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Business.view: Silicon Alley 2.0

Michael Bloomberg relaunches New York as a high-tech hub
“IT’S true, this is where it’s happening,” proclaimed Michael Bloomberg, New York’s billionaire mayor, in a speech on May 25th. The “it” in question is technological innovation, and there was symbolism in the occasion Mr Bloomberg chose to make his claim, a conference in the Big Apple hosted by the leading online newspaper of Silicon Valley, TechCrunch.
The speech is part of a campaign to rebrand New York as the new driving force of technology—not a bad idea given that the city’s existing image as a powerhouse of finance has become something of a liability. June 7th marked the start of New York’s third annual Internet Week. The previous two seemed like limp efforts to revive the brief dotcom-era flowering of internet start-ups in “Silicon Alley”. But this year’s event is larger and more upbeat, more in the spirit of the city’s long-established Fashion Weeks.
One reason for the renewed optimism is that, unlike in the first incarnation of Silicon Alley, the city now seems to have a few genuine winners. These include Gilt Groupe, a social-network-based fashion retailer; Foursquare, which connects people with others in their vicinity; OpenTable, a restaurant-reservations site; and Tumblr, a “microblogging” site which lets users post short messages and share things like photos.

A surfeit of angels
These successes are helping to attract venture capital to New York—enough at least for Mr Bloomberg to be able to boast that “during the first quarter of this year, venture-capital funding increased in New York by 19% even while it went down in Silicon Valley and the rest of the nation.” According to one local tech entrepreneur, who has just secured $10m of funding, “there’s a bit of a bubble developing in angel investing in the city.” Meanwhile, FirstMark Capital, a New York-based venture firm, has pledged to invest $19m alongside the $3m that the city government plans to put into local tech start-ups.
The city’s seeding of this fund is one of various initiatives the mayor has launched, along with Internet Week, to encourage the growth of the tech industry. Efforts have been made to reduce taxes on freelancers and contractors. The city’s economic-development department has launched two incubators for tech and social-media companies. A taxpayer-funded loan programme has helped small businesses hit by the credit crunch.
Mr Bloomberg even tries to spin to the city’s advantage the most obvious reasons not to start a business in New York: its high prices and high taxes. He argues that the city spends its tax revenues on making the city safe and attractive to both the employees and tech-savvy customers that start-ups need to survive.
To make his point, Mr Bloomberg likes to point to his own experience launching a financial-information start-up in and around New York (his version of the Silicon Valley garage was a barn in Connecticut where he built his early terminals). Yet his personal story could also been seen as the exception that proves the rule. While Silicon Valley has produced one billion-dollar company after another, it is hard to think of any other enterprise of that scale that has grown from scratch in New York in recent years except the mayor’s financial-information business. Add to that the fact that venture capital invested in New York, even though growing fast, is still a fraction of what is invested in Silicon Valley, and it is tempting to conclude that Mr Bloomberg’s promotion of Silicon Alley is just hype.

Location, location, location
However, there is one aspect of the Bloomberg story that suggests that the prospects for tech entrepreneurs may at least be better now than when Mr Bloomberg was starting out. The main reason he launched his firm in New York was that the city was the home of the finance industry, his intended market. Proximity to the action is not everything, but when you are starting a firm, it goes a long way.
Today, much tech innovation focuses on the media and advertising industries—both of which, for all their recent troubles and changes, remain lucrative and largely New York-based. That is why, for example, the bulk of Google’s 500-odd advertising staff, the source of a large chunk of its profits, are in New York, not in the Googleplex in Mountain View, California. So, although it may never overtake its big rival on the West coast, it seems safe to predict that Silicon Alley 2.0 will not crash the way that version 1.0 did, and that New York will be the source of a steady stream of innovative start-ups.