As a former New Yorker that spent 20 years there, all I can say is "spot on". Don't get trapped in the specifics of his numbers. He did a fair job characterizing the main markets, the types of people in the startup scene, the personalities and degrees that are valued by the average business person in NY. Oh, and the girls (sadly).
Having worked at a startup in London, I would claim that Zed's post applies to London, too.
Life is too short to swim against the current. Whoever wants to start a company should go where like-minded people exist in large numbers, and neither NYC or London are such places. Starting a company is already hard, the least one could do is to be immersed in the right culture, where the right values are cherished.
As a the co-founder of an NYC startup I would like to share my insight. NYC is a great place to do business if your startup is consumer facing with a marketing skew. If you are an engineering company you do not belong here. I also truly believe it is extremely hard to raise funding here, much more so than in the Valley. NY Seed is the biggest joke in the world. Most of the VC firms are run by ex-finance guys that are not willing to take chances on ideas. Obviously this is changing (think Betaworks and USV.)
I also think the Startup scene here is especially small, and full of the kind of people you should avoid. If you really want to meet the kind of people that will help you and are doing innovative things you need to head to Brooklyn or hunt them down. They are not at New York Tech MeetUp or any of the other startup events. Most people doing interesting things (I am only doing somewhat interesting things) are doing them off the radar. The people you hear about are kind of like the football players from High school - everyone knows about them, but they don't really amount to anything.
If your doing a startup in NYC, you should surround yourself with other interesting people outside the tech community. Meet people from Fashion, Music, Art, Advertising, PR, Marketing, ect. NY has so much to offer - the key is not to get stuck in the tech community. NY is all about expanding your horizons, and that is truly the benefit of starting a business here.
The part I think Zed got right is that the cost of doing business in New York is not worth it for most startups. More expensive than silicon valley with a fraction of available (ie. not working in finance for $250k) talent.
The part that is really wrong is that finance is New York's heroin. No, finance is America's heroin. All the super rich are tapped into it, and the government is bamboozled into supporting it because the bankers have the bureaucrats convinced that the obscene profits of the financial sector are the backbone of the economy. Here we sit borrowing up to our eyeballs just to prop up the GDP so everyone can pretend everything is okay, while the smartest among us dream up new ways to create paper profits and China keeps a steady focus on actual real-world productivity and standard of living.
New York, much less the U.S. is not going to kick the heroin habit, the whole nation is going to keep shooting up until we actually lose our position as a financial superpower, the dollar loses its power, and the reality of that situation comes home to roost with the Fed's options finally exhausted.
So even take 1% of the assets under management. Hedge funds take a percentage of assets each year. So 30 billion under management means 300 million revenue each year if they do nothing. They get a larger percentage of profits. So yes, it's not the same, but it's still a lot of money.
Why are all the comments here fixating on financial minutia? Zed puts it as well as it can be put - NYC is obsessed with Finance (and Design and Publishing to a lesser degree) and really expensive, and these combine to create a harsh environment thats prone to failure. Its tough to get people excited about money when the next guy is talking about orders of magnitude more. But there's a huge variety of activity overall, and that makes life fun. None of this is surprising if you're familiar with the area.
It is most likely that Zed didn't work with some of the most interesting startups in New York because he was too busy stroking his own ego and thinking he was too good for them. ;-) (this is mostly a joke, Zed is a great guy but he loves pissing people off.)
So I'll take the bait and present:
Exhibit A: A list of the most well-known startups in NYC seems to completely disagree with what Zed is saying (Edit: that you need to be in banking, marketing, government or publishing to do a startup in NYC.)
1. Meetup
2. DoubleClick
3. Vimeo
4. Etsy
5. Gilt Groupe
6. Boxee
7. FourSquare
8. Tumblr
9. Bit.ly/Betaworks
10. Blip.tv
11. Drop.io
12. Hunch
13. omgpop
I've been here 6 years now, and think New York is about as great a place to build a startup than anywhere else in the country. Sure, there's a lot of hype around NYC and starutps and finance is still a huge part of the scene but if you want to build your startup here, don't let these silly posts get you down!
honestly, there are twice as many startups in the 1/2 mile stretch between elcamino st and caltrain castro st/ in mountain view. I know as I drive it everyday. And that's one town in the valley.
Your point being? I was responding to Zed's point that you need to be in banking, marketing, government or publishing if you want to do a startup in NYC.
It is obvious that the valley's startup scene is bigger, what I'm saying is that it is silly to write nyc off and make generalizations about what works here.
Also, there's a ton of startups that don't get techcrunch'd all the time in NYC as well, that are doing cool stuff. Bug Labs being one of them.
As with most things in life, few things are mathematically true. You should rather read it as "your chances to succeed will drop by 99% if you're not in banking, marketing, government or publishing".
Fair point about raising money in New York with a startup, but I feel like he just glosses over trying to bootstrap. Seems like there are a fair number of startups already there for a support group (plus, plenty of support channels online), and there are definitely places to live in NYC that are comparable in price to SF or the valley (Manhattan does not NYC make).
