New York City is poised for a tech revival

One thing that was puzzling about the “web 2.0 boom” from 2003-2008 was how irrelevant the East Coast, and particular New York City, was compared to the first dot-com boom. There were a few big hits – Right Media comes to mind – and a big near miss – Facebook – which started in Boston but moved to the West Coast.

I was mostly checked out of the internet scene in the 90s (in perpetual grad school), but from everything I’ve read and heard, New York City and the East Coast in general was much more competitive with the West Coast. One interesting supporting data point: Matrix Partners in Boston had the best return of any VC fund in the 90s (an astounding 516% IRR).

I think it’s fairly easy to explain what happened to Boston in the 2000′s. In the 90′s much of the action was around infrastructure and enterprise software – and Boston (led by MIT) tends to be very infrastructure and enterprise oriented. I am told Boston is still relevant in biotech and cleantech, and perhaps infrastructure and enterprise IT will have a resurgence, although even those areas seem to now be dominated by the West Coast.

But the question that has puzzled me is: 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.

But most importantly, the engine of the startup economy, young engineers, will be returning to doing something besides shuffling money around. As Obama said:

…Wall Street will remain a big, important part of our economy, just as it was in the ’70s and the ’80s. It just won’t be half of our economy. And that means that more talent, more resources will be going to other sectors of the economy. And I actually think that’s healthy. We don’t want every single college grad with mathematical aptitude to become a derivatives trader. We want some of them to go into engineering, and we want some of them to be going into computer design…

That’s why I don’t just want to see more college graduates; I also want to specifically see more math and science graduates, I specifically want to see more folks in engineering. I think part of the postbubble economy that I’m describing is one in which we are restoring a balance between making things and providing services…

New York City has many of the same strengths as Silicon Valley – merit-driven capitalism, the embrace of newcomers and particularly immigrants, and a consistent willingness to reinvent itself. Silicon Valley will always be the mecca of technology, but now that people here are getting back to, as Obama says, making things, New York City has a shot at becoming relevant again in the tech world.

http://caterpillarcowboy.com dlifson

Yup. I graduated from Cornell in 2005 with a Masters and Bachelors in Computer Science (focusing on distributed systems design with an interested in network dynamics) and I did not apply to a single company in NYC other than Google. There were no tech companies.
http://www.oyster.com/about/leadership/ Elie Seidman

Totally agree – great post. One other thing that NYC specifically has going for it over places like the Valley or Boston is the abundant media talent here. Between 2002 and 2007, “new media” was a “techy” thing and most of the exciting media from that era that we came to respect and enjoy had tech roots. I think of the likes of Facebook, YouTube, TripAdvisor, Yelp and others in that mix; primarily UGC driven bc the talent and bias of the tech oriented founders made UGC the path of least resistance for content creation. But – and I show my personal bias here – professional media is not dead. It has changed – certainly – but it is not dead as the role of the professional (by which I mean someone who wants to be paid to create content) is still with us. NYMag.com is a magazine that successfully built a vast online presence. Hulu has taken professional video content and put it online and the users have flocked. AOL is scooping up the journalists that old medias has been laying off.

The economics of media have definitely changed and the distribution channel that used to depend on presses, paper and trucks is ever increasingly dependent on servers and electrons over the wire. But while distribution changes – and the ability to track the value of ads placed on the media increases – what is not changing is the need for people to create that content. The days of Annie Liebowitz style million dollar photo shoots is almost certainly behind us but that's ok. Great content does not need to cost that much to make and arguably some constraints increase creativity anyway. 5 to 7 years ago, an “old media” person was likely to “not get” the web. Today that same person has a Facebook account and spends their downtime tweeting and could not live without their Mac and wifi – they get it bc they are users of it. Years ago the technology understanding needed to put their content on he web would have likely been a insurmountable obstacle for all but the most technical and bravest media person. Today they can get, at the very least, a blog up and running on hosted infrastructure up and running pretty quickly. Some of the blogs we love best are based here.

