Exclusive Interview: VC Charlie O’Donnell on why 2021 will be a record-breaking year for New York startupsView transcript
If the mayor of New York is (still) Bill de Blasio, the mayor of New York startups may very well be venture capitalist Charlie O'Donnell.
The Brooklyn born and bred O'Donnell has made a career out of identifying, supporting, and financing businesses of all stripes around the city. He apprenticed at Union Square Ventures, which has semi-legendary status for its early investments in Twitter, Twilio, and several other startups that brought the firm multi-billion dollar exits.
Now, as the sole partner of Brooklyn Bridge Ventures, O’Donnell has been investing in local startups since founding the venture capital fund in 2012. BBV invests solely in New York-based startups, specializing in seed and pre-seed rounds. Some of its bigger investments, like ice cream chain Ample Hills Creamery and meal prep startup Hungryroot, are household names to New Yorkers. Now, O’Donnell is prioritizing healthtech startups, saying that we need to invest in solutions to the long term effects of the pandemic.
The New York startup scene is seeing more investment than ever. According to Crunchbase News, New York startups have already received $7.6 billion in funding this year, putting the city on track for a record-setting year. But Charlie O’Donnell says the community has been thriving for years, second only to Silicon Valley, and is catching up quickly.
Brooklyn Bridge’s latest venture: healthtech00:00:00
The Business of Business: What’s new with Brooklyn Bridge Ventures? Any recent investments you’re excited about?
Charlie O’Donnell: I'm a pretty early stage investor, I would say maybe one of the earliest stage funds in New York when it comes to leading rounds. So about 50% of the companies that I invest in have yet to actually launch their product when I invest. So if you think about the timeline in a company's history, when I come in, it's probably when they first go out to fundraise, which I'm going to guess is probably nine to 12 months after idea generation. They take some time to research, maybe get a little bit of a team together, prototype, all of that stuff. What you're looking at now are companies born during the pandemic. So it's not surprising in a way that a fair number of the companies have been in the healthcare space, because there's been a renewed interest in that.
But I'm pretty much a generalist. So I don't seek to do things in particular sectors — I'm a taker of whatever entrepreneurs happen to be focused on, but it's not surprising that healthcare is a focus. I've also done a few deals, done one and committed to another. Using AI, there's been a lot of language processing, entity extraction, advancements that people are looking to do, and interesting applied ways. But it ebbs and flows. It's sort of all over the board. And yesterday, I committed to something in the art space. So you never know what comes down and keeps things interesting.
You can either focus on a sector or a geography but not both. So I am fully focused on New York City companies, to have a wide enough scope to be doing deals where I'm not particularly focused on any one sector.
So you mentioned healthcare. Once the pandemic blows over, will there still be that renewed interest in healthtech and these kinds of startups?
I think what the pandemic has done is really revealed a lot of inequities in the healthcare system, and ways in which it was broken but muddling along. The pandemic has been a huge stress test on many functions of the economy. There's this sense of — to borrow a presidential slogan — “build back better.” It’s this idea of, “Okay, we've had this major disruption, we are envisioning how systems should work. But now we're doing it through the lens of equity and accessibility.”
So it's a common theme that I'm seeing and it isn't really going to go away. That cat’s out of the bag, so it's not like we're going to forget that huge chunks of the population had difficulty accessing healthcare and especially vaccines. Once it becomes safe to go out and about, it's not like the health effects that were caused by the pandemic will go away. There will still be lingering issues, we will still wind up having to manage vaccine booster shots over time related to variants. So I think all of these revelations of how the system didn't work will certainly stay.
The New York startup scene00:04:37
Funding has spiked for New York-based startups even just at the start of 2021. Why is the New York startup scene finally thriving?
Well, I think it's been thriving for quite a while. I mean, it's been a long time that New York has been the second largest venture ecosystem in the country. So that's not necessarily a new thing. I'm super excited about the community, but I am also a headline/number skeptic, so when you see funding growth, and all of this sort of stuff, it is very different from the experience of the average pre-seed or seed stage entrepreneur.
