New York Startups Rise With Finance Talent

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Source: Send The Trend via Bloomberg

Send The Trend co-founders, from left, Mariah Chase, Christian Siriano and Divya Gugnani.

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Source: Send The Trend via Bloomberg

Send The Trend co-founders, from left, Mariah Chase, Christian Siriano and Divya Gugnani. Close

Send The Trend co-founders, from left, Mariah Chase, Christian Siriano and Divya Gugnani.

Source: Send The Trend via Bloomberg

Ella turquoise earrings, available at the fashion website Send The Trend. Close

Ella turquoise earrings, available at the fashion website Send The Trend.

Source: Send The Trend via Bloomberg

The Ali coral headwrap, from Send The Trend. Close

The Ali coral headwrap, from Send The Trend.

Source: Send The Trend via Bloomberg

The Lillian silver stretch cuff, available at Send The Trend. Close

The Lillian silver stretch cuff, available at Send The Trend.

Divya Gugnani, co-founder of fashion website Send The Trend, gathered employees in a New York conference room smelling faintly of garlic to talk about the company’s latest hit: bondage earrings.

The seven-month-old company, which markets jewelry and other accessories based on subscriber tastes, had promoted its black leather earrings with a blog entry featuring Fergie from the Black Eyed Peas and singer Taylor Momsen wrapped in studded leather. The result: Sales spiked.

“The more there’s intrigue, the more clicks,” said Gugnani, a 34-year-old who worked as an investment banker at Goldman Sachs Group Inc. (GS) and venture capitalist for FirstMark Capital LLC before Send The Trend.

Gugnani is part of a growing community of entrepreneurs in New York, which is gaining ground on traditional leaders Silicon Valley and Boston in creating new companies. The number of startups is climbing with many of the businesses built on the region’s traditional strengths in finance, fashion and media.

In 2010, there were 350 venture investments totaling $1.88 billion in the New York area, up from 254 deals worth $1.49 billion a year earlier, according to the National Venture Capital Association. Though Silicon Valley and New England remain larger with $8.51 billion and $2.54 billion respectively, New York has had stronger growth rates for the past three years.

“You have the basic building blocks for entrepreneurial activity,” said Mark Heesen, president of the NVCA. “Good lawyers, good accountants, office space. You have a lifestyle entrepreneurs like. The culture, the education levels. All of those things have come together.”

Foursquare and Gilt

Among New York’s more established startups are Foursquare Labs Inc., which makes location applications for iPhones and other mobile devices; Knewton Inc., an online education company; and SecondMarket Holdings Inc., which was founded by former investment banker Barry Silbert and lets investors trade shares in private companies such as Facebook Inc. and Twitter Inc.

Gilt Groupe Inc., a New York-based online retailer that offers members discounts on designer brands, said today that it raised $138 million from Softbank Corp. and other investors. Huffington Post, the New York-based media website, agreed to be acquired by AOL Inc. (AOL) for $315 million in February.

Rising unemployment and the Wall Street crash may be contributing to the startup trend. College graduates may have a harder time finding jobs in finance, consulting and other sectors, channeling more talent into new ventures, said Gugnani.

Opportunity Cost

“You’re seeing a real shift in people’s decision making,” she said. “While a lot of corporate jobs have dried up because of the economy, you’re seeing more and more people plunge into entrepreneurship. Because, at the end of the day, the opportunity cost is so much lower. They can either graduate college and not get a job and sit around, or they can start a business.”

There’s also a crop of New York entrepreneurs that have experience. Many have founded companies before, learning lessons from past recessions and businesses that were sold or went bust, said Brian Hirsch, co-founder of GSA Venture Partners, a venture-capital firm based in the city that focuses on investments in early stage startups.

“The New York area in general is going through an innovation renaissance,” Hirsch said. “When it comes to technology, you’re seeing revolutionary changes to a lot of the major industries that are based in the city: financial services or the media business, changes in publishing. Pretty much any major industry that would be based in New York, which has had a big impact on the economy, is being turned upside down.”

Serial Entrepreneurs

Dennis Crowley, founder and CEO of Foursquare, had already sold one business to Google Inc. (GOOG) before starting his current venture. He’s weathered the booms and busts in New York since the first tech bubble in 1999 when he was working for a firm that developed applications for Palm Pilots.

“It’s happening again here,” Crowley said. “1999, 2005, 2009 -- it’s almost like third time’s a charm. I feel like I didn’t have anyone to help me last time.”

Today, Crowley said, founders from startups in the city swap advice and more established players make themselves available to new companies.

