New Tech City: Has NYC Passed Boston in Mobile and Web Innovation?

5/11/12Follow @arleneweintraub

On Wednesday, New York-based Center for an Urban Future, a policy think tank, released a report surveying the city’s digital startup scene, and its conclusion was rather dramatic: New York has surpassed Boston in tech leadership, the center says. “In 2006, I wouldn’t have put New York anywhere on the map [of leading tech hubs],” says entrepreneurship trend tracker Vivek Wadwha in the report. “Now it is literally number two. If there is any second to Silicon Valley, it’s now New York, not Boston.”

Certainly the researchers contributing to the report have some compelling data to back up the notion that NYC is now the number-two tech hub in the United States. In the five years ending in 2011, 486 companies were founded and received angel or venture capital, according to the report, which pulls together data from several sources, including PricewaterhouseCoopers and the National Venture Capital Association (NVCA). The number of VC deals grew 32 percent in that five-year period in New York, while venture funding was down in every other major tech hub.

The report includes an index of digital startups, which spotlights some interesting trends in the Big Apple’s tech industry. Digital media was the most active segment of the sector over the last five years, with 121 startups getting funded. E-commerce and social networking followed close behind, with 103 and 79 new companies respectively.

The authors of the report, analysts Jonathan Bowles and David Giles, point out that at least 28 of New York’s new tech companies were started by Harvard Business School graduates—a trend that’s no surprise to us here at Xconomy, where we’ve been tracking HBS-rooted companies, particularly in the fashion industry.

One of those Harvard-born companies also holds the distinction of having raised more VC funding than any other New York startup in the last five years: Gilt Groupe, which has brought in $221 million. Other companies in the top five, according to data compiled by Center for an Urban Future, are Tumblr ($125 million), ZocDoc ($95 million), 2Tor ($90.8 million) and Buddy Media ($90 million).

Bowles says that the flood of HBS grads to New York was just one of many signs that New York has shot past Boston in the rankings of tech hubs, even though Boston still leads in cleantech and biotech. “Twenty years ago people only came from Harvard to work on Wall Street,” he says. That’s no longer the case, he says, citing “a strong consensus in so many conversations we had that New York is passing Boston.”

The New York-vs.-Boston rivalry in tech has a long and spicy history. It was the topic of a rousing New York Tech Meetup last summer. And some entrepreneurship experts started warning years ago that Boston might lose its status as a tech hub.

No doubt, technology has been an important economic driver in New York City over the past five years. According to the NYC Economic Development Corporation, there are 90,273 high-tech jobs in the city—30 percent more than there were in 2007. The New York Tech Meetup recently created a list of tech companies that say they are hiring and found that 140 out of 298 listed with the Meetup are looking for new talent.

But some tech industry watchers wonder if the New York tech boom is already showing some signs of weakness. Michael Greeley, a general partner at Flybridge Capital Partners in Boston, recently observed on his blog that figures released in late April by the NVCA showed NYC taking a significant plunge in the first quarter of this year. The New York metro region saw $378 million invested in 75 deals in Q1. Compare that to Q1 of 2011 ($586 million in 82 deals) and more recently to Q4 of 2011 ($576 million, 84 deals) and New York isn’t looking so hot. In fact, companies in the New York metro area raised less than those in all of Texas during the first quarter, Greeley observed. “That is very surprising to me,” wrote Greeley, who is one of our Xconomists.

Bowles isn’t concerned. “It’s hard to look too much into one quarter,” he says. He notes that New York tends to see more early-stage deals than other markets, and that may account for the value of the overall deals dropping from one quarter to the next. “It may just be that certain quarters see fewer ZocDoc-type deals,” he says.

That said, Bowles is quick to acknowledge that New York has some work to do if it’s to keep up the momentum. “We’re not saying everything is perfect,” Bowles says. New York still suffers from a shortage of talent in key areas, such as software development. And Bowles fears some startups may struggle to find affordable office space. “Real estate will become an issue when the economy starts humming again,” he predicts.

The Center for the Urban Future got some notable attention for its report, which was sponsored by AT&T and the Association for a Better New York. The New York Times declared that the report clearly shows the city’s tech industry is growing faster than that of any other metro area. And the Wall Street Journal’s headline shouted “New York City’s Tech Boom no Fluke.”

Surely Bowles and his colleagues will continue to track the industry closely to make sure New York’s rising stature in tech is no flash in the pan.

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  • KA

    The mention of the Harvard Business Grads starting businesses in NY is one thing… but finding out the reason why is another. How many of those ppl were from the Boston area? Maybe they only went up there to go to school and never had plans on staying….??

    As far as Mr. Greely comparing the NYC area to the entire state of Texas…? Well what does that say about an entire state? Also – what was the performance that quarter in comparison to the market as a whole? That would be the better indicator.

  • http://crystalmatrix.us/ Major_Ray

    True KA.  New Yorkers attending Boston schools probably did not have an incentive to  return to NYC before the tech boom.