Go Back East, My Son: The Rise of Silicon Alley

For many years Silicon Valley, a technology mecca in California, has been synonymous with innovation and entrepreneurship. Tech giants like Apple, Google, Facebook, and others have laid their roots in the Valley, and for decades there was no better place on earth to be an entrepreneur.

In recent years, however, there’s been an expansion of the Silicon Valley idealism with entrepreneurship hubs sprouting up around the country in cities like Seattle, Boulder, Denver, Austin, Boston, and most significantly, New York City. Indeed NYC mayor Michael Bloomberg has been long toting the city as a rival to the prowess of Silicon Valley. In fact in 2010 New York City surpassed Boston as the second highest recipient of venture capital funding.

Dubbed Silicon Alley, New York City has seen notable entrepreneurial activity in recent years with Twitter and Facebook both opening offices in the “Alley” and the announcement of a $2 billion “tech campus” encouraged by the mayor’s initiative to attract the next generation of entrepreneurs and software engineers.

For many this is a sign of new horizons for the future of entrepreneurship. “We’re on the cusp of a digital revolution in New York City,” said Jeremy Johnson.

Johnson is the Chief Marketing Officer of 2tor, a technology company he co-founded in New York City in 2008. By building online learning programs and technology platforms for colleges and universities, such as the MBA@UNC, Johnson and 2tor were among the first of Silicon Alley’s education technology startups, one of the Alley’s notable tech genres.

“Over the past five years I’ve seen an interesting shift. I think that Silicon Alley has increased interest in startups around the world,” said Johnson. “It was at the same time that York City’s Silicon Alley scene began to blossom, especially with social media. People really started to become excited when Foursquare debuted at SXSW.”

Social media is indeed one of Silicon Alley’s focal points with Tumblr and Foursquare both founded and headquartered in the empire city.

To Johnson, some of the biggest shifts have come in two forms: talent and money.

“It used to be that a vast majority of the investments were in the Valley. Additionally you also had to go to the Valley to find talent and people with the necessary skills sets,” he said.

In the past five years talent and money have permeated to locations elsewhere.

“Silicon Valley has been the elder statesman of entrepreneurship globally. They’ve played supporting roles in the creation of every other tech hub around the country,” said Johnson.

Talent and Money Flow, The Alley Prospers

“Today you can find skilled developers in most urban areas whether it’s Seattle or NYC. Now most Boston and DC venture capitalists are talking to NYC startups if not opening offices there. Also, the San Francisco and Valley venture capitalists, they’re all opening up shop or sending people over to NYC,” said Johnson.

One such venture capitalist (VC) is Jon Teo, a partner at private equity firm General Catalyst who runs their office in New York City. A recent transplant from Silicon Valley, Teo is among the recent wave of VCs lured by investment opportunities in Silicon Alley.

“There’s lots of capital flowing into NYC and the mayor is very involved. More importantly we’ve been meeting with government officials from DC and elsewhere” said Teo. “That’s all a good sign. People are focusing on NYC as the next place to build a tech company.”

According to Teo, Silicon Alley has emerged from a quiet post tech-bubble period. Yet while money is now abundant and continues to flow into the area, Silicon Alley has a long ways to travel.

“It takes time but we’re seeing the beginnings. Tech entrepreneurs need more than just capital, what needs to be built in the city is a community and support structure,” said Teo. “The biggest difference between California and New York is that Silicon Valley brings together a lot of great talent. NYC is still fragmented in its talent base.”

Teo hopes that an ecosystem for entrepreneurs in New York City will help the city became a place for great engineers and entrepreneurial talent to come to and collaborate.

“What’s great about NYC is that there’s a safety net for people who can take risks here. If your idea doesn’t work out there’s always something else to do or someone else to work for,” he said.

Nikhil Kalghatgi, another venture capitalist, shares many of Teo’s sentiments. Kalghatgi runs the NYC office of Boston-based venture capital group Softbank Capital, notable for its investment in NYC companies like The Huffington Post and BuzzFeed.

“It used to be that the coolest thing you could do in the business world was go to New York Cityand work at Wall Street,” said Kalghatgi. “Now since 2008 with the economy, Occupy, and the backlash against Wall Street, being an entrepreneur has become sexy. It’s the next big thing to do to make a big impact on the world.”

Like Teo, he agrees that many challenges still face the Alley.

“NYC has changed dramatically but it won’t challenge Silicon Valley until one or two large NYC companies exit and spawn the next generation of angels, entrepreneurs, and ‘mafias’ akin to the original leadership teams of PayPal, Google and now Facebook. Hewlett-Packard helped create Silicon Valley and four generations there,” said Kalghatgi.

A Diverse Ecosystem of Industries

Kalghatgi doesn’t like to frame the situation is the Alley versus the Valley. “NYC will always be different from the Valley and people will be able to leverage its uniqueness,” he said. “There’s a city full of fashion, media, digital media, advertising, sales, financial, and e-commerce here, combine those and that’s a whole world that an entrepreneur can play in.”

According to Jeremy Johnson, the Alley’s education technology startups were a result of the diverse ecosystem of industries.

“Education companies are harder to start up because they require a strong background in the education industry,” said Johnson. “NYC already had such a strong education presence with companies like the Princeton Review and Random House. Pretty soon when the tech scene started to blow up, people from these companies left and created many of the education technology startups.”

Like Johnson, Kalghatgi has seen dramatics shifts in the Alley in recent years.

“In the last two to three years, NYC has completely transformed itself. Everyone here is starting to feel like a community versus individuals and that’s powerful,” said Kalghatgi.

So what is the future of New York Cityas an entrepreneurship hub?

Kalghatgi predicts that the advertising technology, mobile, and e-commerce sectors will continue to be one of the Alley’s strongest drivers of growth. “More than anything else we need to stop building companies for Silicon Valley,” he muses, referring to the number of companies acquired by or exported to California.

“The growth of startup incubator programs is important and will continue into the future,” said Johnson. “Tech and startups will be the biggest drivers of growth and economic interest in this city and they will begin to challenge and disrupt other traditional industries.”

Jon Teo shares the excitement for Silicon Alley’s future. Should a robust ecosystem and community be established, Teo hopes for what he describes as “big sweeping disruptive change.”

Do you work for a Silicon Alley startup? What have been your impressions? What are some of NYC’s next hottest startups? Leave them in the comments below! 

Hiroki Murakami I'm the Community Manager of The Next Great Generation and Mullen's busiest intern. Emerson College marketing and entrepreneurship student graduating this May. I'm a Seattle native studying in Boston, working with startups, and your local coffee shop's #1 customer. Drop me a line at @hnmurakami.

View all posts by Hiroki Murakami

3 Responses to “Go Back East, My Son: The Rise of Silicon Alley”

Leave a Reply