Explaining the NYC Startup Scene

Recently, I experienced NYC’s vibrant startup scene first hand at Startup Weekend NYC, a unique weekend event held at New Work City in downtown Manhattan. If the energy at the event was any indication, all the talk of a NYC startup blossoming is true.

But why NYC and why now?

I was chatting with Jeremy Mims, one of the panelists at the event, about the differences between San Francisco and New York City and he was essentially saying that New York has more “real world” stuff going on – real world businesses, commerce, etc.

It reminded me of an article on Techcrunch – ‘Why Online2Offline Commerce is a Trillion Dollar Opportunity’ – about O2O commerce: local transactions that are initiated online but physically consummated offline in the “real world”. The article gave two examples as vanguards of the trend: Groupon and Opentable.

I started wondering if the O2O trend could explain the boom in NYC startups. It would make sense since O2O is about bridging the online and “real worlds” and NYC has the most “real world” stuff. So I looked up a list of well-known NYC startups. But it was a bust. Most of them did not fit the strict O2O profile.

Yet, the same list showed a definite pattern. Most of the startups were intersecting with the “real world” in more interesting and diverse ways than startups in other places. One example was Square, a company that provides a small plastic thing-a-ma-jig that allows an iPhone to process credit card transactions. Another was Stickybits, a company that provides a way to “attach digital content to real world objects”.

So perhaps the “real world” aspect of NYC has something to do with the startup boom after all. It would make sense in the larger context of the evolution of the Internet as it continues to permeate life in new ways, from the social to the commercial and from the mundane to the uncommon.

One possible explanation stems from the nature of innovation, which does not happen in a vacuum. In any particular field of work, innovation usually happens in places with the highest concentration of activity and people engaged in the field. Indeed, NYC, with its diversity of sectors and concentration of educated workers, fosters a lot of innovation in those sectors. A good example is SecondMarket, a startup providing a marketplace for illiquid financial assets - hardly surprising given the status of NYC as the mecca of finance.

Another possible explanation is business strategy. Consider the perspective of a startup company that must gain initial traction to survive. Locating close to a large pool of potential customers can maximize the chanced of acquiring the critical first few. In NYC, this is especially relevant to startups involving advertising, media, fashion and finance. True, online business models often reduce the importance of geographic boundaries, but that assumes the survival of the business past the embryonic stage. Being located in NYC affords a survival advantage.

The last possible explanation for the link between the “real world” aspect of NYC and the startup boom is greater access to capital. New York has the greatest concentration of wealth of any place. It also has a lively VC and angel scene. Investors, especially at the early stage, often prefer to invest close to home. It gives them more credibility in their claims of adding value beyond the capital allocation decision. The benefit for NYC startups is that they have greater access to capital – and therefore another survival advantage.

In the final analysis, there are plenty of good reasons why NYC should be a happening place for startups. But in the long run, the passion New Yorkers feel for their city might turn out to be the most significant. It is a passion that was most evident at the Startup Weekend event in the pitch made by Jonathan Wegener for Adopt a Hacker, a project to attract more developers to the city.

 

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Hi, I'm Ahmadali Arabshahi. Welcome to my blog.

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