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Mar. 2 2010 - 7:58 am | 1,328 views | 0 recommendations | 14 comments


New York City’s tech scene is expanding at an astonishing rate these days, which raises the obvious question: why now? And, if New York has all the right ingredients to create a rich and deep technology culture, why didn’t it appear earlier?

My theory is that New York lacked, until recently, a critical factor: smart early stage investors.

The other parts of the puzzle were in place: great schools, brainy entrepreneurs, and abundant media and PR people. But without the manure that VCs provide, what looked to be a great greenhouse was cold, and very little would grow.

It is manure that makes greenhouses hot, that makes them hotbeds, and the critical factor is now being provided by folks like Chris Dixon, Fred Wilson, and John Borthwick. Chris Dixon recently made the case that the financial services downturn has dumped a lot of smart people out of financial sector, and also chimes in on the role that smart investors are having:

[...] why did New York City lag behind the West Coast this decade so much more than last decade?  Especially since the internet in the 2000’s has been more than ever about consumers, media, and advertising – traditional New York City strengths?

I think the only explanation is that the finance bubble of 2003-2008 was a giant talent suck on the East Coast.  The people I knew graduating out of top engineering or business programs on the East Cast were all trying to work at hedge funds or big banks or else felt like fish out of water and moved west.   Money was flowing so freely in the finance world that there was no way the risk/reward trade off of startups could compete.  Eventually it just became downright idiosyncratic to be a startup person on the East Coast.  The Larry and Sergey of the East Coast were probably inventing high frequency trading algorithms at Goldman Sachs.

But this is why New York City now seems poised for a technology startup boom. The finance bubble has burst and the industry will hopefully return to its historical norm, about half its bubble size.  The traditional advertising and media businesses are in disarray.  The people who work in them will no doubt find new applications for their talents.

There is also a nice ecosystem developing in New York City.  Union Square Ventures is one of the best VC’s in the country, with early stage investments in companies like Twitter and Etsy (that were followed on by top West Coast VCs at significant markups).   Bessemer is an old firm that has a managed to stay relevant with investments in Yelp, Skype, and LinkedIn among others.  There is also a new wave of scrappy Boston firms spending a lot of time in New York City – specifically Spark, General Catalyst, Flybridge, and Bain Ventures.  First Round Capital out of Philadelphia is extremely active in early stage investing in New York.  There are a bunch of veteran entrepreneurs actively investing in and mentoring seed stage startups.  Google has a big office here and many people seem to be leaving to go start companies.

Fred Wilson of Union Square Ventures, recently made the point that NYC has been slowly growing as a start-up hub for a decade:

Chris argues that for the past decade, hedge funds and wall street have been a huge talent suck here in NYC and now that they are scaling back, our kinds of companies will find it easier to attract the best and brightest. I agree completely.

But I take some offense to Chris’ view that NYC was “irrelevant” in the 2003-2008 internet boom. TACODA, Right Media, Gawker, Quigo, Delicious, Etsy, Meetup, Indeed, Tumblr, Return Path, etc, etc.  I don’t call that irrelevant. I call it misunderstood. Good thing people, including our Mayor, are waking up to what a good thing we’ve got going here.

I think a tipping point has been reached, though, where all the pieces are now connecting, and we are moving past an inflection point into explosive growth.

One of the other factors, that can’t be downplayed, was the cold water that got splashed all over the San Francisco tech environment in the fall of 2008.

Sequoia’s infamous ‘Good Times: RIP’ presentation — and the thinking behind it — infected Silicon Valley’s venture world like a zombie plague. In a nutshell, the venture firm had a secret meeting of its partners and key staff after the banking sector melted down, and shared a vision of rising financial insecurity and the need to decrease risk exposure. The result was a Valley wide cut back in deals, and a push to make portfolio companies more lean through staff cuts, decreased marketing, and slower technology roll-out. Over the next 18 months many companies would lose their funding, and thousands of developers, designers, and marketing folks would lose their jobs or contracts.

