Monday, January 17, 2011

New York Defeats Boston in Venture Capital

On this Martin Luther King, Jr. Day, and the day following the thrilling playoff victory of the New York Jets over the New England Patriots, we note that venture capital deals and spending in New York City are now greater than that of Boston, and the trend is toward a widening gap between New York and Boston. New reports comparing the State of New York and the Commonwealth of Massachusetts make this rather surprising result clear.

Venture Capital and Innovation

Venture capital, investing in new companies with enormous potential for explosive growth, has been dominated by the State of California with the bulk of venture capital activity focused in and around the San Francisco metro area.

Venture capital spending gives rise to economic opportunity as investors seek to operate in close physical proximity to each other and new innovators seek to operate close to a target-rich environment of investors. Professional services (e.g., accounting, legal) follow the trail to the geographic epicenter of new business creation and economic growth.

Surrounding start-up companies are economic opportunities in housing, entertainment, and nearly every element of local economic success.

Bringing venture capital activity to a city creates a multiplier effect that helps improve economic conditions for individuals close to new business development but also for street vendors, dry cleaners, janitors, and other workers whose work, while not directly tied to start-up investing, grows when new businesses emerge.

Boston Loses to New York

Boston has long been the largest East Coast center of venture capital investing, but New York has now taken the lead on the East Coast for internet investing. Overall, for all sectors of venture investing, Boston is still larger than New York. But, the internet sector, a key bellwether and the heart and soul of venture success for the last 15 years, is now a New York-led sector on the East Coast.

While internet investments are the most discussed in the venture capital sector, the healthcare sector has long been the fastest growing large sector in the overall economy. Boston still leads New York by a large margin in the healthcare sector as well as in many other areas.

Green technologies represent a new frontier where New York must find a way to be a leader and reduce the overall gap between New York and East Coast venture capital leader Boston. The New York metro area, Long Island in particular, has already seen meaningful investment dollars come into the green technology area, and we must find ways to encourage investors and innovators to view the New York metro area as the preferred location for emerging companies in the green technology area. US Representative Steve Israel of Long Island has secured federal funding to promote green technology research in the New York metro area, and expanded efforts of that type are necessary to propel the New York metro area into a substantial lead in the green technology arena.

A look at the top 100 venture capital firms shows that less than 10% of them are based in the New York metro area, even when including the Princeton, NJ area as part of the New York metro area.

New York City's leadership must work together in an aggressive and thoughtful manner to bring New York into the top echelon of venture capital investing locations.


  1. Good post--I like to see New York beat Boston in everything (including sports)! In your opinion, however, is it possible, that New York will ever come anywhere near San Francisco as a place for Internet/technical innovation?

  2. New York is unlikely to overtake the Bay Area any time soon, but becoming the Bay Area of the East Coast is both realistic and worth pursuing aggressively. I am reminded of the period of intense increases in defense spending when several metro areas become hubs of huge defense spending investment. If NYC is smaller than the Bay Area but the preferred destination Green Tech, we can improve our economic prospects meaningfully.