Why You Should Start a Company in... New York

It used to be, if you were serious about starting a tech company, you went to Silicon Valley. But emerging entrepreneurial hubs around the country are giving startup aspirants options. In this series, we talk to leading figures in those communities about what makes them tick. Here, part two of our five-part series.

New York City is big, buzzing—and good for startups? Fred Wilson, a venture capitalist at Union Square Ventures, thinks so. He should know: Wilson's firm has backed brand-name, New York-based startups like social organizers Meetup, and he put his own money into Wallstrip, which produces business news videos, and which was sold to CBS for $5 million in 2007. Union Square has also placed a bet in Foursquare. (Not to be totally East Coast-centric, Union Square maintains left-coast investments in startups such as Zynga and Twitter.)

But New York, Wilson points out, has been a hotbed of entrepreneurial activity since its earliest days. It has played host to ventures in the garment business, banking, media and advertising, building those industries into powerhouses. More recently, Internet and technology growth has been helped in part by successful entrepreneurs from the first Internet boom, as well as by city initiatives such as the investment fund NYC Seed and incubators aimed at helping laid off Wall Street workers forge an entrepreneurial path ahead. What's more, New York's eclectic mix of industries, and intermingling of individuals within them, gives entrepreneurs a breadth of views into how business works. Wilson sees all of this coming into maturity as new generations of Internet entrepreneurs emerge and support one another.

Wilson spoke with FastCompany.com about what makes New York's startup scene unique.

Why is New York City a good place for startups?

I think New York is a very entrepreneurial city first and foremost and I think it always has been—going back to when it was originally settled. There's always been a trading mentality in this town, a merchant mentality in this town and it's always been ethnically diverse. People from all over the world have settled here.

Are there particular types of startups that do better in New York than others?

Anything that touches Wall Street or Madison Avenue or the entertainment and media business, I think arguably is better centered here in New York than anywhere else in the world and that's the kind of thing that is the historical legacy of New York. You get a lot of advertising-oriented businesses like Double Click, a lot of Wall Street-oriented businesses like Bloomberg. Everybody talks about Google and Microsoft and Cisco and companies like that, but probably one of the greatest entrepreneurial success stories of the past quarter century is Bloomberg, you know, which was built as a New York-centered company and Mike Bloomberg owns almost all of it. They didn't use venture capital—so talk about entrepreneurial success.

We're [also] seeing a lot of other things. There's a lot of social media in New York, there's a lot of location-based, a bit of urban-lifestyle-based services that are coming out of New York and so, a lot of companies that are servicing the media industry and the entertainment industry are centered here in New York. There are a lot of different categories now that have some real size.

Why do these companies do better in New York?

The need is here, the people who understand the need is here. Most entrepreneurs start with an itch that they need to scratch, so if you're working inside a trading floor and they say, "Why isn't there a technology that allows me to trade faster? Well, I think I'll go build this"—and they'll go build it. Or, "Why can't we get video advertising the way we should?" And they leave and they go do it.

So a lot of the entrepreneurs have spent time in those industries, understand the needs of those industries and they leave to start companies servicing those industry. The customers are here and that's why they tend to be focused here.

Isn't New York a more expensive place to start a company than other cities?

I don't think New York is more expensive. We have recruited many people out of San Francisco and the Peninsula to move to New York to work in our companies and, you know, a house in Westchester is not more expensive than a house in Palo Alto and an apartment or a small townhouse in Brooklyn is no more than expensive than a house or an apartment in San Francisco. I don't think it's a lot more expensive to do the things that you need to do to build a company versus say San Francisco, or Boston frankly.

What is the "bullshit factor" you mentioned in your talk not long ago at Clickable? Is that something that is uniquely New York?

I didn't mean that it was unique to New York, I kind of meant it as it was in contrast to the Bay Area. The social lives that we live [in New York], we people who work in tech and Web and startup industries, the social lives we live are not dominated by people working in the same industry.

If you really think about the Bay Area—it's very homogeneous. If you go to your kid's soccer game on the weekends, there's a pretty good chance that there might be another VC or two on the sidelines and a bunch of entrepreneurs and everybody's working at tech companies.