As the tech for media commoditizes further, I think we will see that all of the media talent in this city realizes that content online is not a silicon valley thing but rather a content talent thing just as putting video online is not a technology thing – it's a storytelling talent thing. And now that we have the finance industry retrenching back to its norms, we no longer have their “pay any price” attitude to put upwards pressure on the price everything in this city – particularly rent and technical talent but also just smart people in general who were otherwise sucked in to making a living off the buying and selling of others.

cdixon

People are going to start to think you are my plant in the audience We are in wild agreement. The apparent victory of Hulu over YouTube (which admittedly surprised me) seems to vindicate the view that content is king – and quality content will remain scarce.

http://www.oyster.com/about/leadership/ Elie Seidman

Here's to us looking back on this in 10 years and realizing that it was the beginning of a (re)birth of a vibrant, non finance dominated, NYC full of smart and creative people making things.
nicknyc242

Chris, your post is excellent – NY is really coming into phase with it's technology start-ups. As for quality content I completely disagree. People all over the world are starting to realize that the technology exists for you to produce a multi-camera high-definition show or movie at the cost of consumer video levels from the 80s. The know-how is extensive (with the fields being predominantly staffed by freelance talent) and have a number of people (myself included) looking to leverage the incredible power of the web in creating quality, instant-feedback programming. Look at justin.tv's API, and the ability to not only stream live IPTV, but also react and message in real time within the show's distribution environment and we're at the beginning of something big. Content truly is king, but the cost of entry is being mitigated daily, and the snails pace at which the big networks, cable companies, etc, are evolving is going to leave them in bad place when we get organized.

I think we're about to see an explosion of content, and be empowered to affect that content on a week-to-week or day-to-day basis.

http://www.blip.tv/ Dina

Chris – great post, and 100% agreed. Two advantages New York City has: (1) advertisers are based out of New York City. You can set up endless meetings with NYC advertisers if you're based out of the west coast, but you won't have the advantage of running into them at dinner parties and through friends and friends of friends here in New York. (2) Also, NYC companies need to show a profitable projected P&L (not 15 years out, but more like 3 years out) to raise money in the east coast. West coast start-ups tend to have a 'we'll figure out the monetization thing at some point' mentality. Right now knowing exactly how you're turning a profit is a real advantage.

One thing to overcome: the idea in SF that top talent goes to start-ups, versus in New York where it's been that they'll head to a big name company. I could see that changing, however, if there are a few more Kevin Ryan's in the next few years.
Franklin Sinatra

Except that wall street has very little to do with “merit based capitalism” (it's more about insider advantage and deception, enabled by the fog of fancy but ultimately worthless “innovative” products.) And NYC's physical environment is a turnoff to many tech types I know here in the Bay Area. Otherwise, you're on the money.

cdixon

My main point is I'm glad to see Wall Street's role diminished – I agree that it is no longer remotely merit based. NYC is a lot more than Wall Street. SF is a beautiful place and has a great physical environment but some people value other things over that. There are trade offs.

http://twitter.com/ginsudo Gene Yoon

Man lately I've got a fever and the only prescription is more Chris Dixon – good stuff Chris, this time I've got to comment here -

I *so* want you to be right, but I don't think you are – at least if being right means that NYC startup value will amount to at least 20% of the value of SF Bay Area startups. Fred Wilson once estimated that NYC investment activity was about 25% of Silicon Valley – I'd bet that if you examine returns and include SF, that would drop to 20% at best. Even that Matrix article you referenced noted that “Kleiner’s partners expect their negative 1999 fund will turn around: Their hope is hanging on Google, the well-known search engine that is planning to issue shares on the stock exchange over the next year or two.” Uh, and how did that turn out?

It pains me to admit this, since I'm a Jersey boy and had some of the greatest times of my life and early career in Manhattan. I've been around the world and there's nothing that compares to NYC as the most astounding city on the planet. But that doesn't mean New York is in the same league as LA when it comes to movies, or DC when it comes to politics.

