What caused New York’s startup boom?

A few early and broad questions in our exploration of NYC's startup community.

Google's New York officeSince the crisis of 2008 New York City’s massive financial sector — the city’s richest economic engine, once seen to have unlimited potential for growth — has languished. In the meantime, attention has turned to its nascent startup sector, home to Foursquare, Tumblr, 10gen, Etsy and Gilt, where VC investment has surged even as it’s been flat in other big U.S. tech centers (PDF).

I’ve started to poke around the tech community here with a view toward eventually publishing a paper on the rise of New York’s startup scene. In my initial conversations, I’ve come up with a few broad questions I’ll focus on, and I’d welcome thoughts from this blog’s legion of smart readers on any of these.

  • How many people in New York’s startup community came from finance, and under what conditions did they make the move? In 2003, Google was a five-year-old, privately-held startup and Bear Stearns was an 80-year-old pillar of the financial sector. Five years later, Google was a pillar of the technical economy and among the world’s biggest companies; Bear Stearns had ceased to exist. Bright quantitatively-minded people who might have pursued finance for its stability and lucre now see that sector as unstable and not necessarily lucrative; its advantage over the technology sector in those respects has disappeared. Joining a 10-person startup is very different from taking a job at Google, but the comparative appeal of the two sectors has dramatically shifted.
  • To what degree have anchor institutions played a role in the New York startup scene? The relationship between Stanford University and Silicon Valley is well-documented; I’d like to figure out who’s producing steady streams of bright technologists in New York. Google’s Chelsea office, opened in 2006, now employs close to 3,000 people, and its alumni include Dennis Crowley, founder of Foursquare. That office is now old enough that it can generate a high volume of spin-offs as Googlers look for new challenges. And Columbia and NYU (and soon a Cornell-Technion consortium) have embraced New York’s startup community.
  • Does New York’s urban fabric make its labor market more liquid? Changing jobs in Silicon Valley can mean an extra 40 minutes on your commute if you have to slog up the 101 during rush hour. New York’s main business districts are much more compact; if you change jobs from a bank in Midtown to a startup on 28th Street, your commute won’t change by more than 10 minutes.
  • What are the dominant practice areas in New York’s tech scene, and how do they relate to the human capital available here? Have refugees from the finance, media and advertising industries brought with them distinctive skills from those areas? How much of the startup community here is targeted at acquiring those industries as clients?
  • What’s the city doing in response to the growth of its tech industry, and what can other cities learn from New York’s model? Other old, established cities like Chicago, Pittsburgh, Philadelphia and Washington claim to have robust startup communities. What do these cities have in common, and how have their governments reacted to the emergence of their tech communities? The emergence of a tech startup scene here could be particularly fortunate for New York in light of its dependence on the finance industry (at the peak of the finance boom, the industry contributed 20% and 13% of New York State’s and City’s income tax revenues, respectively; those figures in 2011 were 14% and 7%). To what degree can a city or state government desperate for diversification bring a startup community into existence?

Send along any ideas in the comments below!

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  • People laughed when I listed the above factors as part of why New York could some day displace Silicon Valley ( see http://www.tnl.net/blog/2011/01/08/new-york-to-top-silicon-valley/ )

    I’d add a couple of factors:
    There’s a natural market in New York: You could build a decent business on only selling stuff to the 8 million people in the city and 30 million people within 50 miles of city center.
    Many corporate customers are here: If you’re selling into advertising, media, finance, fashion, or some other thing that needs to be dealt with at corporate headquarters, it’s highly likely that the HQ are here.

    • Bruce Upbin

      Population/market density is exactly the reason companies like 4sq and CaterCow spring up in NYC. Jon, you should talk to CaterCow, which just came out of NY’s Entrepreneurs Roundtable Accelerator, or ERA.

      • Good points, both of you. When Google opened its New York office it was aimed at communicating with the big advertising firms and other HQs in New York.

        And you’re totally right about FourSquare, Bruce–in its original “which bar are my friends in right now” usage, a certain proximity and density is necessary. And now that it’s oriented toward discovery, the explore app is best used in places that have a handful of different attractions within walking distance.

        And I’ll check out CaterCow, thanks! It looks like it could make the unbearable process of planning a wedding much easier.

  • tungwaiyip

    I’ve been looking at the tech boom in San Francisco for a while. One of the justification for me to think the boom in San Francisco is a sustainable long term trend rather than a short term hype is because I see a parallel trend going on in New York. Neither of them was tech leader historically. But now, base on some stats I have run on the crunchbase, I see them ranked number 1 and number 2 in term of the number of tech companies. They lead all cities by far.

    Tech Companies Tracked By CrunchBase – Tung Wai Yip’s blog

    I think this has a lot to do with Richard Florida’s idea of the rise of creative class, the clustering effect and the urban renaissance.

    San Francisco’s urban tech boom – SFGate

    On the government though, I don’t think their involvement matter much. While our SF Mayor Ed Lee is riding on the boom and is paying a lot attention to the industry lately, the boom has already took place for quite some time and will keep going, despite the government rather than because of the government’s involvement. The creative culture and the density of talent will far outweigh anything the government could have done to attract the tech industry. My advice to them is to focus on fixing pot holes, transit, schools and housing affordability. If the city service is shitty, it drive people away. If it is a decent place to live, it remove the barrier for people to come and stay. Then the industry will take care of itself.

