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Is There Really an NYC Start-Up Boom? And if So, What's Causing It?

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The San Francisco Bay Area has more VC firms and dollars invested than all East Coast cities combined. But the NY scene has recently been getting uppity. Chris Dixon wrote a story, the NY Times wrote a story, now Silicon Alley Insider. I tweeted that it was all embarrassing provincialism. So who's right?

Both cities attract the very best and brightest. But NYC has 20 times more.

The best programmers and internet entrepreneurs are in the Bay Area. Don't kid yourself about that, not even for a second. To paraphrase Reservoir Dogs, NYers who even dream we're in the same league ought to wake up and apologize. Looking for a young SEO or SEM wiz? Want to have a deep discussion about network effects vs. viral effects? Go west, young entrepreneur. The practical experience and intellectual capital in the Bay Area is light years beyond that of NYC -- or anywhere else. Even East Coast VCs -- never mind entrepreneurs -- barely know what network effects are. They routinely confuse them with viral effects and/or switching costs, or they confuse viral effects with word of mouth. It's pitiful. It's only critical to your success, people; no reason to master the fundamentals...

What NYC does attract, year in and year out, is the very best general talent from around the world. The absolute smartest, neurons-just-fire-faster, can-bend-spoons-with-their-mind talent. What MBA types call "athletes." The Bay Area gets the best of the web. NYC gets the best of everything else. And NYC gets 10-20 times more.

And this is where the Bay Area shouldn't kid itself: we're smarter than you. Our geniuses are just as smart or smarter, and we have a lot more of them. Not to mention that we also have WAY more domain expertise -- more on that later.

The entire Bay Area is tiny compared to NY, in terms of both population and industry. NY's size helps enormously for sourcing any job not involving coding. But it even helps somewhat WRT coders. Knewton has had great success taking some of that talent -- US Math Olympic team jocks, philosophy types with a masters degree in logic, and award-winning young writing talent from (LOL) Stanford -- and turning them into coders and content specialists.

In years past, those best-and-brightest all came to NY and joined law firms, the fashion world, or the financial industry. The talent's still coming. But those industries have all shrunk and/or are becoming less alluring. The big beneficiary is the start-up scene. Sure, the pay sucks. But you could get rich, and the lifestyle is awesome--as is doing something that actually matters.

East Coast Funders

Historically, NYC hasn't been known for the quality of its venture capital. That may be changing. Bessemer, First Round Capital, and Union Square Ventures are all killing right now. FirstMark is an up-and-coming fund with a great current portfolio, including the en fuego SecondMarket. Facebook-backer Accel is also active, investing in Etsy and Varonis. (Knewton is backed by First Round, Accel, and Bessemer.) Matrix invested in TheLadders, and just moved a partner to NY. Other NYC companies that make internet geeks drool all over their iPads: SeamlessWeb, Foursquare, HuffPost, Gilt, Meetup, Tumblr...

The Valley Laughs

Every time one of these stories comes out, I get emails all day long from friends in the Valley making fun of what they see as NYC's sad little inferiority complex. I mean -- did you see Silicon Alley Insider's 20 Hot New York City Startups? Half the picks are solid companies that Valley investors are mildly interested in. But the other half elicit only gloating chuckles from my B-school pals who gleefully send me the link, along with some variant upon: "If NYC is so great, how come _______ is on this list?"

Seriously people, we've got to stop writing these stories. They're making us look silly. Or, if you are going to write them, at least include Knewton! Sheesh!

Domain Expertise

This is probably the biggest difference between the Bay Area and NY, and the most auspicious sign of NYC's continued ascension. It's also a key point missing from the vapid NYC cheerleading we've been reading recently. So here it is: NYC has vastly more domain expertise in every non-tech industry than does the Bay Area.

For those starting a web company today, the relative value of industry expertise vs. Internet savvy is much higher than it was ten years ago. Jeff Bezos was one of those best and brightest who came to NY to work in finance. He didn't need to know anything about retail bookselling to start Amazon. If Amazon were started today, though, it would be by some kid from Barnes & Noble, and it would be based in NY -- for the same reason that Gilt, TheLadders, Gerson Lehrman Group, SeamlessWeb and HuffPost all started here.

The gap in Internet expertise has narrowed: every major corporation in the country has dev teams, SEO/SEM specialists, and blogging/social networking gurus. It's not like hanging out on University Avenue in Palo Alto, but you can find acceptable web talent in big NYC corporations. Meanwhile, the gap in domain expertise is still vast--creating a relative advantage for NY entrepreneurs.

So if you're at some random big business and you see a great opportunity that your company is too big/dumb/slow to pursue, or won't pursue due to an Innovator's Dilemma dynamic, chances are you're in NYC. You can find web talent within your company that you couldn't ten years ago. You may even be one of those people yourself. And you can now raise very high-quality money in NY, which you couldn't do ten years ago.

In the end, it is this structural advantage that's inexorably helping to create more hot start-ups in NY. And that underlying structure bodes well for NYC's continued gradual ascension.

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