How NYC became a startup town?
Lessons for emerging startup ecosystems in how NYC got started
Most people don’t know that Silicon Valley used to be called “The Valley of Heart's Delight”. While there were some companies surrounding Moffett Field to serve the military base, for the most part the land was farmland and fruit orchards.
Over the course of sixty years, the Bay Area became the global leader for technology innovation and venture capital. To put it another way, an entire industry literally grew out of nothing.
I mention this because Silicon Valley could have just as easily started somewhere else. Boston has the talent from the density of top universities. Washington DC has most of the defense firms. Chicago is a hub connecting the East and West Coasts.
Then there is New York City. Close to 50 of the Fortune 500 companies are headquartered in NYC. It is the global hub for finance, advertising, and media. Most of the big US pharma companies are next door in NJ. There is plenty of talent, many amazing colleges, and a large enough market.
New York City had many industries, just not many tech startups
The NYC metro area also boasted several large and influential tech companies. IBM was headquartered in Westchester to the north of NYC. Computer Associates was based in Long Island to the east. Then there was the iconic Bell Labs located to the south in New Jersey. Despite the resources and proximity to large tech companies, NYC never really developed a startup ecosystem until several years ago.
I recently sat on a panel to discuss the “Silicon Heartland”. As we explored the opportunities, challenges, and trends for developing startup ecosystems across the Midwest, it occurred to me that many of the points raised were not much different for NYC back in 2000 as the dot com boom turned into a bust.
There were some tech companies in what was called Silicon Alley, a strip of land running from Union Square up to the Flatiron Building. Most of these firms were digital agencies building websites for big corporates. Actual tech startups though were few and far between, like About.com and HotJobs.
One startup in particular though in the AdTech space would have a lasting impact on NYC. That company was DoubleClick, founded in 1996 by Kevin O'Connor and Dwight Merriman (later on Kevin Ryan would join to become CEO). They went public in 1998 and grew considerably as interest in online advertising accelerated. That’s when they caught the eye of Google, which bought DoubleClick for $3.1 billion.
Around the same time, other startups were launching in NYC beyond the AdTech world. Many were in the digital media space like Huffington Post, Gawker, and Buzzfeed. But other entrepreneurs were diving into other industries like marketplaces (Etsy), cloud services (Squarespace), photos (Shutterstock), and fintech (SecondMarket). One startup in particular became an everyday word helping communities to come together, Meetup.com.
The Google acquisition would be a game changer for the NYC tech community. Merriman and Ryan of DoubleClick would later go on to launch Gilt Groupe, Business Insider, and MongoDB, with MongoDB eventually going public in 2017 at a $1.1 billion valuation and helping to establish NYC as a legitimate startup hub.
Startups need capital in order to accelerate growth and scale quickly. One of the knocks against NYC for the longest time was the lack of venture capital outside of a few firms like RRE Ventures. New Yok startup founders would have to fly to Silicon Valley for funding, only to be told to move to the Bay Area.
Then in 2003, Fred Wilson and Brad Burnham launched Union Square Ventures. Fred Wilson also started openly blogging about the VC industry, giving entrepreneurs a view into the opaque world of venture capital. USV was just the start for NYC as other’s setup shop including Greycroft, FirstMark Capital, BoxGroup, Eniac Ventures, Boldstart Ventures, Thrive Capital, Lerer Hippeau and many others.
The real inflection for the New York startup ecosystem though happened in 2008. As the financial crisis nearly collapsed the global financial markets, Wall Street firms were laying off staff and pulling back offers to college graduates. This released a ton of young, highly educated, and very motivated talent out into the market looking for others opportunities. Some took their chances on startups.
These newly minted startups entrepreneurs needed space to work out of though. NYC-based WeWork launched just at the right time in 2010 to take advantage of the trend in co-working. There were also programs that were launched to help these entrepreneurs with the skills, connections, and funding to support their startups. Dreamit and Entrepreneurs Roundtable Accelerator were some of the first in NYC. Betaworks operated a venture studio that both invested in startups and launched their own startups such as Chartbeat and Bitly. Then outside accelerators such as Techstars came to NYC.
These startups were also able to accelerate their product launches and vastly reduce their costs as cloud infrastructure became more accessible. Amazon launched Amazon Web Services in 2006 and this quickly became the default provider for all startups in NYC. In 2013, AWS launched Activate as a program for startups that included free credits, helping startups to reduce their costs even further.
All of this has helped to lift NYC as the second largest startup ecosystem in the US by VC funding. At the peak in 2021, NYC startups raised $52.3 billion across 2,280 deals. While the VC market has cooled off considerably, New York startups are poised to rake in over $20 billion if the funding freeze over the past 18 months continues to thaw.
When the market does heat up, there will be a rush of exits waiting. The latest data shows 112 unicorns, some of which are simply waiting for the IPO market to heat up again. Already NYC has done well with significant IPO’s and exits such as Datadog, Peloton, Etsy, Blue Apron, Yext, Braze and many more.
Over the course of 20 years, NYC went from a tech ghost town to one of the leading startup ecosystems in the globe. When I visit cities across the US and throughout the world, there are many parallels to the rise of NYC. Indianapolis has the ExactTarget mafia and High Alpha as their anchor VC. Pittsburgh has Duolingo and one of the leading universities for AI in Carnegie Mellon. Columbus is the home of Drive Capital and unicorns such as Olive and Root Insurance.
Can these cities become another Silicon Valley? No, not even NYC is close to the Silicon Valley when it comes to the density of talent, startups, and investors. But any city of decent size has the potential to create the next great tech company. If Silicon Valley can sprout from fruit orchards, then it is possible for any region given patience, capital, and a supportive ecosystem for business creation.
What is the story of your startup ecosystem? How have you seen it change over the years and what resources in your region have helped startups the most?
This post was spurred on by my friend and VC partner Jesse Middleton. He asked about the pillars of the NYC startup community which got me thinking back to the period between 2005 and 2012 when the NYC tech scene really took off.
There are way too many startups to recall all of them from those years, but there were plenty that stood out. I pulled together a list of about 150 New York City based startups in total from that era that had the most buzz, including some of the OG’s from before 2005. If you were in NYC during those years, check out the list and see what names you remember (and if there are some that I forgot).
This week was spent in Indianapolis to attend Rally and it was simply awesome! The energy of the event was palpable as the first large scale tech, innovation, and startup event to be hosted in Indiana with over 3,000 coming in from across the Midwest as well as across the US and the world.
Amazing inaugural Rally Conference 2023 in Indianapolis
There are too many people, pictures and stories to share, but big shout out to Christopher “Toph” Day and Elevate Ventures for organizing an excellent event, as well as Ted Velie for bringing the Midwest House down to Rally and hosting several excellent community events and talks.
As the summer winds down (or winter for our friends south of the Equator), we have a lot more events and community activities coming up to share next month including AWS UAE Cloud Day, AWS User Group Conference in Peru, and more adventures in Africa and Asia. Cheers!