Boston Vs. New York: Tech Startups and Investors Add New Spice to Classic Rivalry

I’ll come right out and say it: I hate New York. OK, maybe it’s worse during football and baseball season. Maybe it’s especially bad this week as the J-E-T-S and their loudmouth coach (see right) are talking trash about the Pats. Maybe I just need an excuse to wind people up.

But tech investors love New York. Especially Boston-based tech investors. There has been a rash of early-stage investments in New York startups lately. Just this week, OnSwipe raised $1 million in seed funding from a group that includes Boston-based investors Spark Capital and angels such as Wayne Chang, Jennifer Lum, Roy Rodenstein, and Dharmesh Shah. Meanwhile, SalesCrunch raised a $1.4 million seed round from investors including First Round Capital, Accel Partners, and NextView Ventures, a Cambridge, MA-based micro-VC firm.

And in recent months, New York-based Offerpop raised $1.3 million from CommonAngels’ Chris Sheehan and others, while New York and Boston-based Svpply got $550,000 from investors including Founder Collective and Spark. Throw in other Boston-financed companies in New York like Boxee, Tumblr, OMGPop, Yieldbot, and Gilt Groupe, and we’ve got an epidemic on our hands.

What do these companies have in common besides geography and the Internet? Not much really. They span advertising, analytics, social tools, shopping, gaming, TV, and retail/fashion. But taken together, they represent a fast-growing cluster of tech innovation that has the full attention of early-stage investor groups like Founder Collective, CommonAngels, and TechStars—which started its New York program this week—as well as traditional VC firms, which all seem to have more representation there as of late. (Heck, Xconomy is recruiting a top-notch journalist in New York—so you know this is serious.)

Despite all the talk of inter-city collaboration and kumbaya, this is a competitive situation for Boston and New York entrepreneurs, who are all vying for a limited supply of investor dollars. But, as usual, I wondered how “new” this trend really is—and what other interesting context is around it. So, as a start, I reached out to a few young investor types around town, and they had slightly different viewpoints.

“Nothing has dramatically changed in recent years,” says Rob Go from NextView Ventures. Go points out that VC firms such as Spark Capital, First Round Capital, and Union Square Ventures have been investing in New York startups for years. “There are just more people jumping on the bandwagon recently,” he says.

That might be true, but others in the startup community say there’s a real (and relatively recent) trend going on—and also some important issues to consider. One driving factor is the “legitimate growth” of New York’s startup ecosystem, especially around Union Square, says Rodenstein, the Boston-based angel investor and entrepreneur (and AOL day worker). With “Chris Dixon playing the young Paul Graham role in indirectly leading the community through blunt anti-establishment rhetoric, as well as the rise of emphasis on [user experience] design which is a strength in NY, it makes sense for nearby investors in Boston to get more involved,” he says.

So what does this portend for Boston startups? “I get asked by VCs all the time where the great companies are in Boston. Some I certainly know about, and some great ones we just lose/let go,” Rodenstein says via e-mail. “I believe there are many others hiding at non-Ivy schools and other areas that are not being explored as thoroughly as could be. So in some ways NY may seem like lower-hanging fruit even though competition for deals is much higher than if you find a gem on your own here.”

One interesting angle is to look more closely at a firm like Spark Capital, which has invested nationally in companies such as San Francisco-based Twitter and Seattle-based ThePlatform (acquired by Comcast). Spark seems pretty focused on New York now, and has invested in many companies there—OnSwipe, Tumblr, Boxee, OMGPop, and 5min (acquired by AOL) come to mind. I’ve heard complaints from Boston entrepreneurs that the VC firm should look in its own backyard more.

But, in fact, it has. Spark has recently invested in a number of Boston-area companies including peerTransfer in Cambridge, 8D World in Woburn, and (more quietly) Linkwell Health in Needham. Last month, Linkwell closed a $6 million Series B round from investors including Spark. (I haven’t seen this news reported elsewhere.) Linkwell works with the healthcare, food, and advertising industries to develop nutritional incentive programs for people with chronic health conditions like obesity and diabetes. It seems like a pretty novel approach—maybe even one of the “gems” that Rodenstein referred to.

So my take is that Boston entrepreneurs need to raise their game and put out more stuff that’s unique. New York startups may not be the clear-cut competitors that the Jets and Yankees are (or Silicon Valley for that matter), but they are capturing a growing slice of the investor pie. Meantime, the VC and angel money is still here in Boston—but it might not be for long.

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and Editor of Xconomy Boston. E-mail him at gthuang [at] Follow @gthuang

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