Like LA and DC, the SF Bay Area is a “company town” – the entire lifeblood of the area is devoted to making great startups possible. To New York's credit, the greatest city on earth is not so one-dimensional. But if you want to be in the major leagues of technology startups, SF/Silicon Valley is where it's at. Sadly, New York needs to catch up to Boston before thinking about the West Coast. I think I just threw up in my mouth a little bit, but that's the truth.

cdixon

Gene – I never said NYC could catch up to SF. I'm just saying maybe it could get back to it's 30% or so position. Most of your points are good but your point about Boston is way off. Boston is, sadly, extremely dead these days, tech wise..

http://twitter.com/angusdav Angus Davis

Boston is no silicon valley, but to claim it's dead is off base. Your post mentions Yelp and Etsy as winners, but Massachusetts-based, venture-backed Kayak.com is valued at more (and does more in revenue) than Etsy and Yelp combined. Here's a list of companies located within 50 miles of Boston: http://www.crunchbase.com/search/advanced/compa… — hardly a list to shrug at.

The general premise of entertainment = LA; tech startups = SF; automotive = Detroit; petroleum = Houston, etc., all holds true and is slow to change. However, I generally think what we're seeing is something like what happened in entertainment / hollywood over the last 10-15 years — LA lost its monopoly on movie making. Over time, as startups become more capital efficient and best practices for startup success become more widely understood, I suspect we'll see more and more successful startups launching in places like New York, Boston, Boulder and elsewhere — wherever talent, opportunity and capital collide.

Adam

Angus, Boston isn't dead, but it's on life support as far as internet investing is concerned. Take your crunchbase search and change the founding date to Jan 2003-present and click “acquired”. The result is not pretty.

http://twitter.com/angusdav Angus Davis

Well, I think Chris was trying to insinuate that compared to New York, Boston was dead. Using the measure of acquisitions since Jan 2003, crunchbase cannot find a single company within 50 miles of NYC meeting that criteria, no matter how paltry I agree the list looks for Boston. Also, Crunchbase doesn't seem to have a checkbox for “IPO”, which is what Boston-based LogMeIn did a little while ago. Finally, Boston has a pretty strong VC scene (for example, Chris's startup Hunch is funded by a Boston fund).

My point is not the Red Sox vs. Yankees argument of why Boston or NYC is better. My macro level point is that Silicon Valley will never lose its lead, but it may lose its monopoly on the startup scene, much like LA did in the entertainment industry over the last 10 years. If other cities benefit from this, I see no reason why Boston couldn't benefit just as much as New York. The dynamics of starting a company today are so different and so less dependent on being in the Valley, and this change is a rising tide that will raise all cities, not just New York. For one very small example, check out what Brad Feld, Techstars and others are doing in Boulder — this would not have been possible 10 years ago IMHO.

http://twitter.com/cdixon chris dixon

My point here is really not to insult Boston. The VC scene is there really strong and with MIT/Harvard there will always be interesting stuff being created there. My last company was based there (SiteAdvisor). It just seems the action there has shifted to away from the Internet and perhaps even IT. Also, you are right I did miss Kayak and LogMeIn, which are both big wins for Boston.

I would be pretty skeptical of relying solely on those databases, especially with respect to the East Coast. Right Media was NYC and bought by Yahoo for $850. Other (near or more) billion dollar companies that I just know from personal experience are Gerson Lehrman Group and Flarion.

http://www.oyster.com/about/leadership/ Elie Seidman

FWIW I'm quite certain that Kayak based in Norwalk, CT (a suburb in the NYC metro area)?

http://www.crunchbase.com/company/kayak

http://twitter.com/angusdav Angus Davis

They have marketing/biz folks in CT but their entire technical team is on Rt 128 in Concord, MA led by CTO Paul English.

http://www.grocio.com/ Gerald Buckley

To your point about capital efficiency Angus… What does NYC have on flyover country in that dept? It's the capital component of the equation that seems tightholed.

