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Long before Goldman Sachs sunk hundreds of millions of dollars into Facebook at a soaring $50 billion valuation, an Accel partner, Jim Breyer, made a controversial bet on a Harvard dropout.
In April 2005, he spearheaded Accel’s $12.7 million investment in the fledgling social network, at a near $100 million valuation. He also took a stake for himself. That early move has turned into one of the best bets for Accel, a Palo Alto, Calif.-based venture capital firm, which is also a backer of social buying site Groupon.
Now Mr. Breyer is turning his attention to New York, where the company is opening a new office at 41 East 11th in downtown Manhattan. Although Accel is no stranger to New York — the firm has made more than 15 investments here in the last three years — Mr. Breyer said the firm is making more deals around the region.
In an interview on Wednesday with DealBook, Mr. Breyer said the pace was definitely picking up for New York’s technology start-up scene, referred to as Silicon Alley. He drew comparisons to the vibrant growth in China, where Accel has made more than $1.5 billion in investments. Mr. Breyer, who serves on the board of dean’s advisers at Harvard Business School, also says more top graduates are migrating to New York — not to work for Wall Street — but to become entrepreneurs.
“The entertainment, media and consumer companies we see in New York today are as interesting as any geography in the world,” he said.
Q. – Why open an office in New York?
A. – We believe that social, mobile and commerce applications, where the entrepreneurs are based in New York, are going to be central to what we’re doing.
A number of us in the firm also have backgrounds either in New York or on the East Coast. I was born in Connecticut, worked full time in New York, at one point for McKinsey, and have been spending a great deal of time in New York over the last five years.
The entertainment, media and consumer companies we see in New York today are as interesting as any geography in the world. We initiated a partnership in China, in 2004, and have been driving investments with our team there over the last six years. We have a similar view that New York over the next 10 years has tremendous opportunities to build very large-scale Internet businesses.
Q. – Is this a sign that Accel will significantly increase its investments in New York?
A. – Absolutely. We already have a pipeline of investments that we’re tracking in New York, In some cases, it’s much easier than our China initiative, which I led in 2004 and 2005.
Q. – You know, very few people are as bullish on New York, as they are on China.
A. – That’s good news for us. We started raising our funds in 2005 in China, and today we manage over a $1.5 billion in China, with a team of seven general partners.
I don’t know if New York evolves over the next decade to that kind of scale, as part of Accel, but I have very strong optimism that in all stages, seed through growth, we have great opportunities to build very defining companies over the next decade here in New York. We’ve invested over $100 million in New York-based companies in the last three years.
Q. – What types of New York start-ups do you find most interesting?
A. – A perfect example would be Etsy, in Brooklyn. We certainly were early and excited about investments in social networks and invested in Facebook in April of 2005. We’ve done a number of other investments and around the country in areas we consider to be right at the intersection of social networks and commerce. Groupon, Etsy, Diapers.com and a number of companies we believe certainly had elements of not just social networks and the advantage of social platforms but had deep commerce enabling teams. We historically have found companies that fit at the intersection of colliding industries to be extremely interesting, we believe that not only in social commerce today, but in some of the areas where entertainment and media intersect social networks. There will be outstanding entrepreneurs, and many of them that we’re currently looking at and meeting with are here in New York.
Q. – What do you think of the talent pool in New York?
A. – There’s always been a great talent pool, of course, in the New York area, in these areas. What is different today is, for example, this morning, I met early with a team that is in their early 20s that has moved to New York to pursue opportunities where social networks are being applied to a very interesting new space in media. What is different today, from five to seven years ago in New York, is that teams are coming directly out of colleges and choosing to take advantage of platforms, such as Facebook, and building those businesses here in New York, most often in Lower Manhattan, Union Square. We’re seeing now a generation of entrepreneurs that are choosing to build their businesses here as opposed to perhaps feeling that they have to move to Silicon Valley. Cloud infrastructure services, some of the applications built on top of new technologies, virtualization, all of these are technologies that are allowing teams in New York to scale and build their businesses in ways that we didn’t see five years.
Q. – Do you think more graduates, who may have traditionally gone to Wall Street, are now opting for the start-up world?
A. – I’m on the board of dean’s advisers at Harvard Business School and spend a lot of time with people who are graduating or recently graduated. Given what’s happened on Wall Street, there has been some shift for many students in terms of career pursuits and the kinds of businesses they would like to pursue.
It’s too early to tell whether this will be the long-term trend that survives the inevitable bounce back of Wall Street. Entrepreneurs and young teams can build applications that are exciting in entrepreneurial environments, that scale very quickly. These are attributes that are very attractive to many of the best students today and many of them are choosing to locate those businesses in New York.
Q. – You realized the value of Facebook very early. Do you see a New York company with the potential to be the size of the social networking behemoth?
A. – We’re always looking for the potential long-term, home-run outcome. We take a 7- to 10-year view of our investments. The goal of venture capital is to try to find teams and entrepreneurs early where we can make 50 to 100 times our money, and help those entrepreneurs build very large businesses.
Today, it’s always very hard to predict how a young company eventually evolves, in terms of scale. But there are some extremely fast-growing companies in our portfolio, here in New York, that have a chance to define what their particular segment looks like, not only in the next year or two, but in coming years. Etsy, Glam and many others are scaling very nicely. But honestly it’s always too early to tell in terms of true breakout potential until companies generally break the $100 million revenue per year. Groupon and Facebook of course have.
Q. – So you won’t tell us which company will be the next company worth $50 billion?
A. – I wish I knew.