces the startups earlier to go into the market and see if the product and the business model work.
What can Vienna learn from New York?
A lot is happening in Vienna between corporates and startups, such as Corporate Accelerators. But it still requires the willingness of large companies to invest later in these startups and to include the team. Startups often tell me that they are in contact with large domestic companies, but the due-diligence process is endless. This is understandable because companies want to minimize risks, but at the same time consumes important startup resources. If established companies want innovation, they also need to take a certain risk-taking approach. Dreaded to death has also died.
Where Vienna still has catching up to do is simplifying the founding process and adapting regulations. Often a startup has an innovative idea, but we treat it on legal bases that are over one hundred years old. Since you have to adapt faster to current conditions.
The VC scene in Austria is still very manageable compared to New York.
There is an active business fishing scene. AWS has also done a great job of building a community with the i2b Business Angels. Most of the time, business angels give smaller tickets and above all their experience. There are a few Series A VCs, but as soon as a startup gets bigger, it’s almost forced to leave Austria. There is enough money in Austria, there just has to be an incentive to invest this money more risk-averse. The fact that the Vienna Stock Exchange opens the third market is an important first step.
There are also important cultural differences between the US and Austria, especially in the culture of failure. With us you are stigmatized as an entrepreneur as someone who exempts workers and if you fail, have always known it all.
Experience and knowledge
In the US, experience is appreciated – but you still have to show that you’ve learned something from it. In Austria one is often written off before the learning process. That changes slowly.
While pointing your finger at failed startups, you overlook a different risk: We now have quite a few flat-lining startups that are actually clinically dead, but are kept alive until the investor at least his capital employed comes out again. Since in the US, the final stroke is drawn much faster. In Austria this would contribute to the dynamics in the ecosystem.
Which sectors work better in which regions?
In New York, end customers are in the FinTech sector. These are hedge funds, banks, insurance companies. If you produce something for that, that’s the perfect location. They all have very active corporate venture capital programs. Citibank, for example, is very active, also buys and operates its own hubs. Media and Advertising is also in demand in New York, because here are the big advertising houses. If you have a media startup in the News section, here are the New York Times, Bloomberg, Time Warner.
But also lifestyle products work well in New York. A consumer product in the areas of fashion or interior design, for example, will work well here, because the target group is set precisely on this. High-tech stuff like AR or VR, Machine Learning and AI fit better in San Francisco. There sit with Google, Facebook and Uber the player with appropriate expertise. In Silicon Valley is the Deep Tech Hub.
New York is also a very diverse ecosystem because people from many different backgrounds come here and work in very different areas. Startups, Wall Street and Tech as well as Broadway, Media and Fashion create a unique mix. The social melting pot is very big. In Silicon Valley, the ecosystem is more homogeneous. Startups often tell me that after working at the barbecue, they meet the same people from Google, Facebook and Co. and talk about development, apps and the like. There you are in a bubble, where the feedback is very one-sided.
What do startups have to watch out for when expanding into the US?
The important thing is not to see the US as a whole. It helps if you choose a test market, such as New York, where you get a good cross-section of society. Also important is the competition analysis. A US investor will almost always invest in the US product. If there is a similar startup, the investor will tell them to supplement the few features. I hear from a lot of startups, not only from Austria: “We are the only ones who do that”. That’s almost always wrong. It often does not take much to copy a product. If you need two Google developers for an afternoon to program something, you have a problem.
Even in B2C marketing there are big differences to Europe. In the US, marketing is sometimes hopelessly exaggerated. Felt 30 percent of the sold greatness you have to deduct. Austrian startups provide good technology but are often too shy. For B2B, this only includes facts and figures and direct customer benefit. Being there to tell about the great team, the startup history and the tradition will not work. Time is money in New York.
Do you need a startup as a startup in the US?
When it comes to specific VC financing in the US, we usually talk about higher sums. If a startup is looking for 200,000 euros, I would not recommend doing this in the US. Such sums can also be set up in Austria and it is good to grow there first.
You have to be able to afford to get a US investment.
When it comes to Series A, millions of dollars, you’ll find more investors in the US. But the VCs mostly invest in a US Inc. or LLC. These companies are founded very quickly, but US investors also want to invest in that which has value. Many investors therefore demand a Delaware Flip, in which the IP in the US Company Company, the new holding company for the Austrian company. Thus, U.S. Pat. Investors also share in existing intellectual property (IP). This Delaware Flip and everything around it costs money and time. You have to be able to afford a US investment.
Is risk capital really as loose in the US as one sometimes hears?
At the mega-rounds of Uber and Co., you might get the impression that billions are thrown to the companies. However, these big companies have a very high burn rate and constantly need new large sums for development to break even. For example, until Uber’s Autonomous Driving is profitable, it will take a lot of money. But it’s about existing investors who write a check again. If Softbank has a $ 100 billion fund, they can also write follow-up investments more easily.
Meanwhile, there is a higher risk awareness among investors.
For the small startups who are looking for Series A, you realize that it gets harder. More and more startups run out of air even in higher rounds, when the competition jumps on the trend and you’re no longer the only provider. Meanwhile, there is a higher risk awareness among investors. In New York the deal count has declined in 2018. In absolute terms, however, more was invested with USD 13 billion. This development suggests that investors are more likely to push the startups into which they are already invested, but shy away from new investments. The money is therefore no longer so loose.
Is there actually an Austrian startup that is known in the US?
When I ask about Austrian startups in the New York scene, I think none is known. Even at Runtastic, you may know the app, but you probably do not associate it with Austria. But that’s the case with many things. At first, neither Red Bull nor Swarovski believe that any Americans know that this is Austrian.
Is there an Austrian startup community that meets regularly?
This is more actively practiced in San Francisco, where there are regulars’ tables. The startup community from Austria is a bit bigger there. There are events for the Austrian community in New York, where, of course, there are startups every now and then. But there are a lot of start-up events in New York that you can go to and we’re also building a community for Austrian startups in New York through our events. It has never happened that someone feels lost here.
Also published on Medium.