    Another way to think about this is to review the countless government projects around the world to try to create their own version of silicon-XXX. I think all of them are lackluster and I can’t think of any example of big success.

    • I tend to agree with you on government efforts to encourage this kind of contribution–big-city governments aren’t really equipped to interact with startups and offer them the sorts of incentives they’d offer to, say, Exxon for moving its headquarters.

      Cities probably can have a very long-term impact in creating the right sort of environment for a tech hub to grow–encouraging the growth of local educational institutions and maybe giving incentives to big companies that could become anchor institutions–like Google’s giant New York office.

    • tungwaiyip

      Oh another point is the lean startup trend. These days a fairly small startup is enough to have visible impact. The mid size and large tech companies from the last decades generally favor suburb office campus over urban core due to the real estate constraint. But for a startup of a few dozen people, they have lot more flexibility and it becomes lot more viable and even desirable to be in the city.

  • Really looking forward to seeing this paper. Assume you’ve already seen the interesting articles Matt Mireles and Antonio Garcia-Martinez (formerly a GS guy) wrote on why NYC would always be a “tech backwater”? (written in 2010, so post-Bear)

    I wonder what you’ll find about the personal risk curves of people who left finance for startups – once you’ve built a life around the kind of salary finance pays, it is really, really hard to walk away…even for a commute that’s 20 minutes better and a job that doesn’t require you to be at your desk by 7am. ;) I wonder what percentage of them are ~1-3 years out of school (and what factor school debt played in the decision).

    To your point about the dominant practice areas shaping the startup scene… A quick glance at AngelList shows 2555 companies in the New York City/New York area, and 4091 in MV+PA+SF. Of the 2555 in NYC, 493 are e-commerce, 109 are financial services, and 142 are fashion. Compare that to MV/PA/SA, where 504 are e-commerce, 86 are financial services, and 64 are fashion. Of course, this could turn out to be a problem with categorization, but it’s an interesting thing to look at.

    I’m really curious about why NYC seems to be surpassing Boston/Cambridge, given that MIT seems like it’d be a serious anchor institution, and that Boston has a lower cost of living.

    Also, just a small point: Dennis Crowley was a founder before Google (Dodgeball was acquired by Goog).

    • Excellent points, Renee.

      The utility curve is what I was talking about in comparing Google and Bear–not that many jobs in tech are as lucrative year after year as jobs that similar people could get in finance, but the industries’ relative positions have changed to make tech much more competitive with finance in that respect. In the early 2000s, tech was risky and reasonably lucrative, and finance was not very risky and extremely lucrative. Tech has improved in both respects and finance has diminished. That might be enough for some people who were always indifferent to financial work to move to tech even though the salaries are, for the most part, not similar.

  • You’re missing the impact of the growth of the tech & startup community itself.

    In the 1990s boom there really wasn’t a sense of community. There were disparate groups doing get togethers, the occasional pre-meetup get together to talk about some new technology or idea, but there wasn’t a community. The closest was NYSIA, which primarily served the existing financial industry software companies and some miscellaneous companies (the typical member was IBM or Information Builders, not any startups).

    The dotcom implosion started pre-9/11 but accelerated through 2002 into 2003, yet there *were* startups which started here in those years and even grew, they just weren’t on anyone’s radar (meetup.com is the poster child here).

    The community started to grow *as a community* in 2004-2006 with the NY Tech Meetup taking off, NextNY Digital taking off and a host of spin-off groups. The distinguishing factor now vs 1990s is that people aren’t afraid to share:

    – what they’re developing
    – what they’ve learned
    – what they’ve screwed up

    I don’t think this is unique to NYC, but it certainly has had an impact on the tenor and tone of the community here.

  • Nycsean

    A couple of anecdotal notes (life long New Yorker and Techie). While the finance bust did shake things up- none of my friends who work for finance in any capacity have moved to a startup. Finance is shaky- but the rewards are so high that they were carried through the bust by past bonuses- and have returned back to high finance. OTH- what ha benefited New York is High-Tech’s switch to advertising revenue or other social models. For deep technological, algorithmic type work- New York might not be the right place- too many “distraction”. On the other hand, if your startup idea is based on selling ad-space, or targetting ads- the cluster of media, advertising sales people, etc is hard to beat. A potential change to this will be the creation of New York’s own “Tech Campus”. Which might be Bloomberg’s real legacy to NYC.

  • Late to this conversation, I love the premise and the framing of this discussion. Thanks, Jon.

    As a native New Yorker, I love seeing the city take a serious place in the tech startup scene… and it is REAL. I was with a NYC tech company in the early 2000s, and there wasn’t a REAL community, but it was a start. Much of what followed in the late 2000s came from the few who hung on and helped the next generation. I agree with most of the comments about proximity, population density and IT’s recent focus on the media industry as WHY NYC has seen a boom, but I also think that the whole tech space needs to expand into more technical areas, such as nano, bio and other industries with longer investment time horizons and more technical talent. NYC needs to look at it’s tech startup scene as a portfolio. That’s why I’m bullish on the Cornell-Technion development.

    I’m anxious to see the paper you are writing, Jon. Let me know when it is published