To say that consumer tech startups are hot right now would be more than an understatement. Between Facebook, Zynga, Groupon, Twitter, and LinkedIn, the most talked about and valuable startups are all consumer web businesses from San Francisco (Exception: Groupon is from Chicago). Additionally, the most noteworthy financings / launches, including the $41 million Series A round raised by Color and the $50 million Series B raised by Flipboard to name a few, are also consumer web companies from the west coast. Meanwhile, for the past 18 months, New York has been buzzing with dozens of consumer-facing startups like FourSquare, Etsy, Huffington Post (now part of AOL), and Rent The Runway. Amidst all of this activity, many people have begun to question whether Boston is a viable location for this new wave of businesses. So I caught up Alex Taussig of Highland Capital Partners, investors in exciting Boston-based consumer startups SCVNGR and Gemvara, to figure out where the Boston consumer tech scene is heading.
AP: What are your general thoughts on the Boston consumer tech scene?
AT: The legacy of Boston technology is enterprise. When people think about big tech companies from the area, enterprises businesses like EMC and Akamai always come to mind. It is only really recently that Boston has responded to developments in Silicon Valley and started generating energy around consumer technology. Yet, by the time we started funding companies like SCVNGR, Gemvara, and Perk Street, companies all founded by entrepreneurs under the age of 30, we had really started to feel this new wave coming. So the consumer tech scene in Boston is getting stronger. That being said, what we really need to more fully catalyze this is one really, really massive successful standalone company that will spin off other companies. Once the first big company goes public and employees leave to do their own thing, the consumer tech ecosystem will flourish. We are in the very early days of this movement, but I think it is certainly heading in the right direction.
AP: Considering that there are some very interesting consumer startups in Boston, why do you think local companies do not get nearly as much press and publicity as similar startups in New York and Silicon Valley?
AT: Simply because there are fewer of them. You can throw a stone out your window and hit a consumer Internet company in the Valley. And with the geographic density in New York, you can literally walk down the street in Union Square and bump into entrepreneurs you know. It is this critical density of startups in both SF and New York that generates the buzz. Everything is consolidating around Kendall Square now, but if you think back a few years ago, everything was so spread out in Boston that it was very difficult to get that critical mass together to catalyze the buzz. There are several good consumer tech startups in Boston, but there needs to be many more before we reach that critical mass. I know everyone is anxious to get the ball rolling, but the consolidation takes time. This is a virtuous cycle that needs to get kicked off by businesses with real revenues and profits, businesses that go public and make people truly rich. We need entrepreneurs to make boatloads of money that they will then reinvest in the community. Fred Wilson wrote a post about recycling capital and people, which is precisely what needs to happen in Boston. People merely talking about what they are doing at their pre-revenue companies is not enough. But once we get the real cycle going, the buzz the excitement will follow. The press does not lead the companies. The companies always lead the press.
AP: Some people in the tech scene here in Boston argue that one big problem is the lack of the robust media community and blogosphere necessary to promote all of the consumer web businesses here in town. What is your take on this view?
AT: I spend a great deal of my time on the Internet reading blogs and tweeting as part of my job, and I believe that things happening in Boston are covered fairly well. The problem is not that we don’t publicize the companies enough, but rather that there aren’t enough companies with real revenues doing really compelling things. And I really believe that once Boston-based companies reach that level of success, which they will, the virtuous cycle will take off. We are going through some growing pains right now, where the development of the ecosystem feels incredibly difficult. As cliché as this is going to sound, people really just need to hang in there. We are going to succeed even though it might time some time.
AP: It is clear that you believe in the future of Boston consumer tech, but doesn’t it worry you that many of the best consumer tech companies that started in Boston like Facebook have moved to the west coast?