“Venture capital invests in companies that have to participate in the world, so we can't pretend to be in a bubble that isn't affected by it.”
First of all, those aggregate funding numbers are disproportionately skewed by much larger later stage deals. Somebody comes along and raises $250 million, $500 million. That is literally 300 startups basically raising their seed round. And so one or two big deals completely skews the aggregate numbers, skews the gender and ethnicity numbers. Those are companies that were put in the ground, you know, six years ago. So what you're seeing is a lot of the aggregate numbers, as a result of a different time period of initial funding.
The thing I like to think about more is the experience of the founder today who goes out for their first round of financing. In some ways, I think that the New York ecosystem is probably a little bit harder for them than it may have been pre-pandemic. One of the best things about New York is our vibrant event and meetup ecosystem, where you can meet a VC by stumbling into any one of the 10 events that are going on any particular night of the week. Now they're Zoom calls, but it's this very limited interaction, you log into the beginning of the panel, you log out the end of the panel, there isn't that bum rushing the VC at the end or riding the elevator up with them on the way. So I'm looking forward to getting back to that.
It has been a little bit harder to break into the network, which is why I think there's been huge growth — you just saw OnDeck raised a big round. But these networking groups, where people are essentially outsourcing their networking, basically saying, “I'm going to join a group that's going to instantly connect me to a peer group.” Because it's relatively hard to do in a work from home world. I do think there's going to be a lot of excitement to get back to that, because that was one of the best things about the New York ecosystem.
Secondarily, I think the New York ecosystem is largely driven by where people want to live. And man, I don't think I've ever seen so much excitement about being in New York as people are about being in New York over the summer. I totally get it — especially if you have kids — the exodus thing. If I can't interact with other people, I want a front yard kind of thing, right? But as soon as that is over, I don't know anywhere else where you'd rather interact with people as soon as you’re vaccinated and ready to go out and about. What other community would you'd rather be connected to, interacting with, for any number of reasons? Because it's not purely a tech community. I don't think I could ever live in an industry town where there's one main thing and you're either in the industry or you're not, so the way that LA and film, or the valley and the tech community.
In New York it's more like every neighborhood is its own little industry town.
I have banker friends and actor friends and circus performer friends and media friends, so that professional diversity is really interesting, especially in this world of applied tech, where it's not just that I’m building a database but I’m building something for a particular community, fintech, healthcare, media, what have you. I also think that most startup entrepreneurs skew younger, skew more liberal on average, and for as much as there's excitement about some other ecosystems, I cannot imagine living in a city or state where my legislatures are taking away voting rights, I mean that's really problematic. I think for that reason I think New York is a good place to be where you can at least trust that most of the laws that get created are ones that are promoting equality, accessibility, and all of this sort of stuff.
Lastly, New York is a very hackable city in the sense that there are places to live that are more reasonable from a housing cost. I mean, it's still incredibly expensive relative to some other places, but the subway can get you places. You don't have to live in the West Village when you live in New York. You can live in Astoria or Sunnyside in Queens and still get to where you need to go pretty easily. I look at the valley and if you don't live in San Francisco proper, socially, you're off the end of the Earth. There's a growing community in Oakland, in a couple of other places, but I mean it is not the most accessible place to be in the world.
You mentioned the founder experience in New York changing and suffering from the pandemic. How has your experience been as a VC?
What I was specifically referencing is the new founder experience, because if you are a founder and you have a company, your head’s down. The emotional toll that the pandemic has taken on people is large, but for those who have figured out a way to address that, it has been some of the most focused time. You've got nothing else to do, you might as well work on your company. In that sense, for some people it's been positive and productive. But I think for the serendipity aspect of it, it's been difficult and not quite the same from the VC side. I think everybody's different.