While the funded entrepreneurs and investors in the Bay area were busily patting themselves on the back for being so austere and forward-looking, the migration of start-up aspirants from Montana, Ohio, and Mumbai slowed. The big freeze stopped decades of software immigrants heading for the West Coast to start the next big thing. Now it looks like New York City might be the new tech Mecca.

Ron Conway, the great angel investor, made a presentation last November at a Betaworks brown bag lunch. He stated, more or less, that his group had made 25 investments in NYC companies by that point in 2009, out of 37 investments in total. (I may have the exact numbers wrong, but not by much.) In the previous year, he made only one investment in NYC, and in all the previous years he had been an investor, none.

Yes, this is a single investor, and it could represent a new-found willingness to invest outside of California on his part. Still, I find it indicative of the piling-on effect of smart money chasing other smart money in an environment that is creating enough innovation to justify it.

So, this new project, called Hotbed, is a vehicle for me to examine what is going into this creative frenzy, this exploding scene. I am an economic migrant, myself. In late 2009 I left San Francisco, a city I had used as my base of operations for 4 years, and I am now rerooting myself in New York City. This will be the journal of my inquiry into the peculiar chemistry of New York’s start-up explosion. I will continue to write about more global topics at /Message, as I have been doing since 2005. But Hotbed is all about New York tech start-ups, and the shifting, swirling scene that supports them.


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  1. collapse expand

    Stowe – welcome!

    I commented on @caterina’s blog about the NY startup scene last week:

    ‘New York has always been about entrepreneurialism – in fact, New York City itself is the product of a very small group of people who back in 1624 settled here with a dream and a ‘build it and they will come’ mentality, and bootstrapped the place into a thriving metropolis :)

    Yes, there are tremendous barriers and obstacles to launching a startup you passionately believe will make a difference (and trust me, I’ve encountered all of them), but that’s why the saying goes, ‘If you can make it here you can make it anywhere’…

    Finding funding was particularly tough. That’s why NYC really is the home of bootstrapping. It forces you to be crystal clear about what constitutes minimum viable funding and what you can make happen creatively by other means yourself. Yes, that is a different situation and mindset from much of what I’ve encountered within the tech world on both West and East coasts, but the one thing starting up a venture here has taught me is that the only person who can really help you is yourself, and the only person who can really make things happen for you is you. That’s a New York truth – and it’s what’s spurred the growth of New York over the past five centuries via millions of ‘entrepreneurs’.’

    This is the place to be for any startup. Great to have you with us.

  2. collapse expand

    Hi Stowe,

    Great to hear that you’ll be blogging about NYC Startups! @codybrown & I have been calling for such a thing! http://bit.ly/cVi0oR

    That said, I think you have it backwards. NYC has an abundance of entrepreneurs, for the reasons you mentioned and more (lots of tech savvy would-be media folk like me deciding to do the startup thing), but a relative scarcity of capital relative to demand. Early stage investing in NYC is a small pond with not a ton of players. This dynamic (abundant demand, scarce supply) makes early stage investors feel that they can be choosy and risk-averse because they know there’s not a lot of competition. This is why, I’d guess, folks like Ron Conway are entering the scene. Good deals are to be had.

    What the NYC scene needs, quite frankly, is more of this outside capital to flow inward. As it is, I myself am in California for 10 days for this very reason.

    Also, umm, Fred and Chris are cool peeps and all, but startups happen because entrepreneurs make them happen. Entrepreneurs are the real fucking heros in this story, not VCs. We lead, they follow. Don’t forget that.

    -Matt Mireles
    Founder/CEO, SpeakerText

    • collapse expand

      Just to add to that and clarify, let it be known Chris Dixon is an entrepreneur himself (Hunch). Based on blog visibility, it’s easy to get the impression that the NYC startup scene is happening because of Fred Wilson and Chris Dixon. They are high-visibility champions and wonderful contributors to the community, giving us all an added sense of pride and support. But in so much as they act as a source of capital, they only enable. It is the little guys you’ve never heard of who struggle, fail, take risk and create.

      Also, just fyi, my post NYC vs Silicon Valley kinda set off the debate. In case you haven’t seen it, take a look: http://bit.ly/d04lmLml

      In response to another comment. See in context »
  3. collapse expand

    Cool, Stowe – congrats on making the move!

