THE POWER of ENTREPRENEUR NETWORKS How New York City Became the Role Model for Other Urban Tech Hubs
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THE POWER OF ENTREPRENEUR NETWORKS How New York City Became the Role Model for Other Urban Tech Hubs a report from: 2 / How New York City Became the Role Model for Other Urban Tech Hubs NEW YORK CITY IS THE BEST EXECUTIVE SUMMARY 1 ROLE MODEL FOR OTHER URBAN TECH HUBS. OVER THE LAST YEAR, our team at Endeavor New York City has become the largest Insight studied the rapid growth of New York truly urban center for tech companies and the City’s information technology industry. We second-largest tech hub in the world. Tech define tech companies as those developing companies led by local entrepreneurs directly an information technology or those whose employ 53,000 people, over 1% of New York businesses are Internet-enabled, excluding City’s workforce.2 Between 2003 and 2013, the financial tech, green tech, and life sciences New York City tech sector grew twice as fast companies.1 Our goal was to identify lessons as Silicon Valley’s in terms of dollars invest- that leaders in other cities can use to support ed, with its companies raising more than $3.1 the growth of their own tech sectors. In the billion in funding in 2013.3 Unlike many other process, we created one of the largest data- urban tech hubs, most of the growth of the sets on a single entrepreneurship ecosystem New York City tech sector has come in the last in the world. It combines data from AngelList, decade. Venture funding for tech companies Crunchbase, and LinkedIn with nearly 700 in New York City increased by 240% from 2003 interviews with local tech entrepreneurs. In to 2013, and more than 85% of the sector’s total, these founders dedicated more than a current companies and 86% of its current jobs month of their time to this project. Our analy- were created during this time.4, 5 sis reveals three key findings: How New York City Became the Role Model for Other Urban Tech Hubs / 3 FOUNDERS WHO REINVEST THEIR DATA FROM NEW YORK CITY’S SUCCESS INTO OTHERS HAVE TECH SECTOR DEBUNKS SEVERAL 2 3 GREATLY ACCELERATED THE COMMON STARTUP MYTHS. TECH SECTOR’S GROWTH. Many people believe that tech founders Connections between successful found- are young, technical experts who studied at ers and new entrepreneurs are a critical driver a prominent local university. We analyzed of the sector’s growth. Data from over 2,500 data on the age and educational history of companies shows that top-performing tech New York City tech founders, and found that entrepreneurs are more likely than their peers these myths do not tell the full story of the to start new companies, encourage their city’s founders or the sector’s success. The employees to do the same, mentor, angel average New York City tech founder is thirty invest, and inspire new entrepreneurs. In turn, one years old when she founds her company new founders who are connected to or influ- and founders are just as likely to have stud- enced by these top-performing founders are ied a non-technical subject in university as a more likely to be successful than other local technical one. Founders also tend to be highly tech entrepreneurs. The development of this mobile, with nearly 90% graduating from uni- network of top-performing New York City versities outside of New York City. tech founders has initiated a virtuous cycle of reinvestment that continues to fuel the sector’s growth. Created with assistance from: The development of this research and content would not have been possible without the expertise and assistance of the Partnership for New York City. The staff of the Partnership provided critical feedback and connections that greatly enhance the reach and quality of this study. 4 / How New York City Became the Role Model for Other Urban Tech Hubs gg NewNYC York = ROLE City is MODEL the best role model for other urban tech hubs. AT $1.1 BILLION, the sale of Double- LOOK TO NEW YORK CITY, NOT Click in 2005 kicked off a decade of rapid THE VALLEY. Silicon Valley may seem growth for the New York City tech sector. like an attractive template for creating ur- Since then, companies like Buddy Media ban tech sectors, but it is unlikely that cit- and Right Media have followed closely in ies will be able to replicate it. Silicon Valley DoubleClick’s footsteps, selling for hun- commercialized the fundamental technol- dreds of millions of dollars. ogies of the last half century: the silicon computer chip, personal computer, and THE FASTEST GROWING URBAN consumer Internet. These companies and TECH HUB. New York City’s tech sector technologies emerged in a farming region creates