Business & Tech

New York City casts a net to catch the next big startup

Nathan Richardson is chief executive of Trade It, a financial technology startup in New York.

Cole Wilson/New York Times

Nathan Richardson is chief executive of Trade It, a financial technology startup in New York.

NEW YORK — For years, New York — a city not accustomed to being second banana — has looked on as Silicon Valley has solidified its influence over the technology industry.

Sure, New York has added tens of thousands of good-paying tech jobs while the Wall Street job engine has sputtered. And the city’s startups pulled in $1.94 billion in venture funding in the first three months of this year, the most for any quarter in five years and second only to Silicon Valley, according to the research firm CB Insights.

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But the big hit — the next Google or Facebook or even Salesforce, a powerhouse in online services for business — has proved elusive.

To improve the odds of fostering that next big thing in New York, executives at tech startups, big tech companies, and venture firms are creating a new policy and advocacy organization, Tech:NYC. The nonprofit will be formally announced at an event this week.

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Tech:NYC has no set agenda yet. But its approach, said Julie Samuels, the executive director, will be to work early with city, state, and federal officials on issues that affect tech companies before laws are passed. Some broader issues like taxes, schools, and affordable housing also help determine whether people want to work and live in a city.

“New York is in a competition to be where startups are going to locate and bigger tech companies are going to grow second and third offices,” Samuels said.

The new organization arrives at a time when the path ahead for the local tech economy is uncertain. New York, it seems, has become fertile ground for startups, but has very few breakout winners.

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There have been some notable failures. In the last two years, Fab, an e-commerce marketplace for designer furniture, housewares, and other merchandise, and Quirky, an online network for inventors, both collapsed, losing hundreds of millions of dollars for venture investors.

Silicon Valley venture firms suffered some of the biggest losses on those New York startups.

In January, Foursquare, a social app that uses location technology, raised $45 million, but at a price that cut its valuation nearly in half. And the Gilt Groupe, a fashion e-commerce service, was sold to the Hudson’s Bay Co., the department store conglomerate that owns Saks Fifth Avenue, for $250 million, about a quarter of its onetime valuation.

Startups are inherently risky. That is why venture capital firms invest in a broad portfolio of companies, so a few winners can make up for the losers.

In New York, it is not the setbacks that stand out as much as the scarcity of lucrative paydays — startups sold to the public or to other corporations for $1 billion or more.

There have been a few over the years. In 2007, for example, Google paid $3.1 billion for DoubleClick, an online ad-serving service. In 2013, Yahoo bought Tumblr, a microblogging platform, for $1.1 billion. Last year, Etsy, an online marketplace for handmade and vintage goods, went public at a valuation of $1.8 billion, and traded above that for a while but has since retreated.

Yet those are exceptions.

‘New York is in a competition to be where startups are going to locate.’

Julie Samuels, Tech: NYC executive director 
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“Big exits really haven’t happened yet in New York,” said Fred Wilson, cofounder of Union Square Ventures, a New York venture capital firm. “It’s a valid criticism.”

That should gradually change, he argued, as the New York tech community matures. Wilson also said that New York entrepreneurs were influenced by the trading culture of Wall Street. They are more inclined, he said, to build a company, sell it, cash in, and move to the next one than some Silicon Valley entrepreneurs who dream bigger and view their company as their life’s work.

A study last year by Compass, a research firm, pointed to the potential of New York, and to how far behind the Bay Area it is. The study looked at various factors including the funding, market reach, talent pool, and startup experience of various locations to come up with a ranking of “global startup ecosystems,” excluding China, Japan, and South Korea.

New York ranked second overall, but was way behind by some measures. Compass estimated the value of all Bay Area startups — including sales to companies, public offerings, and private valuations — at $264 billion to $323 billion. The comparable estimate for New York startups was $41 billion to $50 billion.

Still, the New York tech economy has shown impressive job growth. An analysis by Jason Bram, a researcher at the Federal Reserve Bank of New York, concluded that from 2007 to 2015 New York tech employment grew by more than 60 percent, to 126,170 workers. By contrast, tech employment in the Bay Area was more than 370,000 as of 2014, the most recent figure in the Fed analysis.

The gap is hardly surprising, given Silicon Valley’s decadeslong head start and singular focus. “Technology innovation and entrepreneurship — that’s our business in the Valley,” said Steve Blank, an entrepreneur who lectures on technology and innovation at Stanford, Columbia, and New York University.

In New York, Blank said, “tech startups have been layered on top of the city’s existing industries,” including advertising, media, and finance.

But New York is increasingly a place for the deeper computer science for which Silicon Valley is known. Facebook, for example, has a large artificial intelligence lab in New York, headed by Yann LeCun, who is also a professor at NYU. And there are now AI startups in New York, including Clarifai and Geometric Intelligence.

Columbia and NYU have also strengthened their engineering departments and added programs in new fields like data science and machine learning, and are increasingly working with startups and nurturing spinoff ventures. Cornell Tech, founded in Manhattan in 2012, is dedicated to tech entrepreneurship.

And tech giants like Facebook, Google, and IBM have been aggressively hiring engineering talent for their New York outposts.

Nathan Richardson, chief executive of Trade It, a financial technology startup in New York, has worked in the Bay Area and in New York. Until recently, New York was regarded in Silicon Valley as a place to find business, advertising, and Web design talent.

“But you didn’t recruit engineers in New York,” Richardson said. “That’s changed dramatically.”

For some New York tech startups, the proximity to the industries they serve is essential. Sprinklr, for example, provides cloud software that allows major brands like Nike and McDonald’s to monitor their reputations and marketing on social networks like Facebook, Instagram and Twitter.

Sprinklr works closely with the New York advertising and marketing community. “We’re an ideal company to be here,” said Ragy Thomas, its founder and chief executive. His startup has raised $125 million in venture funding and is valued at $1 billion.

After Charles Phillips took over as chief executive at Infor, a business software company, he decided to move the headquarters to New York. Infor had been based in Atlanta, mainly because of the previous management team.

So Infor was destined to relocate, and since it had hundreds of developers in the Bay Area, the board assumed the move would be there. “They thought I was crazy choosing New York, but they went along with it,” recalled Phillips, a former senior executive at Oracle.

New York, he figured, was closer to many of its corporate customers, making in-person meetings more convenient. And because Infor’s software was being overhauled for ease of use, he has hired software developers from New York advertising companies and fashion houses as well as the Parsons School of Design and the Fashion Institute of Technology.

“We’ve picked up some great programmers who understand design,” Phillips said. “And I wanted my engineers to be around people who weren’t all engineers.”

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