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Summary:

As Om shared earlier this month, New York’s tech scene is getting a flood of venture capital for Internet deals, rivaling San Francisco. I sat down with Fred Wilson of Union Square Ventures to discuss the New York renaissance, how it came about and where it’s headed.

NewYork

As Om shared earlier this month, New York’s tech scene is getting a flood of venture capital for Internet deals, rivaling San Francisco. It’s validation for a city that has built a formidable base of companies and is now becoming a hotbed of start-ups, particularly web-based and software-driven companies.

I sat down with Fred Wilson, venture capitalist with Union Square Ventures to discuss the New York renaissance, how it came about and where it’s headed. Wilson said New York’s tech scene, which grew out of the mid-90s, is in the equivalent of its late teens: just growing into itself as a major player. He said he doesn’t expect to see any slow-up, just as Silicon Valley took off after two decades in the late 1970s. “New York is not only sustainable, but it will grow an order of magnitude from here,” he said.

Wilson obviously has a stake in New York’s stature as a tech center. More than half the companies in his New York-based fund hail from New York, though he wrote recently that’s he’s open to branching out. However, the local growth is real, including start-ups like portfolio companies Etsy, Foursquare and Tumblr, as well as companies like Gilt GroupE and the Ladders.

The growth in the New York scene is largely built on the Internet, which as it’s developed and become more mature, increasingly taps into the expertise of New York, he said. As web start-ups incorporate more data and business logic and work to refine user experiences through design, he said, they’re able to draw on  talent from the local finance, media, fashion and design industries. Companies like Banksimple and My City Way were built by former Wall Street employees, while Gilt Groupe was formed by a trio including Alexandra Wilkis Wilson, a former executive at Bulgari and Louis Vuitton. Several New York entrepreneurs have said something similar to me, saying the city provides an interesting intersection between technology and various industries that both benefit from technology and also influence it.

New York’s place in the tech start-up world often gets short shrift, Wilson said, because the start-ups are of the largely capital-efficient variety. When the figures of VC deals are compiled, they often don’t reflect fully how many smaller companies are starting in New York, making do with less money. In essence, he said there are two VC industries.  “New York doesn’t participate in capital-intensive business. There’s no biotech or hardware here. But if you look at New York’s place in the software business, New York is a huge player.”

What New York lacks at this point is a standout performer on the order of a Google, Apple or eBay, said Wilson. Having a large tech success story would feed the pipeline of entrepreneurs, give some start-ups a chance at getting acquired, and serve as a role model.

“We haven’t had that,” said Wilson. “People look at Wall Street and figure they can sell, so they sell.”

Plus, Wall Street is still an issue for start-ups, trying to convince talented employees to leave better paying jobs in finance, media or advertising to try out the start-up life. But as some of those industries contract, it’s providing more incentive for talent to sign on with start-ups.

“Media, Wall Street, fashion, they’re not growing very much,” he said. “Tech can pick up the slack.”

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  1. The NY tech scene will not take off, I’ll bet the bank on that one.
    Once wall street returns to its hey day of enormous profits – it’s almost there already – these tech enthusiasts will leave for the money.
    Also the quality of engineers available in NY doesn’t come close to what you get in the Valley. And SF can always draw ontalent from the Valley.
    Forget Apple and Google, you won’t even get a twitter or facebook from NY.
    And NYU and Columbia or no Stanford.

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  2. When will VC folks become more transparent and provide their quarterly financial reports atleast to their portfolio companies? This will help ceo/founder’s to learn how sound their venture partners are. Good news here is you can now Google different state pension funds and find out how Venture funds are doing. For example, Union Square Ventures did 50% IRR in 2004. Not sure what they did in 2009 or 2010?

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  3. As an entrepreneur who left NY for the Valley, I gotta say that I am dubious of NYC’s long term prospects as a tech hub. The current investment activity & the associated hype has resulted in a bubble. The scene has an unhealthy MBA to Engineer ratio (too many MBAs, too few engineers)

    Good companies will come out of NYC, I’m sure. But the technical talent pool is simply too shallow to support more than a handful of companies that make it past the startup phase.

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  4. [...] DreamIT is just the latest addition for a city that is becoming a hotbed of start-up activity: Accelerator program TechStars announced last year that it was expanding to New York, while Accel Partners and First Round Capital have also bulked up their presence in New York with new offices. Union Square Ventures last month also started a new $165 million fund. This is still another sign that the New York startup scene is expanding. [...]

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