New York’s VC Market: A Conversation with Bloomberg Beta’s Karin Klein

Over the last few years, the capital market for venture-funded startups has seen record levels in company valuations, deal sizes and total number of transactions. After we closed out 2015, we sat down with Karin Klein, New York-based Bloomberg Beta founding partner, to learn more about where Bloomberg’s fund experienced success and where the market is going. Karin is recognized as a top venture capitalist  — TechWeek’s 100, Silicon Alley’s 100, New York Business Journal’s top “Women of Influence“– and is a trusted partner to some of New York’s most successful startups (e.g. led the first venture round in Buddy Media, acquired by Salesforce).

Q: Can you tell us a little bit about Bloomberg Beta and the types of startups that interest you?

A: Bloomberg Beta is a seed stage venture capital fund backed by Bloomberg LP. We invest in technology companies that make work better – in other words, these startups are helping people be more productive, knowledgeable or content at work, or they could be helping businesses improve their workflow.  We focus on: machine intelligence, data, technology platforms, media distribution, content discovery, networks & communities, human-computer interaction, and radically new organizational models.

More on our areas of interest and the way we approach investing can be found in our operating manual we shared on GitHub. When we started our fund, we created this operating manual as a way to identify our shared values and organize our approach. We soon realized it would be more useful to “open source” it so founders could get an unfiltered lens into the way we work and decide if we are the right partner for them. It is also consistent with Bloomberg’s spirit of transparency.

Q: Financial services, healthcare and retail have been disrupted by technology. Which industry do you think will be impacted most, and what are the investment opportunities?

A: We believe data tools such as processing power, storage capacity and smarter algorithms are bringing more insights, productivity and transparency to most industries. We’re already seeing the impact of machine intelligence across the board and have made investments in opportunities ranging from cyber security to talent management.

One area, in particular, we anticipate will be disrupted by technology is talent management. Look at what happened when data created more transparency and efficacy in advertising and marketing – budgets and power grew for chief marketing officers. Talent management/HR should experience the same journey.

It takes a forward-looking company to put their best stars in human capital, and we are seeing that starting to happen more frequently in tech companies. A company’s success depends on the founders, and we look for companies that recognize the importance of building and motivating the right team. Having the right tools can support these goals.

Q: Since you are Bloomberg Beta’s lead on the East Coast, can you tell us about some of the trends in the NYC landscape?

A: My favorite trend is that New York is being recognized as a great place to start a company. As recent as ten years ago, there wasn’t as much certainty around that statement. Whether it be engineering talent or capital availability, the fundamentals are now clearly place. And unique to New York is that there is such a wide range of industries including education, commerce, finance, media, recruiting and real estate, to draw perspective and talent from as well as partner with. Billion dollar plus companies are thriving as examples as a result. Look at Etsy, Shutterstock, WeWork, Warby Parker, Huffington Post, and BuzzFeed, just to name a few.

Mike Bloomberg brought a lot of attention to and supported the growth of the New York tech community – most recently with his $100 million gift from Bloomberg Philanthropies to Cornell Tech. It’s good to be backed by someone with such strong support of founders and technology and to see the New York startup community flourishing.

Q: A few years ago, Bloomberg Beta created the “Future Founders” project. How is that going? Do you plan to do it again this year?

A: Yes. Using data to bring transparency to markets is what we do. From the inaugural class of 2014, eight “future founders” started companies, and three are already venture-backed including Product Hunt. In 2015, Bloomberg Beta teamed up with the Lester Center for Entrepreneurship at UC Berkeley’s Haas School of Business to develop an algorithm to identify the next group of future founders. The results from 2015 were very interesting. One in five of our predicted future founders were women, double the current rate of funding for female founders.  Also, only about half of the future founders had technical education.

Q: Fidelity recently slashed the valuations of numerous “unicorns.” What impact will their move have on startups and overall valuations?

A: With companies staying private much longer than they did historically, it’s not a surprise that an in-between level of disclosure has emerged (not the full level of being public, but having some transparency around metrics and financials). The unfortunate part is that some founders who took capital from Fidelity likely weren’t aware of the potential disclosures. They were probably expecting to keep their numbers confidential longer. With this kind of information being made available, there are potentially implications on employee morale, customer adoption and potential partnerships. In the future, as founders raise funding, Fidelity’s disclosures will be a consideration. Who knows…maybe some founders will opt to take their companies public sooner.

Q: Square recently went public at a market cap substantially below its last raise.  What are the implications for the market?

A: The headlines focused on price differential and valuation. But a less frequently referenced detail is that the investors in the round before the company went public were guaranteed a 20 percent premium on their investment. It’s not the investors who face the negative impact regarding some of these high profile valuations, but instead the employees. They often take lower salaries to work at startups because they anticipate their equity will provide greater potential, and when there are mark-downs, it lowers their stock value. I’m hopeful there will continue to be greater transparency here, so employees can make informed decisions.