There is growing awareness on the part of city government of the role that it can play, as Mayor Bloomberg demonstrated this week at the TechCrunch Disrupt event (see Bloomberg Talks At TechCrunch Disrupt). But my sense is that at least one major element is missing for this recent spike in start-up activity to grow into a long-term and deep shift in the regional economy; where New York could become an international leader in technology like it is in media, finance, fashion, art, and entertainment.

As I said, I am not a born New Yorker. I am a product of Massachusetts educational institutions, where I did K-12 in Brookline, Massachusetts, graduated from the University of Massachusetts, and received my masters in computer science from Boston University. When I attended BU in the ’80s, Boston was a region where the many universities were deeply involved in the development of tech start-ups, and there were a thousand activities going on at local colleges that brought in and involved entrepreneurs. I attended lectures at MIT, get-togethers with researchers at IBM, regular meetings of programmers, and dozens of other local events. Many of my teachers in the computer science program were former or current employees of local companies, like DEC, Symbolics, and BBN. And obviously, the same sort of networked relationships between education and work centers on Stanford and the other Bay Area schools.

For what ever reason, I don’t see New York’s colleges playing this role in NYC’s tech explosion. What’s happened in recent years in tech has been largely driven by migrants with little or no connection with NYU, Brooklyn Poly or Columbia. I know that New York colleges have professors who are pushing the boundaries on new media — Jay Rosen and Clay Shirky leap to mind — but I can think of no corresponding professors involved in entrepreneurialism, or software development.

Mayor Bloomberg, in his comments at TechCrunch Disrupt, stated that the city was going to be involved in the launch of a new media lab later in the year. I was surprised that I hadn’t heard anything about it, and also that he would half-announce it in this way: without naming the school involved or the leadership heading it up. My sources have hinted that this project is more smoke than substance, intended more as PR than the aggressive development of an institute focused on ground-breaking research and education around the rise of the web and its impact on society, media, and business.

A Web Institute of the sort I think the region needs would focus on the world that the web is making, and the intersection of web technologies, media, policy, business, and entertainment, and their study. A major goal for the institute would be developing programs that would bring together the academic and entrepreneurial worlds: to act as a bridge between these groups. I think this is too central a social good to leave to a collection of tech meet ups and one off conferences.

If what my sources hint is true, that the media lab is mere PR, it’s a shame. Because I believe that such an institute would be tremendously helpful as a rallying point, a nexus that could involve the burgeoning tech start-up community, and to build a bridge between that community, and the researchers and students in NYC’s colleges.

I hope that some part of the energy and funding that the city and investors are pouring into funds to help NYC start-ups get off the ground will be directed toward building a Web Institute that could fill this missing piece. My hunch is that NYU’s Stern School would be the best place, if it was to be managed by a single school, but Columbia and Brooklyn Polytechnic might have their own aspirations. But I have no doubt that this will require visionary leadership — in all communities in the city — before this can take place. Perhaps identifying the need is the first step, though.

The app — which is not on iPhone yet, but Novich says it should be ready for Internet Week, early in June. The app does currently run as web application, though. Highlights:

• Users post a location (like Bowery and Grand), and a time where they hope to meet the other user(s).
• Users are alerted to nearby opportunities to share rides.
• Users can post a photo, or describe their clothing, so that the meeting can take place.
• After the ride, the app calculates how to split the fare and tip, even when the riders are not getting out at the same place.

I had a demo and it’s very well-done, but I will wait for the iPhone app before actually adopting it into my ‘cab flow’.

I asked Novich about rolling the app out for other cities, presuming he was planning that. He argued that other cities aren’t like NYC: they don’t have the density of people and taxis that makes this sharing model work. I suggested than maybe London might work, and he agreed, tentatively, but he has no plans at present. For the time being, this will be a NYC-only app.

(see this piece in AM New York  First mobile app to help riders split taxi trips debuts)

Mayor Bloomberg stated that New York City’s venture investments grew 19% in the first quarter of 2010. I found this on Crain’s which clarifies his claim a bit:

Kira Bindrim, NY’s start-up funding rises as Silicon Valley’s falls

Metro-area venture-capital funding saw an uptick in dollars and deals for the second consecutive quarter, even as investments fell in Silicon Valley and nationally.

Funding for New York-area startup firms rose to $566 million in the first quarter, up 18.9% from the fourth quarter of 2009, and 32% year-over-year, according to a report released Friday by PricewaterhouseCoopers and the National Venture Capital Association. Some 75 companies received venture-capital in the first quarter, up 13.6% from the fourth quarter of 2009, and 11.9% year-over-year.

