Feb

25

BwogSalon: Columbia Economics Review

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In the spirit of Enlightenment salons from centuries past, we present the latest installment of BwogSalon. Below, check out an excerpt from Raphaela Sapire’s article from the inaugural issue of the Columbia Economics Review. Sapire discusses the growth of the tech sector in New York City. Its new nickname, “Silicon Alley,” is a testament to this rapid rise to a rivalry with its west coast counterpart. Sapire believes the success of tech industry in New York can be historically traced, reaching back to the entrepreneurial spirit of the first Dutch colonists, (aid from public funding programs hasn’t hurt either). But don’t just take our word for it; read the introduction! You’ll make your fave French intellectual and your financially savvy friends happy.

The Bright Lights of Silicon Alley: New York City’s Growing Entrepreneurial Sector

With over 45 startups, six venture capital firms, and five entrepreneurial working hubs, New York City’s startup scene is booming and shows no sign of slowing. A multitude of factors, such as a favorable economic environment, private and public funding initiatives, historical business leadership, and an overall decrease in startup costs all help to explain the burgeoning entrepreneurial landscape in New York that has come to be known as Silicon Alley. At a technology conference in rival Silicon Valley, Mayor Michael Bloomberg highlighted New York City’s leadership across several industries and the resulting advantages, emphasizing, “When you want to start a business, you don’t have any choice. This is where the best and the brightest are.” Despite the current economic climate, the evolution of Silicon Alley places New York City at the heart of a technological convergence that revives its historic entrepreneurial leadership.

Unique social and historical factors define the culture of entrepreneurship in New York City, setting it apart from that of any other city in the country. Unlike other colonial cities such as Boston or Philadelphia, New York was founded on the premise of entrepreneurship. The Dutch East India Company arrived in New York Harbor on September 3, 1609, and by 1624 the Dutch West India Company established New Amsterdam for the sole purpose of capitalizing on the lucrative fur trade. This culture of openness and innovation sets the stage for a thriving entrepreneurial mindset throughout the 21st century, particularly in the financial, fashion, and media industries. In 1792, the New York Stock Exchange played an indispensable role in the growth of New York City as a commercial center. Edward Glaeser, professor of economics at Harvard University, comments that in the 1960s, financiers’ “more sophisticated approach to risk and return” enabled entrepreneurs to expand the volume trades on Wall Street such that by 1972, 32 million Americans owned securities, compared to only 12.5 million in 1965.

Additionally, the garment industry exploded in New York City after the Civil War when newly arrived Jewish immigrants formed small businesses specializing in the clothing industry. Manufacturing played an essential role in New York’s economy during and after the Industrial Revolution and today, New York is one of the fashion capitals in the world. Since the creation of the Penny Press in 1833, New York has served as the media center of the country, with most leading magazines, influential newspapers, and broadcast networks headquartered here. Historical leadership in the financial, garment, and media industries positioned local entrepreneurs in these industries with distinct competitive advantages in relationships, resources, and public relations. Beginning with the Dutch emphasis on innovation and continuing to the inventors and entrepreneurs responsible for today’s groundbreaking technologies, New York City’s technology startup space can be explained as an extension of the city’s historic entrepreneurial success onto the online platform.

Dubbed “Silicon Alley” in reference to its competitor Silicon Valley in the San Francisco Bay Area in California, New York City is “now on its way to cementing its reputation beside Silicon Valley as a driving global force in the industry,” according to Chris Cameron, a writer for ReadWriteWeb, one of the largest technology blogs in the world. Just as it had led the way in finance, fashion, and media, New York in the late 1990s was on the cutting edge of web innovation during the dot-com bubble. For example, Prodigy, the first online service to provide access to the World Wide Web, emerged in 1993 in White Plains, New York. New York Internet companies such as Razorfish, DoubleClick, and Pseudo followed suit and with them came Union Square Ventures, a venture capital firm run by Fred Wilson. According to Wilson, in 1999 alone, over 500 startups were founded in New York City. The dot-com crash of 2001, however, resulted in the decline of venture-backed technology startups in generating economic activity in the city. Yet, as Cameron points out, in the decade after the Internet bubble burst, New York “pulled itself from the ashes of the dot-com crash and has risen back to the upper echelons of the top tech cities.”

