Seven Reasons Tech Start-Ups Are Setting Up Shop in New York – Wall Street Journal

By Alexander Hotz

When Carter Cleveland, the CEO of the art-trading website Art.sy, moved his fledgling company from Palo Alto, Calif., to New York City he left behind arguably the best place to start a tech business in the U.S.

Bloomberg News

Home to giants like Facebook, Google, Apple, Intel and eBay, Silicon Valley is well known as the Mecca for high-tech companies – and entrepreneurs hoping to start one. One third of US-based venture capital investment happens in the Valley, according to PriceWaterhouse Coopers and the National Venture Capital Association. By Cleveland’s own admission, he “couldn’t go into a cafe without hearing pitches” in San Francisco.

So why go east? A recent Princeton grad, Cleveland said he left primarily because of his customers. Art.sy is an online trading post for fine art and, according to Cleveland, over half of his market is in New York City. But Cleveland added that location isn’t everything. New York’s tech scene is booming, and Cleveland wanted to join the party.

“Palo Alto is like Google,” he explained. “Big and established. New York City is like Foursquare. Not as big but tons of hype. It’s going through a growth period and very exciting.”

Below are seven reasons that tech entrepreneurs are increasingly setting up shop in New York:

1) It’s an exciting time to be in New York: Today the city is full of prominent up and comers like craft marketplace Etsy, online TV hub Boxee and blogging platform Tumblr. New York based start-ups luxury retail shopping Gilt Groupe, file sharing site Drop.io and location-based social network Foursquare have also garnered considerable attention.

Silicon Alley’s resurgence has been chronicled in the pages of The New York Observer and New York Magazine, and founders like Tumblr’s David Karp and Foursquare’s Dennis Crowley have received profile treatment typically reserved for celebrities. With Foursquare’s recent million Series B and million valuation, New York’s tech scene may have officially arrived.

2) A growing, supportive community: Cody Brown, a newly minted NYU grad and the founder of the social-networking start-up Kommons, recently lamented the lack of affordable apartments in New York City. Brown said he was “totally willing to live in poverty with a food budget of -10 a day,” but that the city’s high rental prices made even that difficult. Fortunately for Brown, a network of techies came to his rescue. Not long after blogging about his dilemma, Brown was tipped off to a 0/month place in Sunset Park, Brooklyn.

Brown’s story is a small example of the now vibrant start-up culture in New York. Every month entrepreneurs and VCs mingle at a wide range of events. The New York Tech Meetup is the most popular with about 12,000 members. In the blogosphere local voices like Union Square Ventures’ Fred Wilson, prominent VC Chris Dixon, and First Round Capital’s Charlie O’Donnell have emerged as community leaders and mentors. According to Dixon, also the co-founder of recommendation engine Hunch, this “growing ecosystem” is driving the industry’s growth.

3) Universities are stepping up: New York has plenty of tech jobs, but one of the biggest complaints leveled against the city by entrepreneurs is that the best universities send their top talent to Wall Street. While the city’s financial sector continues to lure the majority of graduates with lucrative contracts, Nate Westheimer, the CEO of movie-clip site AnyClip and the director of NYMeetup, said that is beginning to change.

Westheimer commended the work of two professors — Evan Korth, who teaches computer science at NYU, and Chris Wiggins, an associate professor of applied mathematics at Columbia University. Both have teamed up with Bit.ly scientist Hilary Mason to create HackNY, a project that connects New York’s best students with the city’s the startup world.

4) Growing access to venture capital: Although nationwide VC investment dropped in the first quarter of this year, in New York City it was up almost 20 percent, according to PricewaterhouseCoopers. The second quarter saw investment in media, entertainment and software triple in New York compared with last year. And the recent establishment of seed funds like Founder Collective and IA Venture Strategies is just another sign that New York companies have access to capital.

5) Government support: Mayor Michael Bloomberg has thrown City Hall’s weight behind the burgeoning sector with a city-funded incubator and seed fund. The Bloomberg administration even invested in an iPhone app NYCWay.

6) New York is medialand, and the media love the Internet: Two of New York’s biggest industries are media and advertising, so it’s no surprise that online publications like The Huffington Post and Gawker are based in Manhattan. New York’s density also makes the city a perfect testing ground for social-networking sites. Foursquare and Hot Potato are both based in New York.

7) The anti-B.S. factor: Silicon Valley is a town where the tech industry dominates the conversation. In sharp contrast, New York is home to many industries so it’s difficult for an entrepreneur to get caught up in what the investor Fred Wilson calls an “echo-chamber groupthink.” Bottom line — entrepreneurs have to be creative and can’t get caught up in their bubble.

Not so fast…

Matt Mireles, the founder and CEO of †he video transcription service SpeakerText, started his company in his Harlem apartment but recently jumped ship for the Valley. Mireles said he’s making the move because of a “chokehold” he believes Wall Street has on technical talent in New York. In his experience, entrepreneurs are stuck fighting over a few start-up-minded developers.

That said, Mireles admits his long-term plan is to eventually return to New York. “If I wanted to be where there are more hot girls and nightlife I wouldn’t be in Mountainview,” Mireles said. “But I’m doing this [move to California] so in five years time I can live in New York in a big pimped out loft or something.”