Venture capital spending cooled in 2016, but tech remains one of New York City’s hottest sectors. Here’s how to get in on the action as the industry matures

 

DataGryd CEO Peter Feldman says he’s expediting development plans for his data center because of demand.

 

SKIP THE MIDDLEMAN E-commerce on a grand scale was once all the rage in New York. Gilt Groupe, for instance, was briefly built up to be an East Coast version of Amazon. (Valued at $1 billion in 2011, the onetime flash-sale leader was sold last year for $250 million.) But the direct-to-consumer model that Warby Parker helped to pioneer has worked out much better. Selling eyewear the company designed and manufactured itself, the online retailer cut out a series of middlemen to offer a premium product at a low price point. And Casper, the Manhattan-based mattress company that launched in 2014, tweaked the model by offering just a single type of mattress (it now also sells a pillow, some sheets and a mattress for dogs). With $70 million in backing, the company reportedly reached $200 million in revenue last year.

Similarly, Brooklinen, which has taken on no outside investment, raised nearly $240,000 in an oversubscribed Kickstarter campaign to launch its direct-to-consumer line of sheets, pillowcases and duvet covers in the summer of 2014. Based in a WeWork location in Dumbo, the company had 
$21 million in sales last year, up from $1.1 million in 2015, according to Vicki Fulop, who founded the company with her husband, Richard. “Our sheets start at $99,” she said. “In a brick-and-mortar store they would cost $500.”

2. KEEP IT SIMPLE You don’t have to be a disrupter to find a place in the tech sector. Design and development studio Fueled has found its niche by building mobile applications for startups, including Warby Parker, QuizUp and KeyMe, and old-line businesses, such as Apple, Verizon, MTV and Porsche. It even overhauled the mobile applications for drugstore brand Rite Aid. Founded in 2010, the company was profitable by the end of its first year, said co-founder Ryan Matzner. It now has nearly 100 full-time employees, one-third of them at its SoHo headquarters. Revenue in 2016 topped $10 million, Matzner said.

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3. ACTIVATE THE WORKPLACE Height-adjustable desk maker Varidesk, based in Dallas, is seeing a boom in business among New York tech and media companies. CEO Jason McCann said the company, which launched four years ago, has sold more than 100,000 standing desks in the metro area in just the past two years. “Tech is on the forefront of the active office,” he said. That spells opportunity for architects, interior designers and workplace consultants who specialize in making offices and office life better for your body.

4. STAY AWAY FROM AD TECH Advertising technology has been key to New York’s tech sector since the launch of Doubleclick in 1996. But it’s a crowded field, known for underperforming stocks and for customers, including newspaper and magazine publishers, who say they pay too much for the services. A bright spot: AppNexus, the biggest independent ad-tech player, confidentially filed paperwork for an IPO this year, The Wall Street Journal reported in November. Valued at 
$1.8 billion in 2015, the Chelsea-based company could seek a valuation of $1.5 billion to $2 billion.

CONNECT Independent Internet providers, with help from the city, are building high-speed networks in parts of Brooklyn and Queens where the only choice has typically been old-fashioned DSL. “The larger companies wouldn’t touch” those areas, said Shrihari Pandit, CEO of Stealth Communications. Pandit has a construction crew digging conduit in Brooklyn for a gigabit-speed fiber network that will provide some of the fastest connections in the country when its first phase is completed in the spring. Stealth, which also serves small- and medium-size businesses in Manhattan, doubled sales to $10 million in 2016.

6. STORE DATA DataGryd, New York’s largest independent data-center operator, is speeding up the second half of its 240,000-square-foot build-out at 60 Hudson St., a project that began in 2014. “I’ve had to expedite my development plan because of the growth,” said CEO Peter Feldman, who leases space to the companies that supply the data server needs of New York businesses. “Everybody in the world needs data.”

7. TRAIN… Schools offering three-
month boot camps have grown dramatically during the past five years or so as their graduates find decent-paying jobs, filling an insatiable need across the city for skilled coders. General Assembly, which launched in the Flatiron District in 2011, now has 20 campuses in six countries.

8. …OR E-TRAIN The five-year-old Flatiron School still has just one brick-and-mortar location, in lower Manhattan. Student enrollment, however, has tripled via an online-learning program it developed with the help of $14.5 million in venture capital backing. The tuition for the online program—approximately $6,000—is a bargain compared with the usual $15,000 bill, and students don’t have to quit their job to study full time. “We’re trying to build an infrastructure that will allow us to grow effectively long-term,” said co-founder Adam Enbar.

