If you want to read some loud cheerleading for the New York City tech scene, look no further than the Autumn 2006 edition of the City Journal. In this issue, Steven Malanga writes about “Silicon Alley 2.0”. This article, alerted to me by Rafat Ali’s post at PaidContent.org, claims that “now—unexpectedly, even improbably— [Silicon Alley] is reemerging as an economic force in New York.” The article also quotes Kevin Ryan, cofounder of DoubleClick, saying what Fred Wilson said last night, that:

Today New York teems with entrepreneurs. Maybe we’re not as deep as Silicon Valley, but we’re probably ahead of most other places, and that’s the city’s strength.

One item to note about the articles: Neither mentions nextNY.My guess is that won’t be for long.

Last night at the Tribeca Cinemas, Fred Wilson spoke to John Heilemann in a live interview. The crowd was a nice mix of Columbia Business School Alumni, New York Magazine subscribers, and New York techies (there was even a nice crowd of nextNYers representing).

For the most part, the evening was about Fred and his views of web trends and his investment thesis. Only the last question of the night addressed the “New York question”, which was slightly disappointing for folks who read Fred’s blog regularly and wanted to hear an evening more focused on starting a company in New York City, as it was supposed to be the main theme of the event. Nonetheless, Fred’s insights are valuable for anyone in the industry, so the following are my best attempt at organizing my notes from Fred’s comments:

Difference between Flatiron Venture Partners (Fred’s fund during the first boom and bust) and Union Square Ventures:

• Flatiron was “pure opportunistic chutzpah”, which had a “lets invest in anything” approach to the internet in 1996.
• Side thesis with Flatiron: We can make money in New York City.
• Interesting fact about Flatiron: Flatiron invested $500 million from August 1996 to August 2000. Then $70 million during its remaining time in operation.
• Union Sq. set out with only $125 million to invest.

One of the best analogies of the night — judging from how often it was brought up at the open bar after the discussion — was Fred’s statement that “VC investing is a lot like poker.” With seed money being the first ante, it’s all about keeping the initial investment just low enough that you can see the “flop” and make your decision to continue playing or throw your cards in. This, again, highlighted a difference between Union Sq. and Flatiron, because when you invest $10 million as a first round - which was common at Flatiron - it’s hard to fold a hand you’ve put so much into, according to Fred.

Heilemann also asked why it seemed that all the most important web companies of today came out of the “doldrums” of 2003 — arguably a low point for the internet. Fred responded that he was fundamentally a contrarian, so “that makes complete sense” that the best would be created when everyone felt the worst. Fred mentioned his contrarian view again when asked about the possible bubble in 2.0 right now. “It’s getting easy to be an entrepreneur,” he added, and that’s not good. However, here are reasons Fred says 2006 is not 2000:

• There’s not an IPO market.
• A lot of companies actually have revenue now.
• Google insures revenue because it has created a results oriented marketplace for advertisers.

Regardless of bubble or not, Fred said it is in his investment thesis to put money in 5 companies a year, whether that year is 2000, 2003, or 2006.

More on Fred’s investment thesis:

• Company must be disruptive. Indeed.com is a classic case of how a company that’s disruptive. On a side note, he expects Indeed to reach profitability sometime within the next 9 - 12 months.
• Doesn’t matter if it’s a product or a company, as long as it can reach $10 - 30 million EBTIDA in the near future, because then it’s easy to devise an exit strategy.

On the upsides and downsides of being a known blogger:

• It’s humanizing, making social relations easier to manage. “It’s an ice breaker.”
• 50,000 people read his blog: “I don’t know most of them, but they know me.”
• On the downside, the need to post everyday gets overwhelming.
• Having so many readers prohibits him talking about his family very much.
• Professional privacy of colleagues suffers.
• When asked if the hyping of companies on his blog ever hurt him, Fred pointed squarely at MyBlogLog as an example where he helped hype a company and was then unable to close a deal with them before they got acquired.

Fred on starting up in New York City:

• You need good tech people when you start a company. There aren’t a lot of good technologists in New York.
• Nonetheless, there’s “a vibrant start-up culture in New York City.”
• And, among other 2nd tier web start-up cities (i.e. not the Valley), Fred claimed that New York has the best ecosystem and is easiest to start a company in, adding “it’s easier than ever before” to start a company in NYC.

Lastly, Fred mentioned that you need 3 founders for a company: A marketing guru, a product guru, and a tech guru. On his note that there are too few tech gurus in New York City, I have to provide this anecdotal evidence: After the discussion, I spoke with two teams of young entrepreneurs. Both teams were comprised of a product guy and a marketing guy, while they outsourced the tech to someone else. “Do you know of any good programmers?” one of them asked me. “I outsource too,” I had to respond.

Nate Westheimer is a Lower East Side-based entrepreneur working on a social networking product now in stealth mode. He blogs at innonate.com

Title comes from Tina Sharkey’s description of business relationships with API-enabled companies.

The most recent nextNY community conversation has already been covered in detail, but here are a few more comments

With developers empowered to knock out alpha releases of web services over a long weekend, companies with tech enabling these projects (Google Maps, AIM) have the ability to look farther and farther down the long tail for new opportunities. An interesting dynamic is that while access to these technologies fosters innovation, it can also be perceived as having a limiting effect.Given the challenges of building a profitable business on the consumer-facing end of the internet, “a very fluid and often fickle world”, to borrow a quote from the other night, it is not entirely surprising that more companies than not take buyouts when they come along, although surely this comes too soon (benefits the acquirer more than acquiree) in at least some instances (Flickr).