The Big Apple had a better quarter than rival Silicon Valley. Although the Valley still beat New York in dollars and deals—$1.5 billion in funding went to 202 companies there in the first quarter—funding fell 21.4% from the fourth quarter of 2009, and deal volume dropped 24.6%.

New York’s share of overall venture-capital dollars also increased in the first quarter, to 12%, from 9.2% in the fourth quarter of 2009. Silicon Valley accounted for 32.3% of all venture-capital dollars in the first quarter, down from 37.5% in the fourth quarter of last year.

So the growth is a comparison to the first quarter of 2009, not over the previous quarter.

Mayor Bloomberg announced that the city-sponsored NY Entrepreneurial Fund has invested in MyCityWay, the fund’s first investment. FirstMark Capital is collaborating with the New York City Economic Development Corporation to manage the fund, to which the city has contributed $3M, and the fund is dedicated to seed funding of NYC start-ups.

MyCityWay is building mobile apps, basically a collection of apps in a portal-like interface, so users can find information about landmarks, restaurants, and dozens of other specific sorts of local information. The company’s team is moving from NJ to NYC, and plans to have versions of their technology for as many 20 cities.

Perhaps the most interesting comment that Mayor Bloomberg made was a teaser: sometime later in the year the city will be announcing the creation of a ‘major’ media laboratory in collaboration with a New York City university, something along the lines of the MIT Media Lab. I am betting on New York University, but the Mayor is not talking.

Squarespace is the platform that I have been using for the past several months to publish my /Message tech blog, and other websites I maintain, like my Edgewards conference site and the non-profits Microsyntax.org and 301works.org. My familiarity with — and admiration for — the company’s technology led me to contact the founder, Anthony Casalena, and learn about his plans for the company, as well as the story behind Squarespace. I am covering my technical analysis of Squarespace in a companion to this post at /Message (see Squarespace, An Advanced Modular CMS), while here I want to just focus on the conversation I had with Anthony earlier this week. However, I will characterize the product, briefly, as a sophisticated blog-oriented content management system, offering a great variety of built-in modules — like blogs (called ‘journals’), forums, pages, and forms — as well as very rich access controls. It’s most direct, well-known competitors is Wordpress.

Anthony started working on the first version of Squarespace in college, at the University of Maryland, when he grew disenchanted with the various alternatives available for building and maintaining websites. He grew the business and managed it in Maryland for 3 years, by which time the company was already making $1M/year. The top line for Squarespace has been recently more than doubling annually, Anthony said, which will put growth in the past three years near the 700% mark.

The story of Anthony building something he personally needed, and the way that he did so without outside funding, reminded me of 37 signals. Anthony agreed with that characterization, although he hasn’t worked to keep the company artificially small, as Jason Fried and the 37 signals team did. “I think there are some things that you can do with more people in the company that just couldn’t be done — or done very slowly — if you don’t grow.”

Anthony moved the company to New York 4 years ago, so he is no longer a newcomer. In his viewpoint, he relocated to NYC at a time when ‘no one cared about tech’. He wasn’t trying to be some sort of contrarian, building a tech business in a city that could care less. He wanted to live in NYC because of what it offers outside of its support for tech: a huge mix of different communities — fashion and finance, art and media — and very diverse.

Anthony is very much the New Yorker now. “I am a 24×7 guy, always out at night. And although I like the Bay Area, I didn’t like the groupthink of Silicon Valley.” Anthony worries that people might be moving to NYC now for “the wrong reasons”, by which he means to just hang out with other tech folks rather than all the other things that NYC offers, and especially its diversity.

Three years ago he brought Dane Atkinson as CEO to lead the business, which has allowed Anthony to roam from one aspect of Squarespace business to another, focussing on what is most important at the time, whether that is programming, product planning, or developing channels.

The company has been approached by investors, but has not taken any funding. Anthony says that while he doesn’t see the necessity for raising capital for Squarespace at this point, he is actively considering the strategic partnerships that may help accelerate Squarespace’s growth

The community of users is approximately half individuals and half businesses. The nature of Squarespace means that it attracts individuals who are “do-it-yourselfers”, who want to have relatively sophisticated blogs or websites without having to be programmers or even have advanced design chops. Businesses often are steered to using Squarespace by web designers who gravitate to the technology because it can be turned over to clients once developed and running, and then the clients can update the content without having to use designers or website developers to add or modify the content.

Because Squarespace is a rich and largely self-contained system, it differs in philosophy from Wordpress, where much of the functionality is provided by various third party plugins. Anthony is unimpressed with this architecture, and believes it is outmoded and dangerous. “Who wants to update a company’s content management system by adding patches to the software? It’s a security mess.” He also wonders if the Wordpress approach to supporting both a hosted product and a standalone self-hosted version of the technology creates a strategic conflict for Wordpress. “Some of what they do, I would never do,” he stated.