Here in New York, when you go to your kid's soccer game on the weekends, I'm the only VC for sure and there might be one other person that works in the technology industry and everybody else works in lots of other industries. And so, there's a little bit of a groupthink that goes on out in the Bay Area —"social media is going to take over the world" or "mobile is going to take over the world"—or whatever the big thing is and everybody's focused on that and you get this kind of echo-chamber groupthink. And when I go out to dinner with my wife and another couple or two [in New York] and I talk about the things that we're investing in, people just look at me like I'm crazy, they don't buy any of it and that's what I meant by the bullshit factor.

What is happening in New York's entrepreneurial ecosystem that makes it sustainable?

Well, I think New York's startup ecosystem is a sustainable thing—I've been in venture capital here for 23 years and for the first decade, from 1986 to 1996, there really wasn't much of anything to invest in here in New York. The second decade, from 1996 to 2006, there was a lot to invest in here in New York. The whole Silicon Alley thing that went on in the late 90s, there was a lot of energy around sort of stage one Internet investments. But nobody had the experience. Everybody made a lot of mistakes, and learned from them. Big companies were built. DoubleClick got sold to Google for $3 billion and I could go on and on. There were a lot of entrepreneurial success stories here in New York from 1996 to 2006 which I would call the first real decade.

And then, we're into the second decade now, and what the second decade is really turning out to be is serial entrepreneurs who've done it one, two, three, sometimes four times now, who can bring teams together very quickly, often teams that have worked together very quickly, can get on opportunities fast, can get money raised fast, can build companies pretty fast.

And now you have role models. So the first time entrepreneurs can find angel investors. It's exactly what has been going on in Silicon Valley for three, four decades now. Marc Andreessen becomes hugely successful, makes a bunch of money, becomes an angel investor, backs a bunch of people, mentors them, becomes a VC. That migration path is now playing out here in New York, and so most of the investments we do at the first angel-round stage is ourselves and a bunch of serial entrepreneurs in New York who are now making twenty-five- to fifty-thousand dollar investments as angels in these companies, sometimes acting as informal advisers and mentors to the first-time entrepreneurs.

So now we have the best of both worlds. We can back first-time entrepreneurs and have mentors and role models for them and we have those role models in their second, third, and fourth startups and that's the magic—that creates a sustainable startup economy that Silicon Valley has had for four decades now. We're three or four years into our second decade and I think it's going to be a great period for New York. I feel like we have just taken it to another level sometime in the past couple of years.

The number of interesting opportunities that are coming across my desk every single day coming out of New York, and the good deals, feel very different even from four years ago.

For more from this series:

  • Why you Should Start a Company in...Austin
  • Why you Should Start a Company in...Los Angeles
  • Why you Should Start a Company in...Boulder
  • Why you Should Start a Company in...Chicago
  • Why you Should Start a Company in...Boston

Image: http://www.flickr.com/photos/joiseyshowaa/ / CC BY-SA 2.0

Add New Comment

7 Comments

  • Daniel Novick

    My law firm helps entrepreneurs - especially in the entertainment industry - start businesses in New York and Tennessee. I think NY is a great place to start a business and I really enjoy working with creative people with a passion and a vision. 

  • king

    I can tell you that NYC is the absolute worst place to start up a tech company. the costs of real estate are prohibitive unless you are a well funded venture, or you cater (and have access to) the enterprise market which can afford to pay for your rent and employees. If you are comparing NYC to SF then thats in the same outrageous cost range. But you can do a million times better opening a business in LA or in the OC where the rent is 1/3 of the price of NYC. If you are a few guys starting from nothing, you might as well quit while youre ahead and move out of state. The smaller businesses in the NYC area are all you will get and they're extremely cheap as well because the costs of business are too high.

  • Paramendra Bhagat

    This guy - Fred Wilson - is one amazing guy. I have only got to "know" him - we have never met, but we do know each other, exchange emails once in a while - this past year, and he blows my mind. He is a visionary VC who treats his entrepreneurs like they were his customers. I have forgotten how many times I have become excited about some company only to later realize it is one of Fred's portfolio companies. I am glad you got him on record.

  • Hunter Ashmore

    I agree that New York is a pretty good place to start a venture. I live in L.A. (not a native, though) and I find this is also a good area to start up. It all comes down to resources. The funding, marketing, distribution chain, etc are all in one place.

    I do not, however, agree with the comment claiming it isn't all that expensive. NY is VERY expensive compared to the rest of the nation and if someone moves there financially unprepared they will be setting themselves up for failure.

  • king

    I agree. NYC is not for small business startups, unless they have some degree of realistic funding, at least 500K in the bank cash.