Replicating Silicon Valley
Paul Graham recently wrote an essay on venture capital and startups called How To Be Silicon Valley and I recommend everyone who works in the technology, startup, and venture businesses give it a read. It’s an excellent analysis of the essence of Silicon Valley and how and why it works (and what might be Silicon Valley's weaknesses).
As someone who has participated in building a “Silicon Valley” elsewhere, I found much of Paul's analysis to be spot on. But given that Paul takes a few swipes at New York City, I feel compelled to defend my turf. Please don’t take this post as an attack on Paul’s excellent essay. I am simply trying to educate everyone who sees New York in the same way as Paul does.
The New York Metro area has a significant amount of startup activity but is regularly considered to have a dearth of startups. This is a classic case of misconception at work.
Paul links to a Price Waterhouse survey at the end of his essay that shows the venture capital investment activity in each market in the first quarter of 2006. In that survey, LA/Orange County comes in third on a dollar basis, just barely beating out the New York Metro area. But when measured in number of deals, New York is solidly in third place with 58 deals, after Silicon Valley with 245 deals, and Boston with 98 deals. LA/Orange County comes in ninth in terms of the number of deals.
I have been working as a venture capitalist in New York City for 20 years. Over that period of time, I have watched these statistics carefully and for the past 10 years, the New York Metro area has consistently been the third most active venture capital market with about 25% of the activity of Silicon Valley and about 60% of the activity of Boston.
But because the dominant industries in New York are not technology, venture capital, and startups, the startup activity gets lost. New York is seen as a money, media, trade, and real estate town, and it is. I’d venture to guess that technology startups might not even be in the top ten industries in New York.
But New York is hardly a place lacking in nerds as Paul states in his otherwise spot on analysis. This section of Paul’s essay is typical of the stereotype that is just wrong:
If you want to attract nerds, you need more than a town with personality. You need a town with the right personality. Nerds are a distinct subset of the creative class, with different tastes from the rest. You can see this most clearly in New York, which attracts a lot of creative people, but few nerds. [5]What nerds like is the kind of town where people walk around smiling. This excludes LA, where no one walks at all, and also New York, where people walk, but not smiling. When I was in grad school in Boston, a friend came to visit from New York. On the subway back from the airport she asked "Why is everyone smiling?" I looked and they weren't smiling. They just looked like they were compared to the facial expressions she was used to.
If you've lived in New York, you know where these facial expressions come from. It's the kind of place where your mind may be excited, but your body knows it's having a bad time. People don't so much enjoy living there as endure it for the sake of the excitement. And if you like certain kinds of excitement, New York is incomparable. It's a hub of glamour, a magnet for all the shorter half-life isotopes of style and fame.
Nerds don't care about glamour, so to them the appeal of New York is a mystery. People who like New York will pay a fortune for a small, dark, noisy apartment in order to live in a town where the cool people are really cool. A nerd looks at that deal and sees only: pay a fortune for a small, dark, noisy apartment.
[5] A few startups get started in New York, but less than a tenth as many per capita as in Boston, and mostly in less nerdy fields like finance and media.
I am not going to take the time to respond to this. I think simply reprinting it will do just fine.
But, Paul is right about what it takes to replicate Silicon Valley:
Nerds
Money
Schools
A Creative Culture
A City With Personality
Youth
Patience
New York has all of these in spades. We may not have Stanford, Berkeley, Harvard, and MIT, but we have Columbia, NYU, Parsons, Brooklyn Tech, Stevens, and a host of other excellent schools that I have now insulted by leaving off the list.
We have plenty of nerds and more are pouring in every day from places like India, China, Israel, Russia, and eastern Europe. We have a culture that is welcoming of alternative languages, cultures, and lifestyles.
As Paul points out, the centers of startup activity are highly correlated to the centers of leftist culture. Why is that? Because entrepreneurs are crazy creative passionate people who are attracted to places where they and their wacky ideas are welcome.
