By Patrick McGinnis
What do you do if you’re a tech entrepreneur from Latin America and you’re looking to expand your presence to the United States? Over the last few months, I’ve received several inbound calls from CEOs of startups from the region who are considering making the move. While even just a few years ago, the natural move would have been the West Coast, I’ve been surprised that New York City is now running neck and neck with the Valley.
New York, it seems, is finally gaining traction as a technology hub. Over the past few years, the city has seen its tech community set down roots for the future. Google bought one of the largest office buildings in Manhattan (also the location of the 2013 LAVCA Summit VC Program on Sept. 26), Facebook opened an engineering office, and other major player such as eBay and Microsoft have been expanding. Cornell University also won a mandate from the Bloomberg administration to build a science-focused graduate school on Roosevelt Island. As these important corporate and educational assets fall into place, West Coast investors have taken notice and Silicon Valley players such as Accel and 500 Startups are following suit.
Those of us who choose to work and live in New York City aren’t surprised by the city’s ascendance as a technology hub. New York has tremendous diversity, a large population, and significant wealth. It’s a multi-industry town that has long been the (or at least “a”) global hub for all things fashion, media, advertising, and finance. It’s compact and easy to get around and it never stops. Let’s not forget the old adage, “If I can make it there, I’ll make it anywhere.”
Still, Silicon Valley remains the undisputed center of early stage technology and venture capital in the United States. According to The Atlantic, San Francisco and Silicon accounted for over 40% of venture capital dollars (and 30% of deals) in the United States in 2012. In comparison, New York represented just over 8% of VC dollars for the same period. For these reasons, it’s not surprising that when MercadoLibre, Latin America’s dominant ecommerce platform, decided to re-open an office in the States (they once had a presence in Miami), they chose to do so in Silicon Valley.
In order to get a better sense of how Latin entrepreneurs see the choice, I spoke to Diego Saez-Gil, the CEO of WeHostels, the social booking site for hostel travelers. Diego is sort of the mayor of the Latin tech scene in NYC. Most Latin entrepreneurs who come to New York eventually find their way to his offices in General Assembly at one point or another. When I asked him what drew him to New York, he focused on connectivity. New York is closer to and more connected to Latin America and Europe. Flights are cheaper and don’t require connections. He’s right. From SFO, you need to connect to fly to Sao Paulo, Buenos Aires, Bogota, and Santiago, while New York offers multiple direct flights a day to all of these cities. This factor is important if you’re building a global company like WeHostels.
Apart from New York’s connectivity, Diego likes its talent pool. The city is home to several world class universities and attracts a continual influx of talent. Since only a few of the giant tech companies have a presence in New York, the war for talent is less brutal than it is on the West Coast. Finally, he feels that the ecosystem for Latin America entrepreneurs is particularly hospitable. He’s just a few blocks away from the New York office of Endeavor and organizations such as LAVCA and the Americas Society actively support entrepreneurship in Latin America.
In order to get another perspective on NYC versus SF, I spoke to Pablo Orlando, the CEO of GoodPeople. GoodPeople is a marketplace for active lifestyle products and brands – think of it as an etsy for outdoor enthusiasts. Like WeHostels, the company was accelerated at NXTP Labs in Buenos Aires. For Pablo, the decision to move his company to San Francisco was clear. Action sports were born in California and San Francisco combines the best of the action sports and technology worlds. Given the strong technology orientation of the region, it’s easier to find early adopters and to seed their type of product. Moreover, co-working spaces and other basic inputs for early-stage companies are plentiful. Apart from these factors, there is a strong community of Latin entrepreneurs such as Wences Casares who call Northern California home.
I was looking to break the tie between New York and San Francisco, so I reached out to Andres Barretto of Socialatom Ventures for his perspective. Rather than pick sides, Andres said the following: “When it comes to choosing a city to build a startup, I think it matters not where the entrepreneur is from, but rather where their customers and partners are located.” I completely agree. Whether you consider the cases of WeHostels, GoodPeople, or MercadoLibre, the decision on where to open shop was driven by their customers as well as their industry niche.
With all of this talk to New York and San Francisco, it’s worth mentioning that a little over a decade ago, this conversation would have been all about Miami. Silicon Beach, as it was called, was the capital of Latin American tech. Even as New York becomes an exciting and attractive market for Latin entrepreneurs, I also expect Miami to reemerge to some extent. The surest sign of things to come? Endeavor just opened a Miami affiliate and we are seeing revived activity in the form of events. Specifically, a panel, hosted by AS/COA and LAVCA at The LAB Miami earlier this year and the upcoming SIME MIA is planned for early December 2013.
Going forward, I expect New York to continue the important growth it has seen in its technology sector. The city has shown that it is willing to make its technology industry a priority and entrepreneurs have responded. Moreover, it will excel in the industries in which it has particular strength and it will have particular appeal to companies with global ambition. That’s certainly the bet that the legions of entrepreneurs, many of them from Latin America, are making in increasing numbers.
Growth Capitalism is a regular column in the Latin America PE/VC Report from Patrick McGinnis. McGinnis has been a private equity and venture capital investor in Latin America and the emerging markets for over a decade, first at Chase Capital Partners/JPMorgan Partners and later at AIG Capital Partners (now PineBridge Investments). He is the founder of Dirigo Advisors and is a co-founder of Real Influence. Patrick is actively involved in the Latin technology space, with investments in NXTP Labs (www.nxtplabs.net), InBed.me, and Altodot. He also sits on the Board of Directors of The Resource Group, a global BPO company. Fluent in Spanish and Portuguese and an avid traveler, he blogs about travel at www.huffingtonpost.com/patrick-mcginnis. He can be reached at firstname.lastname@example.org