I like that you added Boulder. Toss in Tulsa, Laramie, Little Rock and several dozen others and there's no shortage of talent that are executing the next MONSTER big idea. Just wish the early stage VC would broaden their horizons a bit as the central US has super talent, low cost of living (ie, longer runway) and we're getting it done.

cdixon

also, LOL at that last sentence.

http://www.tnl.net TNLNYC

Hmmm… Hate to point out but meetup, etsy, everyblock, rocketboom, social median, weblogs inc, the huffington post… etc… are all New York based (unless I'm wrong, you're own company, Hunch is in Brooklyn too). If you haven't seen New York action in the Web 2.0 boom, you haven't been paying attention.

That said, you're right that considerable talent went into finance and will now probably go the startup route.

http://twitter.com/cdixon chris dixon

TNLNYC – agree, but my point is this wave NYC has still been nowhere close to CA. The list of big CA companies during that period (Google, Facebook, Youtube, Twitter etc) dwarfs NY. As long time New Yorker myself, I would like nothing more than for that not to be the case, and as I say here I'm hoping for a revival.

http://www.tnl.net TNLNYC

What you point to is similar to the case of what happened in the 90s. In terms of argument, you could say that Yahoo, Ebay, Paypal, Amazon (even though Amazon is in Seattle) and others dwarfed New York tech in the 90s. Having been part of both cycles (90s and 2.0), I can tell you that the level of excitement and innovation has been similar. The difference may have been the hype and noise. New York is quieter and generally more focus on business models (ie. making money), which can lead to different kind of startups than the ones you find in the valley.

http://twitter.com/howardlindzon howardlindzon

been saying and investing like this for a while as well. glad stocktwits has an office there.
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http://avc.com fredwilson

chris – i love this post. and i agree with your sentiment. i do take some offense to the irrelevant comment and posted my thoughts on both this morning

http://www.avc.com/a_vc/2009/09/the-ny-startup-…

and i love the addition of disqus!
http://www.fiftybyfifty.com/lifeoffarhan/ farhanlalji

The thesis isn't just limited to NYC. Think London suffered because of the same hedge funds, big banks problem. When I got out of b school a couple of years ago in London the big banks, hedge funds, and PE funds were the big targets for a lot of great talent. But a lot more of the talent that graduated this year is looking at joining an early stage venture or starting something.
http://www.seeingbothsides.com bussgang

Good post, Chris. Angus is right, though. Boston has plenty of great e-commerce and B2C companies. Shoebuy.com, CSN Stores, TripAdvisor, SimpleTuition, Jingle to name a few, in addition to pioneers in B2B online customer acquisition (Mall Networks, Constant Contact, Hubspot, LogMeIn). With its unique mix of universities, hospitals and VCs, Boston isn't slipping anytime soon.

All that said, NYC is definitely on the upswing. The transformation of media and advertising into digital forces is right in NYC's sweet spot, which is why we're so bullish on the region, as you point out.

First Growth Venture Network (http://www.firstgrowthvn.com) is an initiative that reflects this teeming entrepreneurial energy in NYC.
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http://jeffjudge.com Jeff Judge

Chicago is crushing New York, Boston, Boulder, etc.

I'd just thought I'd make a few people laugh with that. It's interesting to me to see that Chicago is always absent from startup city lists, especially when companies like Orbitz (IPO'ed 2x), Feedburner (acquired by Google), TicketsNow (acquired by TicketMaster) 37Signals, SkinnyCorp (threadless.com), CrowdSpring, Parlano (acquired by Microsoft) are/were from here.

I think you're right about New York.
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http://twitter.com/sanford Sanford Dickert

Chris – thanks for the discussion. I gave some of my simmering thoughts here: http://sanford.blogspot.com/2009/09/new-york-po…
Alz

The problem is Government 2.0 is Socialism and a lot of money will be taxed away. There are a lot of smart people in left leaning cultures but they have been hamstrung by various amounts due to their country's liberalism. We are moving into a high tax and high regulation environment so our growth potential will be artificially limited. While there is money to be made in complying with regulations, it's not a very good way to grow an economy.
the_real_fujun

Completely agree with you, Chris.

