Silicon Alley: an update on the New York startup scene

When speaking about U.S.A. Startups it obvious to think about California, more precisely, about the Silicon Valley: the place where the informatics revolution started hosting the most important business of the industry.

Increasingly, a phenomenal ecosystem came into place, compared by Greg Horowitt and Victor Hwang to a rainforest. The longevity and the width of this system are in fact empowering the quote: “all the startuppers go to Silicon Valley because they all are in the Silicon Valley”.  This explains, why it is so difficult to assist to the development of an alternative innovation pole. It is hard, but not impossible, because it is exactly what is happening in New York. In fact, during the last period of his supervision, Major Bloomberg, started considering the development of a startup ecosystem in NY. Results came fast, today, the big apple hosts more than 7.000 high-tech companies that by the end of 2013, according to a New York State report, are employing more than 100.000 people. According to another study, this time conducted by the Michael Bloomberg’s private foundation (a less reliable source), tech companies contributed to create more than 260.000 job vacancies and an emerging innovation hub named “Silicon Alley”. This name history goes back to 1995. To give a picture of the employment boom size, it corresponds to an occupational level similar to the one of the dot-com bubble of the years 2000-2001. What tend to be forgotten is that during the bubble, New York became a fertile startup territory. However, many of those did not survive the recession. Examples are Kozmo.com, a free shipping website, or agency.com, a startup involved in the online marketing business.

Some companies did manage to cross the post-bubble desert by building the base for recent years re-launch. Examples are Razorfish, About.com, Medscape, a professional information and “update provider” for doctors, but most importantly: Doubleclick, the online advertising pioneer, than acquired by Google in 2008.

During the years 2000s, the boom of the financial sector penalized Silicon Alley, since thanks to the high salaries offers, the financial sector was able to attracted all of the best talents. The revenge started in 2008, when the economic recession causes a significant employment downsizing in Wall Street related companies and the flowering of second-generation startups. Kickstarter was born in 2009 in New York, and it rapidly became one of the worlds leading crowdfunding platform. Today, the firm has intermediated about 1 billion dollars from 5,7 million donors, resulting in 135.000 funded projects.

A little younger, founded in 2005, is another startup, which is one of this ecosystem symbols: Etsy, the ecommerce platform for vintage and handcrafted products. The company reached the break even point in 2009, employs 500 people, has more than 40 million users, and it hosts about 1 million active virtual shops holding goods for a value of 1,35 million dollars. Etsy, like many other Silicon Alley startups is located in Dumbo, the tech side of Brooklyn.

Another veteran of the industry is Meetup.com the social-network founded in 2002 that became famous in Italy since it is used by the members of the political party: “Movimento 5 Stelle”. The website counts about 16 million subscribers, distributed in 140.000 groups in 196 countries.

Other three companies capable of becoming rapidly popular were born in 2006, 2007, and 2009, respectively: Buzfeed, Tumblr, and Foursquare. Tumblr in particular, is one of best example of the contemporary startup scene: it reached quickly 188,7 million registered blogs becoming one of the most important microblogging platforms capable of threatening market leaders such as WordPress and Blogspot. Last summer the startup has been acquired by Yahoo for the price of 1,1 billion dollars.

In each economic process, the surroundings can influence and define the final result. This is valid for startups, especially in New York. For instance, many of them are operating on finance, advertising, e-commerce, and it is not a coincidence if they are operating in one of the biggest business and financial world pole. Finance, advertising, and business consulting are dominating this sector; however there are also technical firms, devoted in producing physical products, just think about MakerBot: the New Yorker 3D printers brand acquired in 2013 by Stratasys for 403 million.

At the end of the day, the Silicon Alley is a fast growing ecosystem but it cannot be compared yet to the Silicon Valley. There are more startups in California, and VCs investments are made of considerably much more money of those who New Yorkers are used to. A recent study by CB Insights reveals that Silicon Valley startup raised 55% more funding than to Alley’s firms. If on the seed phase the disparity decreases to 25%, on the next steps, it strongly increases: the average funding amount raised by a Silicon Valley startup is equal to 22 million dollars compared to 13,3 million raised by an Alley one.

In conclusion, they still have to work hard in Brooklyn, but after all, the pickup has just begun.

 

By Lorenzo Tondi, on Twitter as: @LorenzoTondi

Image source: Observer