My experience has been — to my surprise, I actually don't mind initial pitch meetings over Zoom as much as I used to dislike phone calls. I never really did Zoom meetings to start out, but I really hate the phone, which is funny to me because I feel like I spent all of high school with a phone on my ear after school. It's not something I ever really did. I really liked in-person meetings, but I have found that initial screening meetings to be particularly efficient, where I find things that have been most difficult are actually working with portfolio companies.
There are some instances where you just want to sit in a room and hop on a whiteboard, think about things, and explore, and that is incredibly difficult to do over Zoom, when you're just writing out diagrams, passing it to somebody across the table. I can't wait to get back to that. That part especially, when things aren't going well, I think it is the empathy aspect of being on the board of a company that has suffered during this period of time. I don't think — and maybe it's just me — I don't think I’ve found a great way to communicate when things aren't going well, and how it's still okay, but the urgency around, “But we have a lot of work to do and and I know this has been a tough time, but this app’s not working.” How do you manage that conversation remotely? I think it's much easier to do in the same room.
“The two closest comparisons are podcasts and conference panels, and Clubhouse is a definitively worse version of each.”
There's a lot of communication that happens around body language that I think is a little bit lost. I was fortunate enough to be vaccinated, and so I took an in-person meeting with one of my companies last week. It was a difficult conversation that had started remotely, and the conversation was so much better in person. It was just a million times better, not necessarily easier, but just a little more human.
The future of NYC-based startups00:16:11
Where do you see the NYC startup ecosystem in five years?
In five years the thing I would like to see is the idea of the walkable tech community. The idea that it isn't so Manhattan-centric, because the interesting thing is that by number, there are more people who work in the tech community who live in Brooklyn than Manhattan. If you just think about the population of those two boroughs relative to each other, Brooklyn is I think two and a half million, and Manhattan's like 1.8 million at peak, or at least at modern peak. When my grandmother was a kid it was probably a lot larger than that, but they were all in the Lower East Side.
I think for professional purposes and it's part of the way that transportation is designed, where most transportation is like subways, in and out of the city, and if you want to get a critical mass of people together, a lot of tech people live in Williamsburg, but getting from Park slope to Williamsburg over public transportation is not the easiest thing in the world. There is an order of magnitude, more cycling going on. Citi Bike has had a huge expansion, Revel has had a huge expansion, scooters have had a huge expansion. I think it is incrementally a lot easier to cart yourself around the city and from borough to borough or neighborhood to neighborhood, and now you're getting to a critical mass where the south Brooklyn tech meetup, or the north Brooklyn tech meetup, or the Queens tech meetup, or what have you.
It’s a fairly large group of people, and it almost reminds me of back in 2006-2009, when it used to be fun to go to the New York tech meetup, where it was a couple hundred people, and it felt small. You knew everybody. I could see now that we've gotten to a point where that type of thing now pops up in several places throughout the boroughs.
It's funny, when I started Brooklyn Bridge Ventures and people were saying, “Well, it's so surprising that Brooklyn Bridge Ventures was the first VC firm to be located in Brooklyn.” And I said, “Well actually is it?” Because how many VCs, period, actually lived in Brooklyn in 2012 that would be able to start a fund? It just frankly wasn't many. Now, almost 10 years later, I think there's a fairly large number now actually. You've now seen enough maturity of the communities in those outer boroughs where I could see commuting distance to your local tech events shrinking significantly in the next five years.
What are your plans for returning to the office? When should New York return to the office?
We actually got rid of ours. I have one other employee, Lauren Magnuson, and we actually got rid of our office in November of 2019. We just found that we have two very different working approaches. I do all of the investment stuff, and so it just made less sense for me to be in a space that didn't have a good conference space. I wound up moving instead of just being in one office all the time, splitting between a DUMBO House membership and Betawork Studios membership so I could be closer to companies and founders.
I think realistically she will probably return to a space, because otherwise not having coworkers in the office all the time is probably a pretty lonely setup. Just from her own mental health perspective, I think it'd be better for her to be at a place where there are people regularly.