Knewton, which competes with the Washington Post Co.’s Kaplan education unit, was the second startup for Jose Ferreira, a Harvard Business School grad who had previously worked at Kaplan and Goldman Sachs. Ferreira said that while there’s a shortage of good engineering talent across the board, advances in technology and the overall increase in computer engineers in the last decade have put the spotlight on industry talent.

Send The Trend

“New York back in 2000, 2001 was not a great place to start a technology company, and that has changed a lot,” said Ferreira. “You’re seeing more and more startups that are revolutionizing a particular industry. That industry expertise becomes more important than hiring a bunch of hackers. The Bay Area will always be better for the latter because they get the best engineers from all over the world, but New York has an incredible advantage in the former.”

Gugnani is on her second startup too. The Cornell University and Harvard Business School graduate began Behind the Burner while still at FirstMark. Eventually, the business, which creates instructional online cooking videos, became a full-time job and she left finance.

Gugnani didn’t take a paycheck for more than two years at Behind the Burner though and had to curtail the shopping habits she’d gotten into as an investment banker. That gave her the idea for Send The Trend: Let women without a lot of money get customized recommendations, like they have a personal shopper at Bergdorf Goodman or Saks Fifth Avenue.

Garlic Bread, Pizza

“When I was a woman who worked in finance, I could go to Bergdorf, Saks and say, ‘Hey, I need a dress for a holiday party,’ and the salesperson would help me,” Gugnani said. “It changed my entire shopping experience, and I was now totally on a budget.”

Send The Trend is based in a sixth-floor Manhattan loft near the city’s Garment District. One co-founder, Christian Siriano, who won the fashion reality series “Project Runway,” lives a few blocks away; the third is retail veteran Mariah Chase. The smell of garlic bread and pizza wafts through from a restaurant downstairs.

The company, which went live Oct. 4, sells branded accessories sourced from designers with all products at a flat $29.95 rate including free shipping. Users take a survey to determine their style preferences and get recommendations by e- mail. Members can buy or decline a recommended item. If they do nothing, they’re charged $29.95 and get a credit for a year.

Payoff?

The company has drawn more than 30,000 subscribers, though Gugnani won’t disclose specific numbers. The service was mentioned on the “Today” show in December, which overwhelmed the website and caused it to crash seven times in one day.

Send The Trend raised $3 million in new financing last week from Battery Ventures and smaller investors, the company said. Gugnani said her goal is to get the company to profitability and hasn’t focused much beyond that.

Some in New York startup circles including Gugnani said there are concerns the growth in venture deals may not pay off. The region hasn’t had the same kind of initial public offerings that provide paydays for venture investors as Silicon Valley and New England. For example, RPX Corp., a San Francisco patent- buying firm, and Zipcar Inc., the car-sharing service based in Cambridge, Massachusetts, have gone public this year.

Gugnani said there’s an influx of seed capital in New York that makes it increasingly easy for early-stage companies to get a few hundred thousand dollars in initial capital. Often the businesses give up the mentoring available from traditional seed funds for easy cash, she said.

Easy Money?

“You’re getting so many entrepreneurs in the market, and a lot of them are first-time entrepreneurs and they’re not as savvy at understanding what are the levers that can move the needle for them,” Gugnani said. “They’re not having trouble getting a few hundred thousand dollars, but we’ll see what happens when they need to get a few million dollars.”

Gugnani is a mentor at The Founder Institute, a group that matches startups with experienced CEOs and helps provide feedback and training to fledgling businesses.

Ben Leher, an entrepreneur who manages a startup investment fund, has also seen easy cash going to early-stage companies in New York. Bigger venture-capital funds that aren’t finding enough later-stage companies to invest in and funds outside the technology industry are crowding out smaller funds like his by raising the price of the initial rounds of investment and funds businesses that may not have workable business models, he said.

Transformational Company

“In early stage, there’s too much money,” said Leher, who founded the online recommendation service Thrillist. “That’s, in some capacity, dumb money.”

Rising venture investments have fueled concerns of a bubble nationwide, as the valuations for companies such as Facebook and the social-buying service Groupon Inc. surge. Total venture capital spent in the U.S. rose 19 percent last year to $21.8 billion, the biggest increase in at least five years, according to the NVCA.

In New York, the number of startups is on the rise. The question now is whether they can come of age, said GSA’s Hirsch.

“The one thing we’re missing in New York is a big, transformational company,” he said. “We don’t have Facebook or Google or Microsoft or Amazon. Hopefully, that will happen over the next five-to-ten years.”

To contact the reporters on this story: Amy Thomson in New York at athomson6@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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