hundreds of new startups annual- in the 1950s, which, over the course of ly. These aren’t just small businesses, but five decades, became a robust suburban ones that are scaling rapidly in preparation tech hub.11 Its tech companies may have for IPOs and acquisitions, with at least 27 expanded into San Francisco, but the ma- companies exiting for more than $500 jority of the region’s funding and startup million in the last decade.6 The sector has activity continues to be located in subur- expanded so rapidly that the growth of ban areas like Palo Alto, an hour south of invested venture capital dollars, at 13.3% the city. annually between 2003 and 2013, is twice Cities don’t have 50 years to create a as large as that of Silicon Valley, at 6.4%, tech sector or the revolutionary technol- and dwarfs that of Massachusetts, at neg- ogies underpinning the Valley’s rise. Most ative 1.7%.7 New York City’s tech sector has importantly, the strategies San Francisco superseded even Boston’s by many mea- used to attract neighboring suburban firms sures to become the largest standalone are only useful to other cities that have urban tech hub in the United States.8 world-class innovation hubs next door. New York City’s tech sector is a much POISED FOR GREATER GROWTH. better role model for other cities. The Between 2010 and 2013, the number city’s tech sector has emerged in just two of New York City tech employees grew decades, with many of its new companies by more than 26% annually.9 At this rate, using existing infrastructure and indus- based on 2013 tax rates and a $100,000 tries like advertising, media, and fashion as average salary, the city could add nearly platforms for growth. This approach has $160 million annually in new tech employ- allowed the city to set aside the unlikely ee income tax receipts by 2019 and over chance that it will birth the next comput- $500 million by 2024.10 Assuming each of er chip, and instead focus on making its these new employees uses 100 square feet media companies social and its advertising of office space, tech companies would companies digital. By looking at its own need almost 450,000 square feet of ad- strengths, New York City has overcome ditional office space annually by 2019 and the constraints facing post-industrial cities 1.4 million square feet by 2024 to accom- worldwide to accumulate the talent and modate them, providing real benefit to capital at the core of its thriving urban industries beyond the tech sector. tech sector. How New York City Became the Role Model for Other Urban Tech Hubs / 5 The economic impact of New York City’s tech sector12 2003–2013 2,206 336 Companies founded IPOs & Acquisitions 53,000+ Jobs $14.2Bn $18.1Bn Investment Exit amount 6 / How New York City Became the Role Model for Other Urban Tech Hubs Data from New York City’s tech sector debunks several common startup myths. IT IS NOT EASY to build a tech sector, and tech founders, rather than recent graduates, myths regarding what causes one to grow are tend to be mid-career specialists with substan- common. Many of these assumptions right- tial industry experience who use their per- fully focus on the entrepreneurs themselves; spective to help existing industries innovate. after all, without them, businesses never start A group of seasoned executives, for exam- and a sector never grows. We analyzed New ple, founded Gilt Groupe, a successful e-com- York City’s tech founders to understand several merce company. One of the founders, Alex- of these common assumptions and find that, andra Wilkis Wilson, had an MBA and several contrary to popular belief, neither youth, nor years of corporate experience at retailers like technical skills, nor even homegrown talent Bulgari and Louis Vuitton before starting Gilt. have been central to the growth of New York Like Alexandra, Neil Blumenthal, founder of City’s tech sector. online eyeglass company Warby Parker, spent five years as Director of Vision Spring, honing EXPERIENCE TRUMPS YOUTH. En- his industry knowledge and managerial skills trepreneurship is oftentimes portrayed as a before becoming an entrepreneur. These are vocation of youth: tech-savvy young people, not isolated cases: New York City tech found- it seems, can disrupt whole industries without ers were, on average, 31 years old before start- ever having worked in them. New York City’s ing companies.13 New York City tech founders’ age at founding 500 AVG. = 31 YEARS 400 300 200 Number of founders of Number 100 0 17–21 22–26 27–31 32–37 38–42 43–47 48–52 53–56 57+ Founders’ age at founding (years) Note: Assumes founders were 18 years old at undergraduate start year; 1,679 founders with undergraduate start data.