“I think that Silicon Valley has this libertarian view that tech can float above it all. That's just not true.”
In terms of portfolio companies, I see a mix. I have a couple of later stage companies that are taking advantage of really nice lease terms where the majority of their employees are still in New York. If they can get a good deal, they're signing leases now. I think the expectation is those leases are probably a little smaller in square footage.
The estimate now, instead of getting a space for 100% to 150% of your people, anticipating growth, you're now getting a space for 70% to 80% of your people because you only imagine that 50% of them will ever be in the office at the same time. There's going to be some sort of hybrid model. On days where you know you have to connect with people, you will come to the office, and on other days there isn't the expectation that you're there.
We've all proven that we can get our work done, sometimes more efficiently when we're home, particularly if you don't also have kids at home at the same time. That's been a real struggle — the childcare situation has obviously made work from home fairly difficult, but if you can solve for that problem, it really changes the dynamics. You could have people working very productively, doing the three days in the office, two days out kind of thing. You're going to see a lot of that as a more permanent part of how people work, which means more flex desks, more flexible setups in general.
Clubhouse, Substack, and the creator economy00:25:08
Moving on to social media, you were an early adopter of Twitter. Now there’s all sorts of new platforms like Clubhouse. Did you expect Clubhouse to get so big?
I mean, there are a lot of signups, but it does feel like, given the way they've growth hacked their way to stealing all my contacts — I guess I gave him permission for it — but everybody that I've ever met in my whole life is signing up. But most of these people don't go on, so their percentage of users who regularly make it a point to join is fairly low. I think you're seeing two things: there's one Clubhouse behavior where it's like, “I'm going to log into Clubhouse because I know there's going to be good stuff there, and I'm open to what I find, and then there's another behavior that's like, “Oh I saw a conversation that I'm interested in, and I need to log into Clubhouse to use it.” That's two different things.
That latter case, Clubhouse is just Zoom. It isn't a discovery platform, it's just the tool I need to download to listen to the conversation I want to listen to. The vast majority of people who are using Clubhouse are that — it's just that they found, and “What do I have to download to get it.” If they don't find anything, they won't use it. That is probably my favorite thing about the platform itself, is that it is fairly easy just to start a conversation and to get the discoverability and just start talking. That being said, that ease is also what to me makes the overall quality of the conversation on the platform fairly low.
If you think about it, the two closest comparisons are podcasts and conference panels, and Clubhouse is a definitively worse version of each. It's like a podcast that has no story structure, no editing, in which the audience takes a much larger percentage of the content than the curated experts. There's two different groups — if you are an aspirational founder with an idea outside the ecosystem, and this is your one and only shot to have a conversation with, I don't know, Marc Andreessen or whoever, then you think it's the coolest thing in the world.
If you are a seed or Series A backed founder with kids and busy things going on in your life, and you are looking for the maximum amount of information for your minutes spent, it's way worse than a podcast. And it's demanding of your time. You can't time-shift it to your 5:30am bike ride or workout. That's a real limiting factor. I think that earlier behavior isn't going to be as mass appeal, particularly when everybody gets out and about. You even see it now, actually, if you log into Clubhouse, and you look at the numbers of the attendees of events where Elon Musk is not there, it's definitively lower than it was a few months ago, in the middle of the winter, for sure.
What will be its place in the ecosystem? I think it's probably going to be more platform-like, I think they'll have to build more tools. I think there'll be some paid tools, I think you'll have some people making a full time living doing subscription access to rooms and stuff like that.
The one thing I would say, though, is that platforms like Clubhouse and Substack need to solve for the publication fee. Because there are some newsletters that I think are particularly interesting, but there's a theoretical limit to how many newsletters I could subscribe to for $10 a month. I mean, if you think about what Netflix costs me now, $18 or whatever, and the value that Netflix brings me versus an individual newsletter. Its pricing is way out of whack.
