New York’s tech scene: More melting pot, less Silicon Valley


August 11, 2015

NEW YORK – You could've heard a pin drop.

August 11, 2015

NEW YORK – You could've heard a pin drop.

The office space of TechStars NYC, which fosters startups and connects them with investors and potential customers, was, well, what you'd expect one of the key tech hubs in the city to look like: a brightly lit area with rows of tables populated with people typing away on MacBook Air computers. Motivational signs like "Move fast and break things" (a well-known Facebook mantra) decorate the walls. Occasionally, someone in a hurry zips through the room.

Even so, it was eerily calm on a Tuesday.

It's just a few weeks before the next class of startups begins a 13-week tenure at TechStars, founded in 2006 in Boulder, Colorado, before expanding to eight other cities including the Big Apple. Once boot camp begins, a countdown clock — currently off on this August afternoon — signals the start of a race with a dozen companies working to build up their businesses for a final pitch to investors and customers. So is that when the volume pumps up?

"It's still pretty quiet," Alex Iskold, managing director of TechStars NYC, conceded. "But it's intense."

The New York tech scene has followed a similar path as it's evolved over the years — starting off quietly but growing to the point where investors, corporations and city officials now take it seriously. While New York isn't the birthplace of a household tech name like Google or Facebook, the city boasts a vibrant startup scene, with eager entrepreneurs able to tap into the expertise gleaned from other key industries in the city and ready to gamble on being the next big thing in tech.

Alex Iskold is the managing director of TechStars NYC. Sarah Tew/CNET

"New York is the craziest city in the world," Iskold said. "This matches our DNA perfectly. We are the city of risk takers, of a million choices and cutthroat competition."

New York now boasts its own notable tech row. Etsy, an e-commerce site that sells handmade items, went public in April and is valued at just over $2 billion. Yahoo acquired micro-blogging site Tumblr for $1 billion in 2013, and is rumored to be interested in its Manhattan neighbor Foursquare, the location-based services provider. Fashion retail site Gilt Groupe raised $50 million earlier this year and may eventually go public. In December, WeWork raised $355 million in a deal that valued the workspace provider at nearly $5 billion.

New York, unlike California's Bay Area and Silicon Valley, also boasts a more diverse array of industries and communities to draw talent from. That's why you don't always hear about tech; with such a whirling circus of activity around media, fashion, finance and other fields, it's easy for anything to fly under the radar.

"Talking to some of my friends who have dinner parties in Silicon Valley, there's all of the obsession about this fund raising and that fund raising," Gilt CEO Michelle Peluso said. "The nice thing about New York is it's a very broad city. "

The offices of TechStars NYC, which fosters startups and connects them with mentors, customers and investors. Sarah Tew/CNET

Still, New York is a distant second to San Francisco when it comes to tech. It lacks the blockbuster tech companies that have yielded wealthy founders willing to go out and create the next hot startup. There also isn't a supply of engineering talent like there is in the Valley.

And if you're a startup looking for more substantial funding, you still need to go west. While the amount of venture capital funding in the New York metropolitan area nearly doubled to $2.34 billion in the second quarter, it trailed well behind the $9.1 billion in funding invested in Silicon Valley, according to PricewaterhouseCoopers.

Still, New York isn't going to let the Bay Area have all the fun. Nor should it.

San Francisco "can't have a monopoly on innovation or we're all in trouble," Peluso said with a chuckle.

A diverse scene

The theater was packed, with some enthusiastic attendees equipped with inflatable noisemakers. But this wasn't a Broadway show or film premiere. It was the monthly gathering of the NY Tech Meetup group, which has seen its membership grow threefold over the last four years to more than 45,000 members.

A crowd of nearly a thousand tech enthusiasts, programmers, city officials, businesses and potential investors gathered to watch 10 startups run through live demonstrations of their projects as audience members alternated between hooting and hollering and asking insightful questions. The presenters aren't all looking to build the next billion-dollar business; Seth Carnes considers his photo-and-text app, Poetics, a work of art. In his spare time, mapmaker Jeff Ferzoco built a digital map chronicling the New York hotspots for the lesbian, gay, bisexual and transgender community going back to 1859.

"You're seeing a diversity of demonstrators and different types of products," said Jessica Lawrence, executive director of the group.

Take a look at New York's quietly vibrant tech scene (pictures)

TechStars NYC is what's known as an accelerator, or a company that takes in startups and nurtures them into more mature businesses. There's high demand to get into this program, which typically choose 12 companies to participate. The acceptance rate is only half of 1 percent.

Inspirational signs and posters are hung everywhere, giving it a Dot Com-like vibe to the place

Alex Iskold is the managing director of TechStars NYC. He's bullish on tech in New York, arguing that it has advantages in the city's diverse population and key industries like finance, media and fashion.

Once the program begins, the clock counts down from 13 weeks – the length of the program for the startups. At the end, the companies pitch to potential customers and investors.

Jessica Lawrence, the executive director of NY Tech Meetup, has helped drive membership growth in the group. It now boasts 45,000 members, or three times its size from just four years ago.

NY Tech Meetup has a monthly gathering. July's event was held at a theater at New York University and drew nearly a thousand members.

Gilt Groupe is one of the successful tech companies to emerge out of New York. The company raised $50 million earlier this year and may eventually go public.

