by Laura Baverman
What makes for a thriving startup ecosystem? It’s a question that’s dear to our hearts at Startupfest. We know that local infrastructure matters and of course, there’s that essential mix of creative talent and risk-friendly capital.
Our friends at the Startup Genome Project have set out to map the startup world through data. Here at Startupfest we’re all about stories and in the coming months we’ll be taking you inside both established and emerging startup hubs around the world, talking to the people making startup history and getting to the bottom of what makes each startup city unique.
This month we zoom in on New York City, where a new generation of entrepreneurs is looking to disrupt the Big Apple’s iconic industries one startup at a time.
Niamh Hughes headed to work one recent day, and on a busy New York City sidewalk bumped into 3-D printing guru Bre Pettis of MakerBot Industries.
They grabbed a quick coffee and chatted about Hughes’ business development efforts at General Assembly, an educational campus and co-working space that’s considered an international model for startup community building. More than 26,000 entrepreneurs, developers and designers have sharpened their skills there since 2010.
The conversation then turned to Sandbox Network, the growing community of high-achieving under-30s that Hughes manages in New York City.
“It reminded me that the serendipity of living in the city is second to none,” says Hughes, who met Pettis, a leader in the Brooklyn entrepreneurial community, several months prior at a tech event.
The density and vibrancy that has for decades drawn aspiring fashion designers, actors, musicians, marketers and investment bankers to New York is now the pull of visionaries and hackers who want to transform the city’s iconic industries through technology.
Some are inspired by the success stories of last decade’s New York-based tech pioneers: Meetup, Foursquare, Gilt Groupe, Tumblr and Etsy. Others left once-cushy corporate jobs after the 2008 recession rocked Wall Street and sent Lehman Brothers crumbling.
Some (like Twitter’s Jack Dorsey, who said on 60 Minutes he wants to run for New York City mayor some day) may be lured by the passion of Mayor Michael Bloomberg, who has said he hopes his legacy is the $1.5 billion Cornell NYC technology and engineering campus to be built over the next 23 years on Roosevelt Island. He expects 600 new startups to be created there, and thousands of capable technologists to be trained.
Still other entrepreneurs are vacating the isolated office parks of Silicon Valley. New York’s “Silicon Alley,” they believe, is the place to build a business.
“It’s the craziest and most varied environment in the world, and that helps companies a lot,” New York angel investor David Tisch is quoted in the new book Tech and the City: The Making of New York’s Startup Community, by Alessandro Piol and Maria Teresa Cornetto.
“People come here striving to be the best at whatever it is they’re doing (…). I think that creates a drive in companies here to really win.”
Keeping up with the Valley
Not all is rosy in the Big Apple. The Startup Ecosystem Report, [JF1] released in October 2012, found New York somewhat overhyped. There are still half as many startups in New York as in Silicon Valley and they haven’t performed as well as those in the Valley, Los Angeles and Chicago.
Despite the proximity to Wall Street, still too few resources exist to help eager entrepreneurs. New York City startups get 70 percent less venture capital than companies in Silicon Valley. For talent, the city ranks 12th among the top 20 startup ecosystems in the world, behind Boston, Seattle and Los Angeles.
There are also too few incubators, co-working spaces and accelerators to meet the growing demand, says Bjoern Herrmann, founder of Startup Compass and author of the ecosystem report. But important efforts are under way in almost every one of the categories measured.
“The velocity of change is so much faster than it was back in 2006 when I got into it,” says John Wiseman, head of marketing and partnerships at Skillshare, an online education startup. “The number of companies trying to change things for the better and create new businesses that actually help people is 100 times bigger.”
Solving problems and disrupting industries
Many of the people interviewed for this story agreed that most New York startups aren’t simply creating another nice-to-have social media tool. They’re trying to solve real problems.
What makes New York different from Silicon Valley is that most people who launch their own businesses come from finance, advertising, media or business backgrounds and are looking to disrupt those industries.
“Brilliant technologists believe ‘If I build it, they will come.’ That’s the DNA of Silicon Valley,” says Erik Jansen, a New York Angels member who has invested in U.S. startups since the early 1990s. “On the East Coast, particularly New York, it’s ‘What does the customer need? Let’s build that.’”
The Startup Ecosystem Report found that New York startups generate revenue faster than those in Silicon Valley. Many are selling into the major corporations in the city, companies that recognize the innovation happening outside their walls in the wake of layoffs and budget restraints.
Many New York founders also believe in bootstrapping and proving the concept before raising outside funds, Wiseman says.
Considering the very public troubles of venture-backed startups like Groupon and Zynga and Facebook, where stock prices plummeted after initial public offerings, that mindset is proving a draw for investors.
The top Silicon Valley venture capital firm Andreessen Horowitz recently recruited the New York angel investor and serial entrepreneur Chris Dixon. According to Tech and the City, he’s New York’s most active investor, with 40 investments including shares of Kickstarter and Foursquare.
Lightbank of Chicago, First Round Capital and Accel Partners of California, and Flybridge of Boston have opened New York offices in recent years.
Crunchbase released angel investing data in April that showed New York City startups grabbing 20 percent of the nation’s angel deals in 2013, up from 12 percent in 2008. It was the only region to earn additional share over the period.
Accelerator programs like 500 Startups and TechStars have also helped to fill the gap in funding. The Boulder-based network of accelerators held its first class in the city in 2011. Applications topped 1,700, a TechStars record, in spring 2013, according to founder and CEO David Cohen.
A majority of the chosen companies were already based in the city. Cohen calls that trend “a good sign.”
So many startups, too few mentors
The TechStars application boom points to the glaring need for more organizations that support entrepreneurs beyond happy hours and networking events.
Accelerators and incubators often form when startups are successful and their founders become mentors, funders or operators of new startups, says Jansen, whose dozens of investments include Herrmann’s Startup Compass and Rewind Me, a recent TechStars NYC accelerator graduate.
A key example is Kevin Ryan, who founded the online advertising giant DoubleClick in the 1990s, which sold to Google for $3.1 billion in 2007. He’s since launched three fast-growing New York startups – Gilt Groupe, Business Insider and 10gen – and promises one or two more this fall. He also invests and mentors startups and serves on the board of the NYC Investment Fund.
But according to the ecosystem report, there are 34 percent fewer serial entrepreneurs in New York than Silicon Valley. And startups in the city have 16 percent fewer mentors.
Enter General Assembly and Sandbox, Niamh Hughes’ two NYC passions. They helped the young Irish woman get acclimated to the city in 2010 and plugged into its once intimate startup community.
Hughes has since planned 200 Sandbox events around the world, including the Global Summit in Lisbon. Along with the president of Kiva and two others, she co-founded So What’s On Your Plate, a networking organization for women leaders that now has branches in Paris, San Francisco and Phoenix.
Today, Hughes says she has any number of activities to attend on a given night, between meetups like the 30,000-member New York Tech Meetup, the dozens of classes at General Assembly and happy hours with her Sandbox crew.
“The top of the funnel is wider now, because so many people are in the community and moved to New York,” she says. “It just means we have to be more careful about the events we go to, who we talk to and where we should be moving forward. Everybody has a lot of choice.”
What do you think? Is New York City the startup hub of the Eastern seaboard? Let us know on Twitter or Facebook. And if you will be travelling from New York to Startupfest this year, check to see if you can catch a ride with one of the area’s Community Captains! Details here.