Anthony is deeply involved in the development of the next generation of Squarespace, called Squarespace 6. This sounds like a dramatic step forward in flexibility and sophistication, based on his description. I have yet to see it, although I hope to do so in the next few weeks. Given the strides that Anthony and Squarespace have made to date, I expect that my mind will be blown.

Anthony is growing in new directions, and has started to think about becoming an angel investor, especially for other New York startups. He is a perfect fit for that role, considering the the continued growth at Squarespace, and his personal odyssey from dorm room startup to New York success story.

This sartori, this epiphany, is something we generally associate with artists: the painter daubing a canvas madly in her garret, or the pianist scribbling eighth notes. But the selfsame creative spark occurs time and time again in technology, and so the artist and the software designer are close cousins, not living in worlds apart.

That understanding is, I guess, what has motivated the upcoming Seven On Seven project, organized by Rhizome, paring seven technologists with seven artists:

These cross connections between the NYC art world and the burgeoning tech scene are a fascinating aspect of what makes NYC a unique place for tech to evolve, and art, too, for that matter.

I hope to be in attendance when the results are unveiled on 17 April, at the New Museum.

Scenius is what I think is happening in New York’s tech scene. There is a sprawling and awakening scene of exactly the sort that Eno was alluding to, a scene that is larger than we can comprehend, but which involves hundreds of thousands of people in an inchaote, swirling mess of interactions, chance meetings, and formal agreements, adding up to a great thing in progress, producing things larger than the individuals involved.

Recent analysis of social networks suggests that we are most strongly influenced by the third circle out: not our hundred or so friends, or the tens of thousands of friends-of-friends that they connect us to potentially. No, it is the hundreds of thousands or even millions of people that form the entire social scene, the huge ocean that we are a tiny minnow in: that is what creates the inexorable influences on us. As the social scientists Christakis and Fowler discovered, the likelihood that we are fat, or smoke, or listen to death metal is most correlated with the ‘third neighborhood’, not our immediate friends.

I believe that the critical mass for a social scene to take off in some innovative direction is a function of density, and the right participants coming into contact with each other. It’s like a local version of chaos theory: I don’t need to know that a particular entrepreneur met a specific musician today, and started to think about websites for musicians, or that across town a marketing guy gave a talk on the future of music distribution, or that a VC read a report about music streaming services. No single mind has to comprehend the gradual shift in the third neighborhood toward webifying music, but if enough people begin to invest time and energy in it, the effect is dramatically self-reinforcing.

New York tech scene is large and sprawling, but my corner of it is social and media oriented, so it is unsurprising that I hope to be interviewing entrepreneurs in that corner of the market. In the next few weeks, I plan to interview folks like Caterina Fake (Hunch), John Borthwick (Betaworks), John Rourke (BantamLive), Andrea Spiegel (True/Slant), Anthony Casalena (SquareSpace), Nate Westheimer (AnyClip), Fred Wilson (Union Square Ventures) and dozens of others.

On one hand, the tech scene is so large that many of its subcommunities interact infrequently, and indirectly: it’s truly unknowable. But I intend to tell a hundred stories to get at trends that are emerging, to find out who’s talking with who, and get a rough compass heading on which way the herd is moving.

I even considered naming this project Scenius, but I didn’t want to spend my life spelling it for people.

***

Matt Miereles commented on my initial post that in his view entrepreneurs are the one that is making this scene take off, and that I was glorifying VCs too much:

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

I intend to interview Matt, too, to dig into this a bit. But I hoped that we need all parts of the tech ecosystem, including the VCs,  who I compared to manure in the agriculture world. Yes, it is the plants that do all the growing Matt, but they can’t do it without the sun, rain, and worms in the dirt.

***

[Disclosure: some of the companies mentioned in this column are now, have been, or may, someday, be clients of mine. Mentioning them is not intended as an endorsement. They are being singled out as representative members of the New York tech scene.]

via SEC Watch Company Blog

Most companies who received funding are web-based startups, and Instant Information, Inc. raised the most with just under $120 million. Instant Information owns InfoNgen, a real-time discovery engine for business, finance, and information professionals. Other New York companies receiving funding included Yodle, a local online advertising provider, Fynanz, a private student lending platform, Energy Hub, which produces cost-effective energy management tools, and Tunesat, which tracks the use of music on broadcast television.

Also on the list: WebCollage, Kaltura, AlmondNet, Cellufun, Kamida (owner of Socialight), Magnify, Women on the Net, Really Simple, and Iconology.

(hat tip to @dlifson, who is apparently tweeting with on Grand Jury duty?)

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.