    I’ve been following the debate as I moved from SF to NYC in 2007 in part for personal reasons (love the city) but also b/c it felt like the factors for success in my planned startup were less about technology and more about culture, design and finding the right early adopters (e.g. the folks who wore Hush Puppies in ‘94, in Gladwellian speak).

    While I still spend quite a bit of time in SF, I think NYC is the right fit for us given the nature of our service, our core users & our team (http://8tracks.com/about).

    (Btw I believe we met briefly via Adrian Chan at this event a few years back: http://www.baychi.org/calendar/20060411/.)

  4. collapse expand

    I’m thrilled to see this happening, Stowe.

    I think it is hard to distill the reasons why the NY startup scene is blowing up down to one factor. Is it the investors? Is it the entrepreneurs? Is it the financial meltdown? Ultimately, all these reasons strike me as post hoc ergo propter hoc fallacies — that is, just because we’re seeing a lot of new bright investors in NYC doesn’t mean it is the reason why there’s more interest in the startup scene. X could cause Y, Y could cause X, or both X and Y could be caused by some other factor Z.

    If I had to pick one factor, I’d probably say that there are simply enough people now doing early-stage stuff in NYC that the social network density has reached a tipping point of sorts. NYC is extremely siloed — finance guys don’t talk to ad guys, media guys don’t talk to gaming guys, etc. It requires a lot of well-networked people in the startup space to overcome that.

    Ultimately, I think it is more about the social graph than the money. The money was always here and always will be.

  5. collapse expand

    Stowe –

    [reposting a comment for your blog too]

    Charlie and I have been discussing this for quite some time – check out his post and my post on the topic.

    I, for one, am thrilled to see the impact of the meltdown of CorporateLand and the financial bubble in freeing up money. One of my relatives was telling me that there is over 5 TRILLION sitting on the sidelines. It is now almost 18 months since the meltdown. This means that investors are ITCHING to get their money working again.

    My concern: no one is bringing the infrastructure (incubators), the education (training people how to become facile with tech) or experience (previous success players) in a way that creates a positive spin.

    I am sorry, but the schools in NYC while excellent in many areas, have not fostered entrepreneurial thinking – they are often fostering COG thinking (where can I get a job to settle down). As Columbia ramps up its program, and Poly/NYU begins to ramp their program – give it five years – THEN I will be very proud of the schools.

    I am excited about the fact that entrepreneurs with experience are making NYC their home (Stowe, Caterina, Matt, JackD, etc) and that many of our homegrown are staying with us here. That is VERY important.

    Now, if we could convince Mayor Bloomberg to figure a way to really incentivize people to build businesses here – like finding a way to bring down the base cost of running a business in the City. Come on, NYC has one the HIGHEST tax base for businesses in the nation (IMHO).

    Mayor Bloomberg – are you listening?

  6. collapse expand

    Stowe –

    Congrats on the launch of the blog, looking forward to following and interacting.

    I agree that we are seeing more early stage money in NYC lately. I disagree about the lack in the past. There have been plenty of early stage investors in NYC over the past few years. We haven’t had a lack of capital. Great teams and ideas will always find money. The marginal ones won’t.

    What we need in NYC now is more great early stage companies to support this money. If we dont have this we will see a few things happen

    1) We will see over inflation of valuations if there is too much money chasing to few deals
    2) The investors will start to invest in more companies outside of NYC
    3) More marginal companies will get funded that would not have been funded in the past, this isn’t always a good thing.

    Hopefully the coming out party for NYC venture capital that is happening now will attract great entrepreneurs to NYC, if it doesnt we a going to have an issue.

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    About Me

    Social tools maven, impresario, blogger.

    See my profile »
    Followers: 10
    Contributor Since: February 2010
    Location:Eastern Time

    What I'm Up To


    I am widely known as an avid student of social tools and their impact on media, business, and society. I work as an analyst, advisor, futurist, and researcher, and I am principally known these days for my writing at /Message. I an the director of 301works.org, the president of Microsyntax.org, the front man for Stowe Boyd and The /Messengers, and the director of Social Business Edge, 19 April 2010 in NYC.