Brian Eno is the musician (and genius, candidly) that coined the term “Scenius” by which he meant “the intelligence and the intuition of a whole cultural scene. It is the communal form of the concept of the genius.” (Eno is also responsible for ambient music, where he imagined a future musical genre in which melody and rhythm were not required, and then he started making it.)

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.

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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.

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[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.]

NY is second, trailing California, in funds received in February 2010, according to Form-D’s filed with the SEC, with $150M involved.

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?)

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.