Fred had a blog post about Zynga hiring product managers and they found former analysts from wall street/consulting firms are doing very well. It is probably not the background/experience, but rather it acts as a filter for talent (which is not to say there isn't talent elsewhere, but it is easier when somebody already did the screening) and timing is right – many people graduating from those programs are looking at start ups vs. hedge fund/PE opportunities. Opportunity cost is lower, so might as well pursue dreams that they might not otherwise… Everlater is another example – founders used to work in finance in NYC, learned to program and built Everlater, although they started the company in Boulder

Long winded way to say that I agree with you and we are already seeing it happening.

cdixon

Re: hiring wall street refugees. I think if they've only been on wall street a few years it can work. After that, in my experience, they just have too much of a cash comp vs equity mindset to work at a startup.

http://twitter.com/DigitalMerc Digitus Mercennarius

Having been a denizen of NYC and it's tech community for almost 20 years now since I was an 80's kid, working on Wall St. for over a decade and watching the boom and fall of the late-90's Internet, I've got to dissent that NYC “lost relevance”. What NYC lost, IMHO, was press. Everyone on the West Coast and elsewhere has been hyper-concerned with the set of technologies around consumer content delivery in some way shape or form. Its what's visible, it makes news. A personal bane of mine has been watching how everyone loves to cover and work with customer & consumer-facing technologies, but when it comes to the back-end technologies of moving the bits and keeping servers online, it gets mediocre coverage and mediocre funding, then people wonder in amazement as things don't work.

Some huge things NYC's tech community has quietly pushed forward as a result of two forces, the financial services industry, yes, and also co-location services of some kind since NYC is still the international telecommunications cross-roads for bandwidth (major PITA during 9/11, still not fixed):

- The use of GPU cores for computational advancement was first, as usual, a cool Open Source project. Wall St. took it and made it a business for NVidia and others. This fundamentally changed computing thought and pushed things away from using AMD & Intel general-purpose CPU's for everything, which led to reduced power-consumption, cooling savings and other green technology blossoming in the data center since it was tied to creating profit.

- Need disaster recovery / resiliency for your infrastructure? You want to hire a NY'er who's “been there and done that”. Between 9/11 & the 2003 black-out, we wrote the book here – some of the most bullet-proofed no-cut-corners data center designs around. The next step is making bullet-proof = green, and there's projects now making that happen here.

You may ask, “OK, but what did that have to do with Web 2.0?”. The resilient infrastructure is obvious, but GPU's? The kit behind the Web 2.0 evolution now enjoys content acceleration, filtration, security, all kinds of additional processing and servicing more cheaply, green-ly, and powerfully because the CPU -> GPU push on Wall St. showed that you didn't need a general purpose CPU for every compute problem, even though Intel & AMD would love you to think so. That quiet little revolution showed everyone by trickle-down to vendors all wanting to market something to Wall St. that purpose-built would work in the marketplace.

Remember the rails when running the railroad. That new passenger car has a shiny inside, but it only goes 200mph on good infrastructure.

adjacent

um, something like three people in the universe are currently using GPU processors in finance. it's not baked yet. banks are not buying the hardware and infra guys are not trained. evidence: there are zero job postings which request this skill. GPU cores are not fault tolerant and are very slow at double precision floating point which is necessary for most financial applications. finance will get there, but they are not ready yet.

BobDunn

OK granted – synergies, established players, hungry new engineers, financing magnate – no doubt. Yet I argue there are huge reserves of creativity still untapped in the hinterlands.

When O Lord will Internet venutures mature to the point where I can stay where I like – out in the sticks, Texas, even – and still participate, instead of being stuck in the expensive claustrophobia of New York or San Francisco.
BobDunn

Granted – creative synergies, established business center of universe, financing magnate, Bloomberg subsidies – all true. Still, I would suggest there are vast reserves of creativity yet untapped in the hinterlands.

When O Lord will Internet ventures mature to the point that players can participate from the locale of their choice – out in the sticks, Texas even – without wasting time and money commuting to or living in the expensive claustrophobia of a New York or San Francisco?

