Tech Start-Ups Choosing New York City Over Silicon Valley

Leslie Gersing, CNBC Producer
Paul Bradbury | OJO Images | Getty Images

The West Coast's Silicon Valley may be known as the birth-place of the American high-tech economy, but the East Coast is quickly becoming a hub for more and more would-be tech titans.

Joseph Cohen, a 20-year old college drop-out, is just one budding internet entrepreneur in New York City. He’s trying to revolutionize the classroom with a program called CourseKit.

“We are just bringing the notions of Facebook and social networking to the learning experience," says Cohen.

At New York University’s Stern School of Business in Manhattan, the 400 grad students in professor Aswath Damodaran’s corporate finance class use CourseKit to chat with him and their fellow students, post articles and share notes under the professors guiding hand. They've created a mini-social network around the course. Another 2,500 students around the world are following the course, without credit, for free.

CourseKit is really an alternative to Blackboard software, a widely used educational software program, which some say is the industry standard learning-management program.

“It has an interactive aspect to it that Blackboard doesn’t have,” grad student Ari Welcher says.

Coursekit combines discussion-based properties with the more traditional “cyber-lockers” functions, such as posting course schedules and reading material.

“It's a change in the way that education is delivered, and I think it’s actually going to give consumers a lot more options,” says Damodaran.

New York University is just one of hundreds of colleges and universities using the two-month old service, which has raised $6 million in funding from New York based IA Ventures and Toronto-based Social Capital Partners.

CourseKit is expanding its reach by using student marketers across the nation who sound out fellow classmates for their favorite professors, and convince them to try it out.  For now, it's free to both instructors and students. Cohen plans to eventually make money through sales of textbooks and other items.

Cohen’s eight person start-up is just one of hundreds of start-ups choosing New York City’s “Silicon Alley” over its older California cousin.

Total technology employment in New York City increased 28 percent from 2005 to 2010, and now accounts for more than 90,000 workers at more than 7,100 high tech establishments, according to the New York City government Economic Development Corporation (NYCEDC). Overall private sector employment in New York rose 3.4 percent during the same period.

“I think New York is a fantastic place to be right now,” says Adam Pritzker, co-founder of the tech incubator General Assembly.

The start-up hub received $200,000 in seed money from NYCEDC. Pritzker, a 27 year-old San Francisco native says while Silicon Valley’s tech ecosystem is well-developed with lots of engineering talent, New York’s advantage is its eclectic combination of people in the retail, entertainment, and financial sectors.

“As technology penetrates multiple industries and becomes a much more global phenomenon, those core depths of people who have been working in those industries for years and years, who are teaming up with technologists is a powerful combination,” Pritzker says.

New York ranks second behind California for all venture capital funding, according to the NYCEDC. New York beat out Massachusetts for venture capital invested in technology, raising $1.22 billion for 208 deals in 2010, compared to the Bay State’s $1.21 billion for 207 deals.

The Bloomberg Administration recently awarded a $100 million grant to Cornell University and Israel’s Technion Institute of Technology to open a campus dedicated to high- and bio-tech industries by 2017.

Like CourseKit, other companies like social media sites Tumblr, FourSquare and the discount site Fab chose to launch in New York City.

General Assembly’s graduates include daily-deal aggregator Yipit!, Fashism and job-finder site,JIBE. Even giants such as Google, Facebook, Twitter, Zynga and Spotify have opened satellite operations in the City.

Some West Coast investors are getting the signal.

General Assembly recently raised $4.25 million from investors, including Starbucks founder Howard Schultz’s Maveron Fund, and Bezos Expeditions, the investment fund of Amazon founder Jeff Bezos. General Assembly is also partnering with General Electric, the minority owner of CNBC, to train more than 100 GE employees in social media and business skills.

“We’re trying to build a company that celebrates excellence in creativity and education across the board. We believe New York is the place because you have artists, you have engineers, you have people of all sorts. So whether it’s a customer support position or a development position, we want people who are rounded an interesting,” said Cohen.

CNBC technology reporter Jon Fortt contributed to this report.