Paul Graham recently wrote an essay on venture capital and startups called How To Be Silicon Valley and I recommend everyone who works in the technology, startup, and venture businesses give it a read. It’s an excellent analysis of the essence of Silicon Valley and how and why it works (and what might be Silicon Valley’s weaknesses).
As someone who has participated in building a “Silicon Valley” elsewhere, I found much of Paul’s analysis to be spot on. But given that Paul takes a few swipes at New York City, I feel compelled to defend my turf. Please don’t take this post as an attack on Paul’s excellent essay. I am simply trying to educate everyone who sees New York in the same way as Paul does.
The New York Metro area has a significant amount of startup activity but is regularly considered to have a dearth of startups. This is a classic case of misconception at work.
Paul links to a Price Waterhouse survey at the end of his essay that shows the venture capital investment activity in each market in the first quarter of 2006. In that survey, LA/Orange County comes in third on a dollar basis, just barely beating out the New York Metro area. But when measured in number of deals, New York is solidly in third place with 58 deals, after Silicon Valley with 245 deals, and Boston with 98 deals. LA/Orange County comes in ninth in terms of the number of deals.
I have been working as a venture capitalist in New York City for 20 years. Over that period of time, I have watched these statistics carefully and for the past 10 years, the New York Metro area has consistently been the third most active venture capital market with about 25% of the activity of Silicon Valley and about 60% of the activity of Boston.
But because the dominant industries in New York are not technology, venture capital, and startups, the startup activity gets lost. New York is seen as a money, media, trade, and real estate town, and it is. I’d venture to guess that technology startups might not even be in the top ten industries in New York.
But New York is hardly a place lacking in nerds as Paul states in his otherwise spot on analysis. This section of Paul’s essay is typical of the stereotype that is just wrong:
If you want to attract nerds, you need more than a town with personality. You need a town with the right personality. Nerds are a distinct subset of the creative class, with different tastes from the rest. You can see this most clearly in New York, which attracts a lot of creative people, but few nerds. [5]What nerds like is the kind of town where people walk around smiling. This excludes LA, where no one walks at all, and also New York, where people walk, but not smiling. When I was in grad school in Boston, a friend came to visit from New York. On the subway back from the airport she asked “Why is everyone smiling?” I looked and they weren’t smiling. They just looked like they were compared to the facial expressions she was used to.
If you’ve lived in New York, you know where these facial expressions come from. It’s the kind of place where your mind may be excited, but your body knows it’s having a bad time. People don’t so much enjoy living there as endure it for the sake of the excitement. And if you like certain kinds of excitement, New York is incomparable. It’s a hub of glamour, a magnet for all the shorter half-life isotopes of style and fame.
Nerds don’t care about glamour, so to them the appeal of New York is a mystery. People who like New York will pay a fortune for a small, dark, noisy apartment in order to live in a town where the cool people are really cool. A nerd looks at that deal and sees only: pay a fortune for a small, dark, noisy apartment.
[5] A few startups get started in New York, but less than a tenth as many per capita as in Boston, and mostly in less nerdy fields like finance and media.
I am not going to take the time to respond to this. I think simply reprinting it will do just fine.
But, Paul is right about what it takes to replicate Silicon Valley:
Nerds
Money
Schools
A Creative Culture
A City With Personality
Youth
Patience
New York has all of these in spades. We may not have Stanford, Berkeley, Harvard, and MIT, but we have Columbia, NYU, Parsons, Brooklyn Tech, Stevens, and a host of other excellent schools that I have now insulted by leaving off the list.
We have plenty of nerds and more are pouring in every day from places like India, China, Israel, Russia, and eastern Europe. We have a culture that is welcoming of alternative languages, cultures, and lifestyles.
As Paul points out, the centers of startup activity are highly correlated to the centers of leftist culture. Why is that? Because entrepreneurs are crazy creative passionate people who are attracted to places where they and their wacky ideas are welcome.
And I can tell you this, they are welcome in New York City, and have been since the day the Dutch formed a city on the tip of the island of Manhattan.
Enough about New York. I am going to finish by pointing out that Paul’s central thesis that Silicon Valley can and will be replicated is spot on. Take a look at the Price Waterhouse survey one more time. There are eleven regions in our country where over $500mm of venture capital will be invested this year. That was Silicon Valley twenty years ago.
It takes time and patience to replicate Silicon Valley. It’s already happened in Boston. And it’s happening in New York, Los Angeles, Seattle, Boulder/Denver, San Diego, Austin, Dallas, Portland, Chicago, Atlanta, and DC. These “second tier” venture markets are where I’d be investing if I were a limited partner right now because they have a critical mass of entrepreneurs but not yet a critical mass of quality early stage venture firms. If you can back a quality early stage venture firm in one of these markets, I bet they will do very well over the next ten years as Silicon Valley gets replicated all over our country.
Paul’s next essay is about whether you can replicate Silicon Valley overseas. He gave me a preview of it over the weekend and it’s now online. It’s also an excellent analysis.
Thanks Paul for putting these thoughts out there. It’s about time that people starting realizing that Silicon Valley doesn’t have a lock on startup mojo.