And I can tell you this, they are welcome in New York City, and have been since the day the Dutch formed a city on the tip of the island of Manhattan.
Enough about New York. I am going to finish by pointing out that Paul’s central thesis that Silicon Valley can and will be replicated is spot on. Take a look at the Price Waterhouse survey one more time. There are eleven regions in our country where over $500mm of venture capital will be invested this year. That was Silicon Valley twenty years ago.
It takes time and patience to replicate Silicon Valley. It’s already happened in Boston. And it’s happening in New York, Los Angeles, Seattle, Boulder/Denver, San Diego, Austin, Dallas, Portland, Chicago, Atlanta, and DC. These “second tier” venture markets are where I’d be investing if I were a limited partner right now because they have a critical mass of entrepreneurs but not yet a critical mass of quality early stage venture firms. If you can back a quality early stage venture firm in one of these markets, I bet they will do very well over the next ten years as Silicon Valley gets replicated all over our country.
Paul’s next essay is about whether you can replicate Silicon Valley overseas. He gave me a preview of it over the weekend and it's now online. It's also an excellent analysis.
Thanks Paul for putting these thoughts out there. It’s about time that people starting realizing that Silicon Valley doesn’t have a lock on startup mojo.
May 31, 2006 09:30 AM, By Fred Wilson
Tags: entrepreneurship nerds newyork siliconvalley startups vc
Comments (9)
So I guess I am going to have no luck in righty town Phoenix?
Posted by howard Lindzon , June 1, 2006 01:48 AM
I agree with you in theory, Fred, and have for quite a while: New York could be made into a top-tier locale for tech startups. But I think you and Paul have both overlooked probably the biggest impediment to that happening here in NY: Wall Street.
Frankly, Wall St. sucks up a huge majority of the good tech talent (i.e., Paul's "nerds") here in NYC, as well as monopolizes all the surrounding support network (e.g., recruiters). Most of the good engineers I know all work at Wall St. companies (and most hate it, mind you!) And I can tell you first-hand as a software engineer here in NYC that it's extremely difficult to find good non-Wall St. tech companies to work at. For positions with start-ups and small companies, recruiters are mostly useless (and a distraction! - they just keep calling and emailing with Wall St. jobs), and yet most developers I know here find their jobs through recruiters.
Plus, the high cost of living here coupled with the (generally) lower pay at smaller companies forces many developers who want to make a good living to work on Wall St. I've even tried several times on my own to launch a new tech start-up (and am working on one on the side again part-time even now) but it's extremely difficult to do that here in NYC and still be able to pay your bills.
In addition, working in corporate America on Wall St. conditions developers to be workers, not entrepreneurs, and to avoid risk-taking. Thus the entrepreneurial spirit that gets nurtured out in the Bay Area gets squashed here.
I have no doubt that if enough of a critical mass of startup companies were to take hold here, that NYC could become a major start-up hub. (And I would love to see that happen!) Developers would LOVE to leave their Wall St. jobs for a good paying and more enjoyable job at a smaller tech company. Just witness the boom of Silicon Alley back in the dot-com days. Wall St. practically had to beg their employees to stay with them back then!
But frankly, until Wall St.'s hold on the tech community here loosens up, (e.g., if Wall St. were to move increasingly larger amounts of jobs out of the city) NYC won't be a major tech start-up hub. I wish that weren't so, but I call 'em like I see 'em.
Thanks for the interesting blog. Hopefully I'll have reason to meet you one day! :-)
Posted by David Rosenstrauch , June 1, 2006 10:07 AM
I think that a healthy startup culture can coexist with Wall Street, just as startups in the Valley coexist with the likes of Oracle, HP and Apple. I have worked with plenty of early-stage companies (and some VCs) who have managed to find and lure excellent developers and other IT professionals from Wall Street firms. And the run on Wall Street IT departments during the bubble proves that the spirit is there (or at least a healthy enough sense of optimism). If you look today, for example, at the software and IT companies that serve the financial services industry, you'll see plenty of Wall Street refugees. You'll also find them in the boutique research shops that are sprouting up all over the city. People make choices.
