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Business Impact

The Rise of the New York Startup Scene

A growing number of techies are calling New York City home, and investors are paying attention.

  • by Rachel Metz
  • August 20, 2012
  • Checked in: Among the companies generating a critical mass of startups in New York is Foursquare. Standing is cofounder Dennis Crowley.

When Dennis Crowley and Naveen Selvadurai started building their location-sharing startup, Foursquare, in 2008, they chose New York City for their headquarters, and Crowley’s kitchen table in the East Village served as their first workspace. “We never even had a conversation about, ‘the only way to make it succeed is to go to California—should we pack up our stuff?’ ” he says.

Given that the pool of Web developers was so much bigger in Silicon Valley, Crowley’s decision might have seemed risky. But in the past few years, a growing number of startups have seen the Big Apple as a viable alternative to the San Francisco Bay area. This growth is fueled by a confluence of factors: the rise of several prominent startups, including Foursquare and the crowdfunding site Kickstarter; the arrival of venture-backed accelerator programs to help young startups get off the ground; a pool of engineers who have come to or stayed in the city as companies like Facebook and Twitter built offices in New York; and moves by New York City’s government to encourage tech innovation.

Today, Crowley occasionally serves as a startup mentor in the city, taking meetings with students and nascent entrepreneurs in New York the way respected tech veterans have long done in Palo Alto or San Francisco. “That stuff that’s been going on for 20 or 30 years in the Valley is just starting to happen,” he says.

It’s hard to say precisely how many startups there are in New York City, but an online map from Mayor Michael Bloomberg’s office lists nearly 1,000 that are hiring. New York Tech Meetup, a nonprofit organization, took about seven years to get its first two members; but by April 2011 it had 15,000 and now 26,000, says Jessica Lawrence, the group’s managing director. Monthly meetings, which are held in an 850-person theater, cost $10 and lately have been selling out in less than a minute, she says, forcing the group to offer simulcasts at other locations for those who can’t be there in person. One of her group’s goals is simply to remind people that there is an abundance of software engineers in New York.

Venture funding is growing as well. According to data from PricewaterhouseCoopers and the National Venture Capital Association, the amount of New York City-based startups that received venture funding rose 34 percent between 2007 and 2011, while deals in Silicon Valley declined 7 percent and those for the country overall dropped 8 percent. Last year, venture investors plowed $2.75 billion into 390 startups in the New York City area—the most money and investments since 2001, when the dot-com bubble was rapidly losing air in Manhattan’s “Silicon Alley” and everywhere else, too. So far this year, $942 million has been invested in 182 startups in New York.

Of course, the Silicon Valley scene is still many times larger (1,202 companies grabbed $12 billion last year), and is nowhere near being eclipsed. Still, New York’s startup growth is palpable, and it appears to be spurring on yet more growth.

The Palo Alto, California-based venture capital firm Accel Partners made only a few investments in New York between 2008 and 2011, but now it has about 18 there, making it the firm’s second-largest investment area behind Silicon Valley. It opened its first New York office—only its second in the U.S.—last year after noticing a rise in the quality of local entrepreneurship and more diversity in the types of companies, such as in social media, e-commerce, and mobile services, says Sameer Gandhi, a partner at Accel.

Like Crowley, Zach Sims decided to set up shop in New York when he cofounded Codecademy, a startup that teaches people how to write software code—even though his company’s early days were spent in Silicon Valley as a participant last summer in Y Combinator, a Mountain View, California-based accelerator. Sims and cofounder Ryan Bubinski had attended Columbia University in Manhattan, building up a network of people they wanted to hire, and their main investor, Union Square Ventures, is based in the city. Sims also thinks working in New York is a good way to be in touch with the kinds of people who would use Codecademy, since the startup’s offerings are geared toward people who aren’t entrenched in the tech scene—and those people are easier to find in New York than in Silicon Valley.

Indeed, in New York, tech is just one of several big industries, including finance and media, which gives startup founders a variety of resources to draw on. For example, the presence of New York’s fashion industry was enticing to Olga Vidisheva, the founder of Shoptiques, an e-commerce site that offers goods from boutiques. She also knew that Manhattan would be a good place to find employees with operations, sales, and editorial expertise.

Plus, she says, there’s New York’s always-on atmosphere: she’d worked previously in Silicon Valley and “felt like a weird person” leaving the office at 2 or 3 a.m.—but New York is always buzzing. “You can get food here any time of night,” she says. “You can get anything.”

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