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Summary:

The New York startup ecosystem will get a big boost from the $1.1 billion sale of Tumblr to Yahoo. The exit, one of the biggest New York has seen, shows that with content becoming important, New York is finding its footing on the startup stage.

David Karp, CEO of Tumblr with his new iPad Mini
photo: Om Malik

A few weeks after Ken Lerer quit AOL-owned Huffington Post to work on his venture fund Lerer Ventures, I stopped by in his office to catch up and talk about the New York landscape. And during our conversation, he pointed out that New York is still a big media town, except different kind of media. If you stand on Broadway and look above 34th street, you can see the media of the past. Look down the Broadway, you see the future. What he meant was that it was in Soho, Nomad and East Village (and Brooklyn) that companies like Foursquare, Tumblr and Thrillist made their homes. They were the new kind of media, one that married technology, social and content.

kenlerer

Ken Lerer, Lerer Ventures & Huffington Post, Co-founder

I was reminded of that conversation today, when the news emerged that Yahoo board had approved the $1.1 billion cash offer for Tumblr, the social sharing platform. It would be one of the biggest exits for a New York-based startup. Sure, there have been other exits — Google paid $3.1 billion for DoubleClick, but that was a company that belonged to a different internet era. There was AOL buying Huffington Post for $315 millioneBay bought Hunch for about $80 million, Skype took out GroupMe for about $85 million, and more recently Salesforce ponying up $689 million for Buddy Media. But Yahoo snapping up Tumblr is in a whole different league.

The new New York

NewYorkWhy? Because Tumblr, in many ways, is a visible manifestation of this new New York, one where startups combine technology with content (one of New York’s core industries) for a new world. It is a success story that matches the fable-like qualities of the Instagram-Facebook deal. Of course, a real comparison would have been Twitter and Tumblr — both companies were started around the same time, both are essentially content sharing and amplification systems and both have enjoyed a similar growth curve. Twitter has grown bigger with an eye on an IPO, and Tumblr is now going to be part of Yahoo.

But that is a comparison for another day, for the New York community is clearly excited about this deal. A Silicon Alley insider who wished to remain anonymous put it best when he described this deal as sign that finally in New York people who build things are getting rich versus people (Wall Street) who take things. A bit hyperbolic, but the point is well made. I think this exit allows the young New York startup community to look up to David Karp in the same way folks here look up to Kevin Systrom of Instagram.

BetaWorking

John Borthwick, who is co-founder of New York-based Betaworks, believes that it is an important turn of the cycle, and the sale of a social media company like this helps solidify and legitimize the entire New York startup ecosystem. Borthwick’s incubator was a seed investor in Tumblr, and that investment will pay handsomely.

Johnborthwick

John Borthwick, co-founder, Betaworks & seed investor in Tumblr.

Borthwick points out that the knock-on effects of this sale are going to help the new tech-centric New York gain momentum. Just as PayPal helped spawn a series of other companies, many in New York are optimistic that Huffington Post and Tumblr are going to result in many more startups. HuffPo’s progeny include BuzzFeed and RebelMouse, and Tumblr’s talent is likely to do more interesting things, he argued.

Lerer, grand wizard of the New York tech scene, believes that New York is no longer an after thought. “This is just beginning,” said Lerer, who has invested in 150 companies (80 percent of which are in New York). And with content being central (something he shared in a conversation at paidContent Live), Lerer believes that New York will become a bustling startup city.

  1. George Kafantaris Sunday, May 19, 2013

    In buying Tumblr, Yahoo’s Marisa Mayer proved she has both vision and guts.
    And we thought only Shell’s Peter Voser had the right stuff.

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  2. Esteban Contreras Monday, May 20, 2013

    Good for Yahoo!, good for Marissa Mayer, good for NYC, good for the Tumblr team… good for Tumblr users? We shall wait and see…

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  3. Charlie Massard Monday, May 20, 2013

    Can this make Yahoo relevant and cool again?

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    1. No, not so much. I remain highly skeptical that Yahoo has any innovation left in them. Mayer has not impressed me as a leader to do anything but bring a staid corporate mindset to what was once a hot property.

      Handling Tumblr’s sale appropriately is what will tip her hand as an Internet savvy player. So in one way it’s good. At least we will see if she does something good or is just another Murdock with Myspace!

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  4. Let the summer acquisitions begin. Here’s a few predictions for who’s next to go…Pinterest, Dropbox, AirBnB, Outbrain, Adblade, Square and Klout.

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  5. “finally in New York people who build things are getting rich versus people (Wall Street) who take things.”

    This is nonsense. Tumblr was famous for not hiring many engineers until very late, even its first engineer wasn’t a co-founder and is most likely getting between 1 and 5% of this. All the ones after him far less. There are probably going to be less than 10 employees turned multi-millionaires out of this deal. Almost all of the money made from this is by investors/VCs, not the “people who build things”.

    Tumblr is a CDO flipped back and forth between VCs and dumped at its peak onto a greater fool.

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