RESEARCH AND ANALYZE About a decade ago, two American Express executives in their early 30s decided to create a “Bloomberg-level-quality” database for venture capital investment. CB Insights launched in 2008 and went on to become a go-to source for data as well as for smart, cheeky takes on investing trends. More recently it began using artificial intelligence to unearth the strategies buried in their data sets. CB Insights now sells that intelligence to large corporations. Revenue hit seven figures in 2013 and has doubled every year since then, said Jonathan Sherry, who co-founded the company with Anand Sanwal.

10. PROVIDE THE PERSONNEL New and old employment companies now vie to fill tech staffing needs. One of the smaller players, Flatiron District–based Mondo, has grown by focusing its entire business on digital marketing and tech positions. Revenue was $90 million last year, a far cry from the $6 million it scored in 2005. Its strategy has been to spot technology trends ahead of the competition, locate the right specialists and hire them out as consultants—an arrangement that provides a more dependable revenue stream than taking a commission for a one-time placement does. “This is a $30 billion market we’re all chasing,” said CEO Tim Johnson. “The pie is so huge, you don’t need a big piece of it.”

11. CLEAN UP As the tech industry and its workers mature, offices have to step up their game, as well. Increasingly, employers are outsourcing cleaning and maintenance to Managed by Q, the Manhattan startup known for its range of services and its generosity (its workers have full benefits). Since launching in 2014, the company has grown to 1,000 employees across four markets. “The early adopter crowd really benefited our growth,” said co-founder Dan Teran.

ADVISE AND ACCOUNT Long ago, founders and venture capitalists in need of legal support would have turned to such powerhouses as Wilson Sonsini Goodrich & Rosati and Silicon Valley’s Fenwick & West. But boutique firms have been gaining traction across the profession, and small New York law firms with a focus on media and technology have clearly been in the right place at the right time. “Founders are looking for experienced counsel that know their way around a venture-backed deal and know the players,” said Alan Baldachin, managing partner at Hand Baldachin & Amburgey. The 14-year-old Midtown firm has doubled the size of its practice since 2008, he said. The same is true in accounting, where New York–based firms have invested in developing practices that serve tech startups.

13. SELL KEGERATORS Every self-respecting startup has one in which to chill fresh, local, small-batch microbrews for after-hours mingling.

Photo: Buck Ennis Stealth Communications employees prepare to install fiber-optic cables.

14. MAKE FAD FOODS… Startups have a constant need to keep their sun-starved staffers hydrated and nourished, and that requires stocking the office with brands of the moment, like LaCroix sparkling water; Nitro cold-brew coffee; Exo protein bars, made with cricket flour; and the dystopian liquid meal replacement Soylent (a Silicon Valley favorite).

15. …OR BALANCED MEALS… Millennial workers cannot live on snacks alone, and Hungryroot is one local company that has grown by providing near-instant lunches and dinners to the tech sector. The direct-to-consumer packaged-food startup, based in Long Island City, creates vegetable-based meals that can be prepared in minutes. CEO Benjamin McKean says sales are on pace to reach 1 million units a year, roughly 10 times the business Hungryroot did in 2015, its launch year.

16. …OR DELIVER THEM ZeroCater, a “catering concierge” that partners with food trucks and restaurants, has become a popular provider because of its tech-enabled menu (it collects data on users’ preferences). The San Francisco company expects to have 30 staffers in its New York office by the end of the year, double the number it had at the end of 2015.

17. RELAX… Forget nap capsules. Meditation is the new cure for the stressed out. Journey Meditation, which held its first corporate session at Warby Parker in 2015, now employs 10 full-time meditation teachers in New York, and the company is in the midst of expanding its services to five more cities, for a total of 10. “People working very hard need tools to cope,” said founder Stephen Sokoler.

…OR KEEP IT COMPETITIVE Tech folks are turning indoor cycling into a game with Zwift, a platform that lets stationary-bike riders compete with each other. When riding outdoors, they can use Strava, a mobile app that tracks their ride and connects to others on the platform. “Cycling is the new golf,” said Charlie O’Donnell, the founder of Brooklyn Bridge Ventures. “In the winter all the startuppers seem to be hooked up to Zwift. And when it thaws, they Strava all their rides up the West Side Highway.”

19. GROW Talk about finding a niche. The Sill supplies potted plants to a who’s who of New York tech firms, including Birchbox, Bitly, Harry’s and Twitter. [Crain’s]