The bigger issue is information flow. Certainly, the large number of tech employees in the Valley makes it easier to network and find opportunities. But as I posted on Fred's personal blog, I suspect that newly minted graduates at our local universities aren't being presented with enough viable alternatives or hearing about job opportunities by word-of-mouth as often happens in the schools in Boston and the Valley. Certainly, there are plenty of people who come to New York hell-bent on working for a Wall Street firm, and would never consider taking the plunge. But until the local universities get more involved in local startup activity, Wall Street will get more than its share of young talent, and the perception will continue in the VC community that New York is a tough place to find good and reasonably-priced programmers, developers, etc. (not that the Valley is any bargain, mind you). If anyone reading this has suggestions about how to facilitate this, let me know.
In the meantime, the best suggestion I can give to find good local tech jobs is to try to leverage the networking channels that exist, such as New York Software Industry Association (NYSIA) and Charlie O'Donnell's new group, NextNY. And talk to as many VCs as you can.
Posted by JayR , June 1, 2006 11:18 AM
New York City in 2016
http://www.businessinnovationinsider.com/2006/05/new_york_city_in_2016.php
Posted by Dimitar Vesselinov , June 1, 2006 11:31 AM
From a neophyte and recent new-yoker:
Do you think there is a link between the trend of local based services and especially urban services and an increase of startups in big metropolitan areas ?
This might explain / plead for new york, the city of the cities.
??
Posted by laurent kretz , June 1, 2006 04:52 PM
as a nerd, i agree with the paul exerpt dubbed 'stereotypical and wrong'. what would i get for tripling the price of rent and a cocktail and yuppie-concentration besides only having to walk 1 block to the cafe/store/shop instead of 3? i like walking! i think if anything the explosion in digital services and distributed user-moderated/centric thing has worked against new york. it seemed in the past you needed to be in New York to be anywhere near the locus of anything, and now its evident you can be anywhere..getting into a situation where id basically _need_ to work for wall street just to make ends meet is not my idea of fun..
Posted by carmen , June 12, 2006 02:44 PM
Why do people conflate 'New York' with 'Soho' or 'Tribeca'? Paul's comments on New York apply (poorly) to a teeny tiny portion of the city at most. I work for a tech start-up, live in my decidely unglamourous (but very walking-friendly) uptown Manhattan neighborhood, pay about the same for my two-bedroom as you'd pay for one in San Francisco, and love it. All this blather about 'needing' to work for Wall Street is exactly that, blather.
The true deal-sealer for me, though, is New York's relative lack of San Franciscans, who are as intolerant of anything deviating from their own 'progressive' norm as any stereotypical conservative town. Thanks, but I'll pass.
Posted by Greg , June 13, 2006 06:05 PM
Israeli start-ups would LOVE to have their US headquarters in NY (non-stop flight, exciting place to live, etc., etc.). Only the main problem is recruiting (as Jeff Clavier referred to in his comment). In my experience, we couldn't get high quality marketing, product marketing and sales executives to scale the business. The individuals that have the most experience in building software companies, are not found in the Big Apple, but rather Silicon Valley. I agree that no particular reason that NY can't create good ideas for a start-up, but I question the ability to grow to become a meaningful company.
Posted by Tali Aben , June 16, 2006 07:02 PM
I had a development team in NYC (and London and Paris when I ran Apps development groups for Reuters), and I continually faced the issue of having to compete with banks and other financial institutions for talent. Since these guys were paying top dollars, and the number of talented developers was limited, I found challenging to sustain and grow my organization.
Is this a problem for New York as a startup "Petri dish" ?
Posted by Jeff Clavier , June 1, 2006 12:22 AM