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Dinesh Moorjani

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Why Wall Street's Loss Is New York's Gain

Posted: 01/19/12 05:00 PM ET

A flower has grown from the ashes of New York's financial industry meltdown. That flower is the innovation economy of New York -- and it's here to stay. 

Here's why: Brain drain. For many years we have heard of brain drains. Over the past few decades, the best minds from around the world came to America from abroad seeking opportunities. The goal was simple: change the professional trajectory for themselves and their families.

Over the past few years, however, some of the best brains have left America to return to BRIC emerging markets -- Brazil, Russia, India and China -- where they have built new products and companies, inventing and adapting innovations to meet the needs of their local markets and beyond.

Now, we're experiencing a local financial industry brain drain -- one that doesn't require entrepreneurs to cross an ocean, but just choose a new subway line.

Talent is shifting away from Wall Street to Chelsea, Flatiron, Fashion District, Midtown New York and other tech center hubs, and it's the best thing that has happened to New York City in the two years. It's happening both by circumstance and by choice.

Many of our country's brightest minds, from engineers to economists, have applied their skills to reap financial gain on Wall Street. With its big entry-level salaries and promise of riches, America's youth had built a career around trading and financial engineering to create, and in some cases, to harvest value via transactions. 

While China expanded a robust manufacturing sector and India transplanted and replicated software and services innovations, America's best and brightest were building new asset transactions and packaging and distributing risk. In essence, we as a nation have trained our best people to transact value instead of build value. 

That is, until now. 

Wall Street is contracting, continuing to cut its global workforce and it's a surprising boon for the nation's long-term prospects.

Now the great minds of America are bypassing dreams for Wall Street and thinking about how to create new businesses that can have global impact in everything from green technology to social media to retail. The Wall Street contraction and self-initiated flight is our collective gain.

New York's tech sector is flourishing. Incubators, seed funds and diversified media companies are increasing their willingness to provide needed resources and capital. Those same capital sources that traditionally injected Wall Street are turning their attention to technology innovation, including startups, or in some cases the startup studio apartment.

According to The MoneyTree Report from PricewaterhouseCoopers and the National Venture Capital Association, New York firms received $891 million in funding during the third quarter of 2011, which represents the largest amount since the first quarter of 2001, when $1.4 billion was invested here. What's perhaps even more interesting to note is that while New York's star is on the rise, the rest of the U.S. faces uncertainty, marked by a 53% decrease in new funds when compared to the third quarter of 2010.

Within this new climate have emerged some of the more well-heeled start- ups. Foursquare is one of the shining examples. So far they've landed over $70 million in funding to date, and have more than 70 employees on staff. Other New York-based firms like Tumblr, Buddy Media and ZocDoc have all pulled in over $50M each. More capital doesn't equate to better startups or a healthy environment, but it does demonstrate a shift in confidence to invest in NY tech startups that need larger sums of money, with commensurate risk, to achieve their goals.

If you ask many of New York's tech entrepreneurs, they will tell you they had expected to take financial services jobs, historically had Wall Street jobs, or planned to find innovation somewhere else like Silicon Valley, Boston/Cambridge, or in pockets of Austin or Los Angeles. But now opportunities are more geographically democratized, most notably in NY. The avenues to discover these tech startup opportunities have also proliferated - seed funds, incubators, innovation programs, and job fairs - just to name a few.

The Silicon Valley Talent Fair (SVTF) is one example that featured over 100 start-ups looking to mine new talent. NYC Start-up Job Fair is another that had their first show in April and again in November, attracting more than 750+ job seekers and more than 80 New York start-ups. 

The pay-offs have been immediate. Start-ups like Ideeli (one of the sponsors of the Silicon Alley Talent fare) launched in 2007 with five employees, but now has more than 200 with plans for additional hiring.

The cumulative effect hasn't been on jobs creation alone, but other sectors have shown unexpected profits. 

Take the rental market, for example. While in many areas of the country real estate prices have tumbled, technology centers like New York residential, and some pockets of commercial real estate rentals, have increased.

According to a Prudential Elliman report released in October, the average monthly rent for a Manhattan apartment increased 6.9 percent from the third quarter of 2010, while rental price per foot ballooned to $50.60, a 13.6 percent gain.

And that's just the tip of the iceberg. Cross-pollination between the public and private sector is expanding.

Mayor Bloomberg has taken a more active role in helping to fuel innovation in New York, and consistently demonstrates an eagerness to catapult the city into a world leader in technical business capital. He created a new reality series on BloombergTV called TechStars, and his efforts to intensify New York's talent included a request for proposals from major universities around the world to help build the next great engineering campus. Late last month, Bloomberg chose the plan, put forth by Cornell University and the Technician Institute of Technology of Israel, to build a 2 million square foot science and engineering campus on Roosevelt Island. Bloomberg estimates that the campus, slated to be open for students by 2017, will produce 600 start-up companies and will spin out thousands of jobs.

My tech incubator, Hatch Labs, an entrepreneurial sandbox creating innovative mobile products for 5 billion people with wireless access -- in partnership with IAC and Xtreme Labs, recently participated in the IAC Fellowship program with NYU's ITP. The ITP Fellowship Program is designed to foster innovation and entrepreneurship in interactive media. As part of the year-long program, IAC has committed $250,000 to support top post-graduate students from the School's Interactive Telecommunications Program (ITP).  The goal is to have IAC Fellows work directly with IAC mentors, leading business and strategy executives at the company and its brands, to discuss ongoing research, tackle challenges, and build a framework for a sustainable and successful career, post-fellowship.

Other seed funds ("slash" incubators) like Y-Combinator offer a mentorship program, where they have move New York start-ups to Silicon Valley for three months and refine their pitch to investors.

With deepening partnerships between education and the corporate sectors, and shifting of resources, talent and capital to New York and other technology hubs, we have begun to cement a culture of tech startup sustainability. It's still early, but there's good reason to believe that Wall Street's contraction may have had the reciprocal effect of creating a booming start-up scene New York, which has spilled over to the rest of America.

As for ex-financial services professionals that have fallen victim to the financial crisis, the best chance for applying their creative juices and work ethic may just might be off Wall Street and up Silicon Alley. It'll be an unexpected reverse commute for many, but one that could very well create stability for our nation's economy, while helping accelerate our country's creative and social capital.

 

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