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NYC Tech Boom: Not Just Mini Silicon Valley East

Saturday, 16 Mar 2013 | 2:26 PM ET
Etsy
Source: etsy.com
Etsy

West Coast—best coast? Not so, says the thriving New York City start-up scene.

During the past decade, the Big Apple has emerged as a top tech center for new companies and a hotbed for both angel and venture capital funding.

In the last year, 127 start-ups were founded in the city, nearly equal to the combined 131 that launched in San Francisco and Palo Alto, Calif., according to data from SeedTable.com.

Eric Hippeau, a partner at Lerer Ventures, told CNBC's "Squawk Box" he sees a shift from Silicon Valley to New York.

"New York is booming—here to stay as a big tech center," he said. "It's very different than the Valley. I don't think the people in New York are trying to replicate what's going on in the Valley. New York is doing what New York is good at—commerce, media, publishing, enterprise, marketplaces."

Last year, there were 100 deals for private tech companies in the city valued at $8.32 billion, second only to Silicon Valley, according to a recent report from PrivCo.

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"It's clearly a testament New York City has arrived as a technology hub, and that we can create private technology companies, and ones worth being acquired," said Sam Hamadeh, PrivCo's chief executive.

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He added that New York has become a permanent tech start-up hub, but one with a different sector focus than the Valley.

"But the old adage that 'if you want to be a true tech entrepreneur, go West'—shown in the Facebook movie "The Social Network," when a young Mark Zuckerberg was told he must move to Silicon Valley for any hope of succeeding—no longer holds true, our data confirms," Hamadeh said. "One can now start a company in New York City, and find top venture capital firms and a thriving tech ecosystem for the first time. New York's tech ecosystem is now built to last."

Brooklyn-born Etsy, a pioneer in the ecommerce space for homemade crafts, exemplifies this trend.

CEO Chad Dickerson said he finds New York's urban environment more compelling. He moved from Berkeley, Calif., in 2008 after working at Yahoo for a few years.

"I think Silicon Valley is really a one-industry area," he said. "Everyone's working in tech—everyone you speak with, everyone you meet is working in tech in some way. And one of the things I really like about New York that is different is that New York is much more diverse."

This diversity, both occupationally and demographically, has helped him develop his online services and website, he added.

For beauty subscription service Birchbox, it was important to launch in New York because of the city's proximity to the beauty industry as it built its reputation and established itself, said co-founder Katia Beauchamp.

"There was no other city for us to start our business, which is (a) hybrid media, marketing and retail company that started in beauty," she said. "New York is the destination for media, marketing and the majority of beauty companies in the U.S."

Changing Landscape

Since Dickerson's move East, the start-up landscape has changed as both the infrastructure and companies themselves grow in size and scope.

"It doesn't feel as much like New York is trying to be something," he said. "New York is something."

The venture capital scene is also improving in the city, he added.

"One of the things I've noticed is that in the four years I've been here—or almost five—is that nearly every West Coast venture firm now has an office in New York," he said. "And it's not really a satellite office; it's a real office. So where New York is lagging, I think New York is catching up really, really quickly."

As New York's tech scene grows, persuading talent to trek east has gotten easier, said Kellan Elliott-McCrea, Etsy's chief technology officer.

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"Five years ago, if you wanted to move people to New York, they had to ask the question, 'Is this career suicide? If I move to New York and I take a job at Etsy, will I be able to get a job (later)? Is there a start-up scene in New York?'" Elliott-McCrea said. "And we've answered that question, and everybody knows about the tech scene in New York. So that piece is easier."

Still, the scarcity of nearby colleges with a heavy tech emphasis poses challenges.

"One of the things that's not quite as well developed in New York is the university system," Dickerson said. "For example, in the Bay Area, you have Berkeley and Stanford as feeder schools, and they're right in the heart of the Bay Area. In New York, we have NYU, but NYU's not really sort of a tech school."

But Dickerson thinks Cornell's upcoming construction of a campus on New York's Roosevelt Island could change this dynamic.

Birchbox's Beauchamp also acknowledged that finding talent poses some challenges.

"The culture in California is more established in fostering start-ups, and it is a bit harder to recruit tech positions and find the engineering talent that California is so abundant with, but we are succeeding nonetheless and are very proud of the tech talent at Birchbox," she said.

Encouraging Development

To foster additional growth in the sector, a number of initiatives have emerged to aid fledgling companies.

Last month, the city government extended its "We are Made in NY" campaign to the tech sector. More than 900 tech start-ups, including Etsy and Birchbox, have signed up to post job postings on the campaign's site.

The program's website provides links to find subsidized office space, apply for funding through NYC Seed, bid on government contracts and seek out up to $400,000 in training grants.

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The initiative was launched by the mayor's office of media and entertainment in partnership with New York Tech Meetup, an organization with more than 30,000 members that holds monthly events where companies demonstrate new ideas. Several prominent members of New York's tech scene have debuted at the events, including Foursquare and Tumblr.

Although Hippeau said New York's tech scene still trails Silicon Valley, its growth continues to outpace both Boston and Austin, Texas.

"Will it be bigger than Silicon Valley?" he said. "Should it be bigger than Silicon Valley? I'm not sure that that's the kind of race you want to be in. The fact is, it's transforming the economy of New York and that's the important part."

—By CNBC's Katie Little. Follow her on Twitter @katie_little_

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