I mean, there might be one or two people where you're like, “I'm really in on subscribing to that person,” but I think you have a couple of issues. One is that people are more likely to pay for water cooler stuff. We're like, “Oh, everyone's following Fred Wilson's blog. And so I need to follow that too, because everybody else does. Regardless of whether it's directly relevant to the kind of business that I'm going into.” But what that does mean is that there is some media content, some investigative journalism, and all that sort of stuff that will struggle to get funded. Because it's just really good reporting, or it's a perspective from somebody who isn't on the inside of the tech community that doesn't have the biggest following. But it's still important.
If we're just monetizing only water cooler personalities, then a disproportionate percentage of the revenues are going to go to these types of people. I think it should be much more based on a ClassPass-style model, where, “Hey, you know what, I'm happy to pay $10, $20, $30, some tiered thing for my minutes of access, but distributed to where I happen to listen. If I discover a new room on Clubhouse, that is really good. And I actually spend some time on it, so give them most of the money that I put in for the $30 of subscription that I was paying.” Let's not put a barrier to say, “Here's the person that you've never heard of, it's going to cost you $10 to see their thing.”
So I think there's some real issues with how they have designs on monetizing that. I think we'll just have too many water coolers. And you'll have this insider a group that feels like they have to follow certain people and then a long tail of interesting writers that are really struggling to get monetized. That's a Substack issue. I think it's a Clubhouse issue.
Would you say that's an issue in the broader creator economy, whether that's Patreon or YouTube or what have you?
Well, it's an issue where I have to make a new subscription decision to every — it's less so in an ad-supported way. It's less so for algorithmically driven platforms like with TikTok, where you can go from zero to hero very quickly if you have high quality stuff. The follower model reinforces existing networks. It’s not that you always get a new batch of people, but if you look at the most followed people on Clubhouse, two thirds of them are the most followed or most influential in other circles already. It's really not this open meritocracy I think, so it depends on how you get monetized.
The New York mayoral race00:35:11
Back to the topic of New York, have you been following the mayoral race? Are there any candidates you’re interested in?
First of all, a leading candidate is undecided. The latest poll shows 50% of people don't know who they're voting for, which to me is both an opportunity and a challenge. It's a challenge because it has been very hard for candidates who did not already have a lot of name recognition to break through. It's been limited to be able to campaign in person and now that the weather's warming up, I think you'll see a little more of that.
One of the biggest issues is the average New Yorker is busy with other stuff, and doesn't appreciate how important a decision this is. They just think of the city as this thing that runs on its own, it's this big bureaucratic immovable mechanism which is both bad and good. It's bad in the sense that we wish it did things more efficiently, but good in the sense that no matter how bad a mayor you are you probably won't screw it up that badly, and I don't think that's necessarily true.
Most people have a pretty low opinion of Bill de Blasio and yet New York has not descended into chaos despite two back-to-back terms of him. There are real issues — he's really not been able to make, after eight years, a dent in the cost of housing. I think there was serious indecision that was very costly during the pandemic time, both from an immediate triage thing and closing decisions, but also on the school side.
The school thing has been a disaster. Last spring no one was prepared for that, but even if you just say, “Okay spring of 2020 is a wash. We're going to do what we can, but this is a mess and we're just going to try and keep our heads above water.” But you had all summer. You knew kids were going to have to go back. Why weren't there tents in parks and in the streets, and outdoor learning? Plans should have been made. That is one of the reasons why when I look at this, I think running New York City is a very complicated mechanism that requires experience, practicality, and decisiveness. I look at the people who are running for mayor, and I think by far Kathryn Garcia is the most qualified and most experienced person around. She's a former New York City sanitation commissioner. I don't even think anybody else is really close.
What are your thoughts on Andrew Yang?
