New York: The Next Innovation Hub
New York has long been synonymous with Wall Street, Madison Avenue and the Garment District, flagship markets for the city’s economic lifeblood that attracts an endless and competitive pool of talent to fuel its growth. When it comes to technology and innovation on the other hand, most entrepreneurs and startup companies have historically turned their sights north and west – to Boston and Silicon Valley. New York is rapidly joining these ranks, enjoying a good amount of buzz as a new hotbed for entrepreneurism. How this came to be is an interesting exercise in the tipping point that combines the right people, ecosystem and economy for innovation to thrive.
In 2010, venture capitalists invested nearly $22 billion in new companies in the United States, according to the National Venture Capital Association. As expected, the largest share of that money—$8.5 billion—was poured into 961 deals in Silicon Valley. New England followed with 387 deals that took $2.5 billion. No. 3 on the list? New York, with nearly $1.9 billion in venture money invested in 350 deals.
How did this well of innovation spring up in New York? The elements have always been there, but they have needed the right climate to thrive and time to develop. A first glimmer came during the Internet boom in the late 1990s, when many people left their traditional careers to start companies with the hopes of reaping the financial benefits of the Internet craze. These entrepreneurs primarily came from typical New York businesses such as investment banking and consulting, as well as from business schools.
But these startups faced a major hurdle that did not exist in the Northeast and Silicon Valley. The talent pool necessary to make a startup succeed did not exist in New York—yet. New York’s wealth and success had come from traditional sectors, investment banking, media and advertising, where cash compensation was the standard. Employees were not accustomed to the notion of accepting stock options, and importantly, they had not seen their friends and neighbors reaping this kind of success from startups yet. Those with engineering backgrounds were hard to come by, and companies had a hard time relocating people who had the required backgrounds from the innovation hubs.
When the bubble burst, lots of startup companies were left hanging without the resources to secure the requisite follow-on capital to stay afloat during the tough years that followed. Many simply abandoned the notion of building a startup and returned to their original fields. There is a joke in New York about that time period: “B2B” meant “back to banking” and “B2C” meant “back to consulting.”
However, there were those who had the entrepreneurial DNA and stuck around. These entrepreneurs have been smart enough and resourceful enough to rebuild their success stories of the 1990s or pursue their next startup idea. Fast forward to now, and these are the people, along with many newcomers, who are driving the startup success we’re seeing in New York today. Some of the veteran New York entrepreneurs have moved on to their second or third successful ventures, in fact.
Consider these examples, just to name a few:
• Dave Morgan started Real Media in the 90s and TACODA in 2001 and is now on his third startup, Simulmedia
• Ben Wolin was an executive at Beliefnet during the bubble years before co-founding Everyday Health in 2002
• Michael Keriakos who spent time at iVillage and Beliefnet in the 90s, also co-founded Everyday Health in a tough funding environment
• Dennis Crowley, who founded Dodgeball (acquired by Google in 2005), is the co-founder of Foursquare
• Scott Kurnitt who founded About.com in the 90’s recently launched his new startup AdKeeper
(Disclosure: TACODA, iVillage and Everyday Health are Rho Ventures-backed companies.)
Success stories in New York have also fueled the excitement and the entrepreneurial drive. These include companies such as DoubleClick, iVillage, Gilt Groupe, Foursquare, Intralinks and Everyday Health.
The climate in New York today has brought together those critical elements that are fueling entrepreneurial success. Take the new media sector, for example. Traditional media companies such as Time Warner and Hearst and the heavy hitting advertising agencies on Madison Avenue provide an opportunity to recruit employees from traditional media companies that are already embracing new media. New York’s fashion industry also provides a great ecosystem for e-commerce startups. Large, old-line industry leading companies in those sectors are finally embracing and collaborating with startups despite the business model disruption those newcomers create.
While new media has been the primary sector to emerge, there are many others to exploit. Take the financial technology industry, for example. The primary customers for startups in this sector are headquartered in New York. The New York City Investment Fund, in partnership with Accenture, recently launched the FinTech Innovation Lab to help create new financial technology startups in the area. Chief Information Officers of the big investment companies and commercial banks participate in the lab, along with a group of VCs, to help advance cutting-edge technology from early-stage companies.
Yes, New York’s startup community is thriving and growing. However, we must also nurture it if we want it to continue growing. The biggest challenge today is engineering talent. This area is a work in progress, but many companies and associations are working with universities to bring that talent into the city.
The city itself is doing all it can to promote innovation. The New York City Economic Development Corporation, spearheaded by Mayor Michael Bloomberg, has been hosting events and bringing in both venture capitalists and entrepreneurs for ideas about how New York can nurture startups even more.
We are building up the support infrastructure for innovation to success in New York, and if you look at these successes and the excitement around young companies, I believe that New York will be adding “innovation” to its list of staple industries.