I spent a bunch of time in New York City last month, including extended hobnobbing with local VCs and entrepreneurs. One thing I heard over and over again was how the locals would soon leapfrog Boston in terms of entrepreneurial activity and venture capital funding — positioning themselves in the coveted runner-up position behind perennial leader Silicon Valley.
The sentiment was fueled by a variety of factors, including many discussed in this NY Times story from last Friday. Here they are in no particular order:
- New York is the global home of media, and media/media tech is one of the venture world’s fastest growing sectors.
- New York has finally filtered through most of its dotcom mess (it took a while), and those 2000-vintage entrepreneurs have launched new ventures.
- New York has many more early-stage VC firms than it used to, and local corporations are again investing (Time Warner, etc.).
- Boston still has way more VCs, but the “good ones” spend many of their working hours 200 miles south.
- New York has lots of empty office space and ex-Wall Street IT guys looking for jobs (not “fix your Ethernet connect” IT, but “big bank network security” IT).
- New York once again has a vibrant techie networking scene, and even has a group dedicated to early-stage life sciences (I attended their monthly coktail party — probably between 50 and 75 people there).
- Did you know that FourSquare is based in New York, and that VCs care more about their FourSquare rankings than their IRRs?
All of that is lovely, but let’s look at the actual numbers (from MoneyTree surveys):
Last decade, the New York region accounted for approximately 8.3% of all U.S. venture capital investment. This ranked third, well behind New England (12.5%) and barely in front of the Southeast (8%). For context, Silicon Valley snagged around 34 percent. The percentages for number of companies funded — as opposed to dollars invested — were fairly similar.
Last year, New York accounted for 8.1% of all venture dollars invested in U.S. companies. New England again ranked second (12.4%) and the Southeast came in fourth (5.5%). Again, the number of companies was fairly similar (New York companies comprised 8.6% of the total).
Finally, let’s look at the first 66 days of 2010. This is where things get a bit interesting. New York still ranks third, but is fairly close to New England in terms of percentage of dollars invested (13.8% vs. 14.3%). On the other hand, it’s back to its traditional level in terms of number of companies funded (8.4% for New York vs. 18.7% for New England).
In short: New York’s venture revival is more about feel than fact. More qualitative than quantitative.
This doesn’t, of course, mean that New York’s buzz can’t help spur additional funding going forward. Nor does a higher investment total necessarily result in a high percentage of successful companies.
But I’d submit that New York simply isn’t going to catch New England anytime soon. Maybe it will for a quarter here or there (it’s happened before), but not for the long haul. Not because one market is “better” or
“smarter” than the other, but because New England has a legacy head-start and has experienced many of the same positive developments (replace big media hub with big academic hub — and an equally-growing techie ecosystem that may convince top students to stick around rather than move West).
And, hey, there’s no shame in being third. Well, unless you’re the Yankees or Red Sox…