“Silicon Alley” is done, but New York is rising

By Sarah Lacy , written on July 11, 2014

From The News Desk

Last month at our Southland conference former vice president Al Gore beseeched me to help popularize a Nashville-centric moniker for the startup ecosystem, ala Silicon Beach, Silicon Alley, Silicon Wadi etc.

I said that was the worst thing I could do for Nashville. I’ve spent years traveling to startup hubs -- both aspirational and actual ones -- in most states in the US and at least 15 countries around the world. I’ve found an inverse relationship with a place having a Silicon-themed nickname and actually thriving as a startup ecosystem.

In the rare cases where a place that calls itself “Silicon whatever” does tend to produce great startups at a regular pace, something interesting happens. It tends to stop calling itself by that name.

I think the psychology here is pretty obvious. Silicon Valley is an utterly unique phenomenon forged by men like Fred Terman, Hewlett and Packard, Robert Noyce and even that weirdo William Shockley who happened to descend on an orchard filled place just as the tech boom was in its infancy. Lots of little moves over decades and decades and decades made the Valley what it is today. There was timing and luck and serendipity. It was -- to put it in modern startup parlance -- a unicorn.

So places that try to be a smaller derivative version of the Valley inherently fail to understand what it is or, more so, what made it what it is and how long that took. Trying to play the Valley’s playbook always (always, always) fails. When you hear communities saying, “Just like they have Stanford, we have X engineering school!” they are probably doing it wrong.

Simply put: If you want to play the Silicon Valley game, you are just best off going to the Valley.

What has happened in New York in the past few years is far more interesting. About the time people started calling it “The New York Tech Scene” all of those wanna be Silicon Valley style consumer Internet companies have struggled. Even the “giants” like Foursquare and Tumblr have been -- relative to the hopes, hype, Gap ads, and expectations -- disappointments.

Last night at PandoMonthly, Bijan Sabet defended Tumblr and Foursquare, arguing that New York was still just too immature. But I’m not so sure.

A recent study by CB Insights showed that -- if rumors are to be believed -- ZocDoc is New York’s most highly valued startup. The list of those that have raised the most cash are similarly decidedly un-Valley, with the exception of Foursquare and a few other still unproven names.

Ecommerce is heavy here, with Fab raising the most, and Gilt, Warby Parker, Birchbox, and Bonobos raking in piles of cash too. While a lot of that money comes from the Valley, the Valley itself has never had huge luck creating $1 billion-plus ecommerce companies. The exception is marketplace businesses relying heavily on scalable bits without dirtying their hands with physical atoms. The way ecommerce is done this time around plays more to New York’s strengths than the Valley’s: Heavy on brand, content, style, and increasingly in-person retail shops. Unlike a Tumblr or Foursquare you couldn’t find that kind of DNA as easily out West.

Meantime, Buzzfeed is a big funding recipient, as is AppNexus. Indeed, ad tech has long been the bedrock of New York returns. Not a surprise: New York has always been a media and advertising mecca. That’s one reason Bryan Goldberg moved there to start Bustle, his second content company.

And more recently, the most buzzed-about startups according to New Yorkers I talk to are Oscar Health and Flatiron School. Again, hardly YC bait here. Oscar Health is an insurance company -- playing directly to New York’s financial, asset amassing strength.

Some people may see  this as a sign of weakness, that New York’s supposed next Facebook and Twitter have been ultimately disappointments relative to expectation. To me, it’s a sign of an ecosystem’s strength and maturity.

Maybe New York can’t (yet?) scale up consumer tech companies as quickly as in the Valley, but the Valley can’t easily scale up a merchant/retail, financial, or healthcare company once it leaves the realm of software either.

New York is finally, solidly playing to its strengths and the startup community there is unlike anywhere else. Which is precisely why it doesn’t need a name like anywhere else. Other still up-and-coming markets should take note.

[Image via Andos_pics, Flickr]