Today, New York City boasts an impressive variety of successful startups and entrepreneurial resources. According to CBInsights, a comprehensive database of private companies, New York City is uniquely specialized in Internet startups compared to California and Massachusetts. Between July and September of 2010 alone, New York City reaped 31 Internet-related funding agreements garnering $126 million, while Silicon Valley acquired 21 deals bringing in $174 million. According to TechCrunch, six of the top ten startups with the most funding in New York City are in the finance, fashion, or media industries, and all of them are web-based. Internet startups in finance include SecondMarket, an online portal for trading shares, Fynanz, a private student loan platform, and Seeking Alpha, a stock market news community. Tech startups specializing in fashion consist of Gilt Groupe, an online designer retailer, while social media sites such as Gawker and Thrillist also call New York City their home. The advent of the Internet necessitated that companies in every industry–from education to restaurant–establish online capabilities, and with New York City’s historic business leadership, it is easy to see why the city has become a favorable environment for startups in these industries.

Other trends explain New York City’s explosive startup scene. One explanation for the proliferation of Silicon Alley is the ever-decreasing costs of starting web-based businesses, a fact that has enabled entrepreneurs to launch companies without venture capital backing. Entrepreneur Paul Graham cites four reasons for the low costs of establishing a startup: “Moore’s law has made hardware cheap; open source has made software free; the web has made marketing and distribution free; and more powerful programming languages mean development teams can be smaller.” Startups simply do not need legions of investors the way they did ten years ago.

In addition to existing resources, public funding has also contributed to the rejuvenation of Silicon Alley. In a 2009 press release, Mayor Bloomberg, along with the NYC Economic Development Corporation, announced 11 initiatives totaling $22 million to help support business innovation and entrepreneurship. Two such initiatives fund an incubator to help startups obtain office space at affordable rates. In addition, a $3 million investment in a program called the Angel Fund will provide financing to 250 New York-based startups over the next eight years. Small businesses create jobs, and in a city with a 9 percent un-employment rate, these initiatives will help spur job creation.

The 2008 financial crisis has created a legion of talented, eager students looking for employment who otherwise would have gone to established banks and corporations. Universities such as Columbia University play an increasingly significant role in New York City’s emerging tech-based economy. According to the Association of University Technology Managers, in 2007, 21 startups emerged out of the city’s major universities. Over half of these originated from Columbia University, which spun off 12 startups — up from eight in 2002. David Lerner, director of the Columbia Venture Lab, calls student entrepreneurship an “emerging colossus” that is increasingly a part of Columbia University’s educational mission. Mirroring the environment of the city, the entrepreneurship community on campus is gaining momentum and more and more becoming a career of interest to students who have come to realize the vast opportunities available in the industry.

A city’s past informs its future; the most significant quality in New York City throughout its history has been its ability to reinvent itself. During a 2010 conference hosted by Union Square Ventures, there was wide consensus that New York City had an “unprecedented opportunity to emerge as a global center for tech and media innovation and that technology startups could be the largest part of the New York City economy in 10 to 15 years.” As a rapidly growing industry, New York’s technology sector is an increasingly attractive option for bright college students with interests in industries as widespread as finance, fashion, and media.

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2 Comments

  1. Cali bound

    Bloomberg your so full of shit on this call, when your startup finally does turn a profit, good luck keeping enough of it away from the tax man to expand competitively and actually hire more people for real wages, unless you want to dump 20 years of your life into a company that would be the same size in 6-7 out in CA, be my guest and be an idiot. Taxes are at least 20% less in Silicone Valley and the weather is at least 3x as nice, just saying.

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