AT: There is a trend of west coast companies buying east coast companies, even on the enterprise side. But I think many of the interesting consumer web companies in Boston, such as Gemvara, SCVNGR, Perk Street, and CampusLive are bucking the trend you just described. Svpply recently moved from Somerville to New York, but I don’t fault an entrepreneur for making a thoughtful decision about the best place to grow his business. If you want to grow a business that requires you to be close to media companies, it might make more sense to be in New York. However, there are compelling reasons to be in Boston as well. Some sectors, like e-commerce, don’t have any geographic center. If you are building a social networking company, you should probably be in the valley. If you are building an ad-tech business, you should probably be in New York. Yet, in terms of getting the best people for your business, there is something to be said for being a big fish in a small pond. If you are SCVNGR, you have preference on a lot of really great engineering and sales talent coming out of the Boston schools. Overall, it depends on the entrepreneur’s best judgment, and we are happy to support our entrepreneurs in any of these cities.
AP: Speaking of New York, do you think there is any connection between the consumer tech movement down there and Boston VC firms either opening offices or spending extended amounts of time in NYC? If so, is it a problem for Boston?
AT: I don’t think it’s an issue for the Boston scene. I look at it as entirely additive. We have 6-8 portfolio companies down there, most of which are consumer facing. It is an unbelievable explosion of an ecosystem, and as venture capitalists, we have to go where the people starting great companies are going. We may be spending two days a week in New York now, so on the margin, we are spending more time in New York because many entrepreneurs are migrating to New York and our mission is to do what’s best for the entrepreneur. That being said, we still spend lots of time fostering the Boston community, so I do not view the growth of New York as a detractor for Boston. We want both systems to flourish and believe they will.
AP: There are a lot of consumer tech stories in the news because it is sexy and lots of people understand it intuitively. Meanwhile, the enterprise and healthcare ecosystems are both alive and well in Boston. With that in mind, does the lack of a great consumer tech scene matter at all for Boston?
AT: I do think that if there is not a nice balance between enterprise and consumer in a community, it will hurt the community in the long run. Massachusetts’ strength is always going to be hardcore technology because that is something we do better than any region in the world, and it will be that way until other countries surpass us. But having a stronger consumer presence will raise more public awareness for the region and help Boston attract even more top-notch talent. For instance, having Google put Mountain View on the map. At the same time, entrepreneurial ecosystems built around hardcore technologies almost by definition cannot gain traction in the public eye because the public does not understand that stuff. They don’t know what data deduplication is. Even a robotics company is a little too hard to explain to the public. Thus, as Boston begins to develop a stronger consumer tech scene, this will help draw more great people to the region. I do not mean to knock enterprise or hardcore technology businesses, but having a balance between these companies and the sexy consumer companies is valuable.
AP: All in all, what is your 3-5 year prediction for how the consumer tech scene is going to grow in Boston?
AT: We have so many of these companies in our portfolio that if I made a prediction I might basically be telling you what the plans are for these companies, so I am not going to make a firm prediction. But what I will say is that we have the seeds of a very interesting consumer tech sector here in Boston. This sector happens to be interestingly adjacent to other things we are good at here. For example, SCVNGR is a mobile gaming company, which means that while it definitely is a consumer Internet company, it also rides on some of cool mobile infrastructure and gaming technologies, both of which are essentially built into the DNA of the Boston tech ecosystem.
These sorts of companies that are consumer facing but leverage some of Boston’s unique tech competencies will come to make the Boston consumer tech scheme vibrant and exciting. But it is going to take a couple of years before we get companies that are very successful. There is much misappropriation of the phrase “so and so is killing it” or “so and so is crushing it” or “so and so is just an animal.” Let’s see some businesses get built first. Let’s not over-hype ourselves. It is so interesting that we have this simultaneous excitement and insecurity. I spend all my time meeting with startups, and very few startups are actually “killing it.” And when they are, it is very obvious. So if you are an entrepreneur and you got payroll done this week, that does not count as “killing it.” Killing it is when you beat the income projections for the quarter by 30%. So rather than get caught up in the hype, Boston just needs to hit the ball down the fairway and keep building businesses of value and consequence. That is the only way for the consumer tech scene to grow and flourish.
This dialogue was originally published on BostinnovationTweet