Calculating the return on Web2.0 acquisitions is a fool’s errand for someone as uninformed as I, but Yahoo’s seeming inability to capitalize on del.icio.us, which I see on Google’s end with dodgeball, as well as the disappointing returns todate from the GOOG’s purchase of dMarc, would seem to indicate that large caps and nano caps (femto caps even!) can get together sooner, but still have trouble making magic happen.

But can everybody win? Can innovation flourish while the MegaCos of the world venture farther and farther afield from the meaty middle? Thoughts along those lines inspired the sketch below. The traditional paradigm has been for MegaCo Inc. to move a business from the Question Mark quadrant (high growth sector, low market share) into the Stars quadrant (high growth, high share,happy executives!). This is traditionally expensive and risky for big, slow-moving MegaCos. API-enabled companies can now pay a sliver of lost revenue to their cash cow — either as a transfer of direct opportunities (AIM) or in the allocation of resources to foster innovation versus profits (Google) — and attract a swarm of eager entrepreneurs, out which will hopefully emerge a Star or two, secured faster and cheaper than via the traditional method. This works (Blogger,Flickr) except when it doesn’t (YouTube), but on balance it seems to be a smart approach because the portfolio cost is small and the potential rewards are huge.

Buuut, I think if you believe the pace at which consumers expect innovation is accelerating (and having lived in Japan, I come down squarely on the “Yes” side of that issue) then the changing landscape for successful startups has upside for everyone. As winners get absorbed by MegaCos and their features get frozen in carbonite, agile startups retain their inherent advantages and use the now stagnant competitionas fodder for the next round of must-have web services.

Jonah Keegan is an entrepreneur with a business, a blog and a few other things.

Last week, nextNY sponsored a community conversation on Business Development in a 2.0 world, or BizDev2.0. The question to the floor was “Are all of the business development professionals going to be out of work in five years, to be replaced by RSS, APIs, etc.?” The consensus seemed to be that the 2.0 world does not replace business development, if anything the interconnected mashups and APIs enable business development by eliminating weeks and months of the dance between startup and enterprise, and amongst established enterprises. In the 2.0 world, anyone can take an idea and implement it and hook it into the various APIs and services and platforms and feeds that make up the world. That mashup either demonstrates the idea’s value, or shows that it’s not quite ready for prime time.

Charlie O’Donnell and Marti Grimmick organized the event with guests Fred Wilson of Union Square Ventures, Chris Fralic of First Round Capital, Niki Scevak of Homethinking, Tina Sharkey of AOL Instant Messaging and Social Media, Zia Daniell Wigder of JupiterResearch and 12 Hours of Dialogue, and Robin Chan of Verizon Wireless. Ben Bloom organized securing space at Columbia University’s Warren Hall.

I think the discussion highlighted several key points:

• The dial tone for Web 2.0 consists of open web services, APIs, and data streams. These lower the cost of establishing a relationship, make it possible for commodity relationships to exist with minimal overhead, and help to prove whether or not there’s value in the relationship; value which can help determine if a formal relationship should be established. Individuals are unlikely to add enough value in a commodity relationship to make it worth the time and resources of a larger entity to pursue that relationship.
• Even with APIs, data streams, etc, there is still a need for business development in the relationship dance between services, especially if one side is a major site, and the other is much smaller. Fred Wilson suggested doing more deals since deals are easy to do: far better to establish fifty relationships with smaller sites, than to expend time and resources pursuing one or two big deals, on the chance that one or more of the smaller sites will take off.
• The widgets and various JavaScript addons to sites will succeed if they add value to sites. Sites should not make the mistake of treating these necessarily as leeches since they may help draw people to the site’s ecosystem and keep users (and their attention) focused within the site’s ecosystem rather than wandering away. MySpace’s attempt to block YouTube and the user’s subsequent revolt was an example of how to damage a symbiotic relationship between widget and major site.
• People are central to business development in a 2.0 world: where they focus attention, the perceived usability of the sites they use, the value they believe they’re receiving from using the service. People are not necessarily solely seeking monetary value from using a site, one example was given of a site which offered cash payments as an award to users with the highest reputations in the community, but users were more concerned about keeping the reputation and recognized authority than getting actual cash value from it.
• User experience is critical to the success of a site built upon mashups, in a world where the data and services are commodities; it is the user experience of the site which sets it apart from others within the space.

Far from eliminating business development, the 2.0 world eliminates a lot of the noise from business development discussions and allows the players to focus on the specifics and value of the relationship, instead of the mechanics of the interconnected services. Business development becomes a catalyst to get things done and help reinvent the model of the traditional business relationship.

Rishi Khanna made an interesting comment near the end that getting eyeballs will become more difficult as users get better at managing their attention. I am curious about whether the average person actively manages where she pays attention or if it’s sort of a passive, unconscious act. Tina Sharkey from AOL made the comment that MySpace users have been observed with an I/M window open, their MySpace page open, and their cell phone within reach: paying attention to all three. There was some back-and-forth discussion about how users get compensated for their attention, whether the services they’re receiving from the various sites “for free” is enough, or if users expect or require additional compensation when their attention streams are repurposed or monetized by the sites they use.

Other sites discussing the BizDev 2.0 session:

• Notes from Biz Dev 2.0 (15 Nov 2006) by Ed Costello
• NextNY Discusses BizDev2.0 by Andrew Parker
• NextNY BizDev2.0 by Dan Kantor
• Mashups: Feature Not A Company? by Lee Semel
• NextNY Biz Dev 2.0 by Fred Wilson
• bizdev2.0 tag on del.icio.us

There’s always a lot going on in NYC and here’s an event that will definitely be a hot ticket. PaidContent’s ContentNext Mixer on December 5th. Registration will open next week. Rafat, Staci, save us a few spots!