New York's various industries offer inspiration for local startups. Gilt is tied into the fashion scene in the city. Gilt CEO Michelle Peluso likes the fact that New York isn't all about tech. "There's a healthy distance," she said.

Tumblr, which was acquired by Yahoo for $1 billion in 2013, overlooks Madison Square Park in the Flatiron District of Manhattan, where Silicon Alley originated back in the mid-'90s. The term is largely unused now, since the tech scene is spread all over the city.

Tumblr's creative director, Peter Vidani, also touts the city's diversity as an advantage. But he notes it's a challenge to recruit people from San Francisco. "Once they're here, it's really easy to show them exactly what makes this place so magical."

LittleBits, which makes do-it-yourself gadgets, is so supportive of New York that it opened up a pop-up store in the city.

To LittleBits CEO Ayah Bdeir, New York tech is getting more organized.

On a Tuesday night in early July, one demonstration in particular left the audience impressed. Yaopeng Zhou and his team from Smart Vision Labs showed off a device that used a smartphone's camera and processor to conduct an eye exam. Smart Vision's product, which Zhou said is already shipping, could allow people in undeveloped nations to quickly get their vision checked.

Unlike Silicon Valley, which has been a wellspring for every sort of idea in tech, New York startups tend to get their inspirations from the surrounding industries, whether it's fashion, media or health care.

Zhou got the idea for while working at GE Healthcare in New Jersey, and met his co-founder, Marc Albanese, while he attended New York University's business school. Smart Vision is a New York native.

Yaopeng Zhou, CEO of Smart Vision Labs, presents at NY Tech Meetup. Behind him are Steve Santiago, vice president of software engineering (left), and co-founder and Chief Operating Officer Marc Albanese. Craig Williston/Qool Foto

Access to different industries, from a recruitment and potential customer standpoint, is also an advantage New York holds, some successful entrepreneurs say.

"It's pretty special, because in New York you pull from different disciplines," said Ayah Bdeir, the CEO of do-it-yourself hardware maker LittleBits, at the opening of the company's pop-up store in Manhattan late last month. "You have skills that come from finance, from fashion, from food, so they're not only tech people but they come into the tech scene and I think that brings in a fresh perspective to the work that we do."

It also helps keep the tech world grounded.

"In New York, no matter what you do, there's always someone who doesn't care," said Charles Bonello, co-founder and managing director of Grand Central Tech, which fosters startups with a mission of building up the local tech scene.

Road Trip 2015

Money, talent still out west

In Silicon Valley, there are a number of serial entrepreneurs who struck it rich and went on to foster more startups. Think the "PayPal Mafia," the group of former PayPal employees who went on to found or fund other big-name companies, including Tesla Motors, YouTube, LinkedIn and Facebook.

New York lacks that legacy infrastructure. While there's an increased willingness by local funds to invest in startups at the early stage — Union Square Ventures is a major player here — companies looking to develop further find they need to get serious funding elsewhere. Smart Vision, for instance, got funding from TechStars' Colorado office and won a $1 million award from Verizon, but Zhou said he still has to fly out west to meet with venture capitalists.

The Tumblr office overlooks Madison Square Park in the Flatiron District of Manhattan. Sarah Tew/CNET

"You can't emulate Silicon Valley," said Jeffrey Carr, a business professor at NYU. "There's such a unique combination of things: (Stanford) University, entrepreneurs and the rock-star status they hold out there and the money."

It's also tougher to find the right engineering talent in New York. It's easy to sell programmers on the potential upside to heading to San Francisco, where billion-dollar startups seemingly spring up on a regular basis. It's a tougher sell for New York.

"That's probably the biggest challenge that a tech company in New York faces is really recruiting from that talent pool in San Francisco, because it's so far away, and because it is a very different lifestyle here," said Peter Vidani, creative director at Tumblr.

"What are we selling them? Rude people, cheap pizza and bad weather?" Iskold added.

New York is working on creating a base of technical talent. The city launched last year, which serves as a hub for the local startup scene. Cornell University is spending $2 billion to build a tech-focused facility on Roosevelt Island. Coding school General Assembly is also trying to reinforce the ranks of technically savvy workers in the city.

Silicon Alley redux?

Back in the mid '90s, a nascent tech scene in New York rallied around the term Silicon Alley. But when the tech bubble burst in 1999, taking down many of the heavy hitters in the real Silicon Valley, Silicon Alley also collapsed.

It just wasn't the right time for New York.

Gilt Groupe is one of the successful tech companies to emerge out of New York. Sarah Tew/CNET

"The city itself wasn't particularly well-suited," Peluso said, recalling how office buildings lacked basic infrastructure like wiring for high-speed Internet access, and how landlords would ask for a 10-year lease commitment. "A 10-year commitment? I don't even know where I'm going to say I'm at 10 days from now."

There also wasn't a strong venture capital presence. "Silicon Alley was a loose collection with not a lot of interesting things," Iskold said, laughing.

The name is also a bit of a misnomer at this point. Silicon Alley started off in the Flatiron District near the historic Flatiron Building on Fifth Avenue and 23rd Street. But today's tech companies are spread all over the New York area, with pockets in Manhattan and Brooklyn.

So is this Silicon Alley, version 2.0?

"We shouldn't be calling it Silicon Alley," Iskold said about the New York tech scene. "It sounds off to me – I don't even know what that means honestly."

Courtesy: CNET