Just saying…

cdixon

Working virtually is really hard, especially at the early stage. Maybe when video chat gets to the point when you really feel like you are in the same room. I dunno.

http://www.kmf.net/blog/ Charlie Kemper

Great post. Although I agree with others that New York was never irrelevant (necessarily). I think it's important to look at overall “sectors” that see growth and understand where those meccas are geographically situated. A lot of the “PC” wave of innovation was based in the Valley, thanks for folks like Fairchild Semi, etc. And, a lot of the “storage & infrastructure” wave benefited the Boston ecosystem thanks to the likes of EMC and Iron Mountain, etc. And, so, logically, shouldn't the New York ecosystem be the hub for the “media” wave given the likes of Conde Nast, NBC, Warner, etc, etc. If (hopefully soon) there was a wave of change in the auto industry, I would fully expect the Detroit ecosystem to feel it.

Here are some more thoughts if you're interested.
http://www.kmf.net/blog/2009/09/geographic-shif…
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cindygallop

'If you can make it here, you can make it anywhere.' New York City was built on entrepreneurialism and bootstrapping – and always will be.
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http://claimid.com/heathergold heather gold

Hi Chris, I'm really enjoying your blog a great deal.

Longtime SFer, new NYer.
On a cultural / environmental level I think one reason web 2.0 couldn't have happened in NY is the general mindset here that everything in life must be paid for and paid for dearly. I'm exaggerating a bit to make the point, of course, and also referring to early users much more than VCs or founders.

The energy around early use of flickr/upcoming etc included serving people ready and willing to share a lot and put a lot of themselves out there first as its own reward. That's not the traditional NY mindset. (eg. networking events here cost, most in the Bay Area don't)

But, I think you're analysis about what is setting up the environment here for a lot of start-up growth is on the money. My fave new start-up is based here; Kickstarter. But I also think that web 2.0 helped shift the culture enough that now some NY media people get that they'll have to “give stuff away” and focus on community elements that they wouldn't have understood as easily before.

There's amazing talent in NY, and fantastic commitment to execution. That's for certain. But the hardest human lesson the web pushes (I think) is the benefit of giving up total control and the benefit of allowing money and a business model to follow not lead. Those things are psychologically harder to grok if you're used to an environment rich in VIP room, “special treatment,” dress codes and private drives.

I'm not saying these are things serious entrepreneurs are drawn to in NY but it is the very real cultural environment they're working in.
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http://www.victusspiritus.com/ Mark Essel

A solid trend estimate Chris, at popular post number 9 and scoring this one a steady 8/10. Yeah I believe NYC will become a lot larger in the startup scene and tech economy. But I can still feel the gravity of moving west. Simply for aesthetic reasons, the weathers more forgiving in the Bay area, and there's more grass /suburbia for families than the concrete jungle of Manhattan.

I'd like to see another tech super hub form up, but even more than that, I'd love to see a distribution of startups globally. Businesses sprouting up that are geographically diverse and have a smallish/limited size (no massive thousand + employee campuses).

Big revenue generating businesses no longer need to have massive size. That's old GM thinking. The new economy will be driven by a massive increase in small and agile distributed businesses that work together in dynamic service creation pipelines.

APIs in software/web based tech companies are a perfect example of this new power in networking economy.
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http://www.writersbloc.tv NickNYC242

Chris, your post is excellent – NY is really coming into phase with it's technology start-ups. As for quality content I completely disagree. People all over the world are starting to realize that the technology exists for you to produce a multi-camera high-definition show or movie at the cost of consumer video levels from the 80s. The know-how is extensive (with the fields being predominantly staffed by freelance talent) and have a number of people (myself included) looking to leverage the incredible power of the web in creating quality, instant-feedback programming. Look at justin.tv's API, and the ability to not only stream live IPTV, but also react and message in real time within the show's distribution environment and we're at the beginning of something big. Content truly is king, but the cost of entry is being mitigated daily, and the snails pace at which the big networks, cable companies, etc, are evolving is going to leave them in bad place when we get organized.

I think we're about to see an explosion of content, and be empowered to affect that content on a week-to-week or day-to-day basis.
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Chris Dixon