I would argue that bootstrapping in NYC might even be easier than SF - the pay rates for contract programmers (especially if you can get hired by a bank or hedge fund) are very high, and there are fewer contractors flooding the market. You can also just work for a hedge fund for about a year, and that will keep you fed for a good year or so after you quit. And then, you bootstrap.
This article makes no sense. It's main arguments seem to be:
1. The US Federal Government (based in Washington) gave billions of dollars in bailouts/loans to US financial companies, most of which are headquartered in New York. Technology companies didn't get a bailout in 2001. Therefore, doing a technology startup in New York doesn't make sense.
2. Investors in New York won't want to invest in small startup companies in New York because they have better investment opportunities in the finance industry in New York.
#1 is completely illogical and #2 seems to forget that anyone can invest in anything from any city.
1. Finance companies get government bailouts and are more likely to succeed. Tech startups don't get govt bailouts and have a high likelihood of failure. Therefore, investing in a finance co is a safer bet. That's the point he makes, and it's logical enough to me.
2. Yes, investors from anywhere can invest in companies from anywhere, but it (obviously) doesn't always work out that way. Finance companies didn't gravitate to NYC by accident. Why would a finance investor fund a co across the country when he can choose from a dozen in his back yard? The world is "small" and "flat" but proximity still matters.
"Finance companies get government bailouts and are more likely to succeed."
You are painting things with a very broad brush. How many hedge funds are there? Thousands. How many of them got bailout funding? Virtually none. How many top tier investment banks are there that got bailed out by the government? 5 or 6? I rest my case...
Besides, Finance is a very vast field. Hence, the words Finance companies means nothing. A hedge fund is, essentially, a startup... and the likelihood of failure is high. By contrast, a bank is anything but a startup. A boutique investment bank and a boutique HFT hedge fund are both "finance companies", but their cultures are more distant from one another than what you can imagine.
You are thinking of GS, MS, City, ML and the like, and generalizing that all finance companies are like that... which is utterly absurd.
When finance industry gets into trouble, the govt will step in to fix it. (It may be by bailing out big banks etc.). Indirectly all players in financial market benefit from it. (see the stock market gain from bottoms last year).
In this context a financial startup is in a much better position when compared to startups from other domains.
There is truth in that second point. Startup financing is a hands on business. So is HFT. There's probably a reason why a lot of firms engaged in HFT are clustered around lower Manhattan, and it probably has something to do with the necessary capital requirements and the short path to market information.
It should be obvious then that markets are not perfect; they require information to operate and some markets are particular sensitive to the distance from the necessary information. Anyone cannot just invest in anything from any city. Just ask PG.
It's also not just investors. It's the people on the ground writing your code. Zed did mention that.
#1 simply illustrates one of the reasons why rich people without particular interest in technology would prefer investing in finance rather than startups. It's a generalization, but has some truth to it.
In theory anyone can invest in anything from any city, in practice they don't. Investors tend to pick companies that are located relatively close to their offices. That's why the concept of hubs - from Silicon Valley to Hollywood to NYC - exists at all.
Actually, if geography didn't matter, New York would be much worse off, since the costs of living and other inconveniences of being where so many others want to be would make it a relatively poor choice to locate a company.
This post would have made much more sense had it been written in 2007. Three years have past and the community has grown. His arguments are based on anecdotes and outliers from a bygone era. He fails to mention that yea there are a ton of hedge funds in nyc - you can start one in your basement with about a million bucks.
It would have been worth mentioning that NYC seed is a public private partnership that includes a mentoring program and that there are hundreds of millions(if not billions) of dry powder in vc funds here that are just about ready to start investing heavily again.
You can buy a basket of speculative stocks (small market cap companies) and have a few winners. Having a convenient place like that to play your money changes the scope of a good VC or Angel investing opportunity. They become exceedingly rare.
"...tell you they have a "tiny" hedge fund already worth 500 million and they can give you a return on your investment within one year, and in 5 they’ll be worth a few hundred BILLION. Oh, and if they fail the Fed will bail them out so there’s no risk."
As far as I know, the Fed did not directly bail out any hedge funds, except those internal to big banks. The last 2 years were a blood bath in the hedge fund world, with hundreds of shops closing down. Zed's text is amusing, but it does not reflect reality all that accurately.
Last but not least, I have never heard of a hedge fund worth hundreds of billions. A 1-billion fund is common, but hundreds of billions? When Jim Simons of RenTec started talking of a 100-billion hedge fund in 2006, everyone was so excited...
You might not be familiar with Zed's writing, but the level of sarcasm is very high in his posts, to the point of just plain falsehood. Take it all with a grain of salt.
Hedge funds have no direct protection from the federal government. If someone can find me a direct example of a cash infusion into a fund, please let me know, but there is no evidence.
However, they did indirectly benefit from some other government voodoo such as bailouts of AIG and others, but it wasn't exclusive.