I don't think Andrew Yang is qualified to run much of anything. I think he's a smart, super well-intentioned person who really wants to be liked and really thrives on the approval of others. Which is why there doesn't seem to be any consistency in his platform whatsoever. It seems like every day he's jumping on whatever the consultants tell him will win more votes. I would be really worried if I were the Yang campaign. If you had 90% name recognition and you came in at 16% in the polls, you might be leading technically, but that would also mean that the vast majority of the people who already know who you are not picking you. It's really problematic if he wins, because he has to learn on the job.
The New York media environment is not kind, and he has shown a real difficulty in dealing with some really thorny issues that people really care about, some sensitive ethnicity and racial issues, gender stuff. I'm not an expert in Arab-Israeli politics, but I'm also not running for mayor or any other elected position. To stick your foot in your mouth on BDS-related stuff, you need a really savvy person at the helm who understands that 40% of the people in New York were not even born in the United States. You have these communities that have a lot of important issues and you're trying really hard to make everybody live together cohesively. I think he's not particularly up to that to that task, and it really worries me. But I also think he's going to have a lower turnout because I think there's a lot of excitement from a lot of people that might not make it out to primary day. I mean he's never voted in a mayoral election himself.
I think there's probably more buzz than there is substance there, but that also means that the person currently second in the polls, Eric Adams, is hugely problematic. He's a former republican, former police officer, very much well funded by real estate interests. There's been a ton of funding probes and campaign finance stuff, and he just feels very much like a bought and paid for, owes too many people too many things. He has a very problematic relationship with guns that I don't think is appropriate for New York, very much a “good guy with a gun” mentality, and I don't think that really makes sense in a major city. We don't have that much time until the primary and so I’m actively trying to help Kathryn Garcia with her name recognition.
Check out “The Schlep to City Hall.” It's a podcast that Lillian Ruiz and I started on the elections. And we've been interviewing candidates, talking about different aspects of the budget and the elections. It's a good primer.
Why VCs need to get political00:44:43
You've written a lot about politics on your blog, and I don't see a whole lot of VCs getting in the weeds with that. Why should venture capital care about its effect on the world politically?
Venture capital invests in companies that have to participate in the world, it invests in companies that need users who are citizens of the world, so we can't pretend to be in a bubble that isn't affected by it. I think that Silicon Valley has this libertarian view that tech can float above it all. That's just not true.
There are undoubtedly venture capitalists who were Trump voters, the first time around, who voted with their pocket, pretty much. They were just like, “Hey, I like tax cuts. And all this rhetoric, he's not serious. He's just trying to stir up his base and this country is not going to enact real racist policies. That's a whole lot of sound and fury. I don't need to worry about that.” Can you imagine how the US would have been, had the US government's response to COVID been as capable as New Zealand, or any of these other countries that actually took it seriously?
And that had a major and devastating effect on the economy. If you don't think that the rest of the country is affected by who is president after the last year, then you are truly on an island somewhere. I think that's problematic. We came extraordinarily close to not being able to have the peaceful transfer of power in this country. You wouldn't start a venture capital fund in Venezuela. Emerging markets risk is something that you don't want to take because of government instability. Then what were you watching on January 6, like how do you square that circle? Because that kind of thing is extremely problematic. And I think it has long term effects on you.
At the end of the day, we can't survive over the long term in this country, local venture capital, a long term asset class, right? These funds last for 10, 11, 12 years. If you're raising three funds or four funds as a venture capitalist, you're talking about a 20-year time horizon. If we don't do stuff to improve education outcomes, healthcare outcomes, climate outcomes, you are looking at the US slipping into a third world country. Parts of the US currently have third world country outcomes on healthcare and education and that's your home market.
From that perspective, we have a huge economic incentive to make sure there's as much equity as possible in this country, because your customers need to be able to afford stuff. That's your talent. They need to be able to learn stuff so you can build all this interesting stuff. We need to have sensible immigration policies because could you imagine what the US tech economy would be like if we had had closed borders over the last 40 years. So yeah, that's my rant. That's my soapbox on that.