A decade ago, Albert Wang, originally from California, relocated to New York with his spouse from Boston. He secured a position as a product manager at Datadog, a nascent startup dedicated to aiding businesses in monitoring their cloud servers and databases.
Back then, New York boasted some startup investors and venture-backed enterprises, but it was not a bustling tech epicenter; that title belonged to the San Francisco Bay Area. On the East Coast, Boston was renowned as the central hub for enterprise technology.
However, Datadog experienced rapid growth, ultimately going public in 2019, and currently commands a market capitalization exceeding $28 billion. After a four-year tenure with the company, Wang departed but opted to remain in New York to establish Bearworks, a company specializing in providing software solutions to sales representatives.
Wang noted a remarkable transformation in the city’s tech landscape compared to his initial arrival. This transformation is palpable when one frequents bars or restaurants, according to Wang.
“Now it’s exceptionally diverse, with an increasing number of individuals venturing into startups,” he observed. In the past, “you typically found yourself surrounded by consultants and financiers, but nowadays, the tech community is thriving.”
UiPath, a company specializing in office task automation software, followed Datadog’s initial public offering by less than two years. Prior to these, MongoDB, a cloud database developer, went public in 2017, and in 2015, the e-commerce platform Etsy did the same.
New York’s Rising Tech Ecosystem
While none of these New York-based companies boast massive market capitalizations, ranging from $9 billion to just shy of $30 billion, they have collectively cultivated an ecosystem that has given rise to numerous startups and generated sufficient wealth to transform some of their early employees into angel investors for the next wave of entrepreneurs.
Even though the tech industry is still recovering from the challenges it faced in 2022, a year marked as the worst for the Nasdaq since the 2008 financial crisis, residents of New York remain optimistic about their ever-vibrant city.
In the previous year, among all 50 states, New York secured the second position after California in terms of investment in startups, amassing a substantial $29.2 billion across 2,048 ventures, as reported by the National Venture Capital Association. Massachusetts held the third spot. Back in 2014, before the wave of IPOs in New York City, California led the way, followed by Massachusetts, and then New York.
Over the past nine years, the annual capital injection into New York has grown remarkably, with NVCA data revealing a sevenfold increase, even accounting for the industry’s significant downturn last year. In the record-breaking fundraising year of 2021, New York-based startups garnered nearly $50 billion across 1,935 companies.
Comparatively, California-based companies managed to secure three times that amount, with the Bay Area maintaining its own significant momentum in the startup market. Following the launch of ChatGPT in November by OpenAI in San Francisco, the city has become a focal point for the development of artificial intelligence.
Investors have injected more than $60 billion into startups located in the Bay Area in the current year, with half of this capital directed toward AI companies, as per PitchBook’s data.
New York’s Ascent and Challenges Faced
The tech industry’s epicenter has traditionally been in Northern California, but Murat Bicer vividly recalls the landscape for New York startups before this influx. In 2012, Bicer, who was then associated with the Boston-based firm RTP Ventures, offered a term sheet for a funding round to Datadog but sought an additional investor to participate.
“We engaged with numerous firms,” remarked Bicer, who transitioned from RTP to venture firm CRV in 2015. “At the time, many declined because they held the belief that building an enterprise software company in New York was implausible. They insisted it had to be in Boston.”
This situation posed a significant challenge for Olivier Pomel, the French co-founder and CEO of Datadog, who had developed a local network in New York after a decade of working there. At the time, Boston was recognized for its enterprise technology scene, while the epicenter of the broader tech industry was firmly situated in Silicon Valley.
“Venture capitalists from the West Coast were not particularly inclined to invest outside their West Coast domain,” Pomel remarked.
Nevertheless, Pomel was resolute in his commitment to establish Datadog in New York. Eventually, Index Ventures, a firm with European roots, joined the funding round for Datadog, providing the necessary resources for the company’s growth in the city. In response, Pomel relocated the company to a prominent location in Manhattan, specifically the New York Times building near Times Square.
To sustain its current momentum, New York must consistently produce a series of ongoing successes, a task that won’t be without challenges. While the IPO market has recently shown signs of revival after nearly two years of dormancy, investor enthusiasm remains restrained, and there is a scarcity of obvious tech companies in New York poised for initial public offerings.
Revival of New York’s Tech Scene
During the dot-com boom, New York witnessed a proliferation of startups, but many faded away in the 2000s. Notably, companies like Datadog, MongoDB, and cloud infrastructure provider DigitalOcean emerged after the Great Recession. DigitalOcean successfully went public in 2021 and currently boasts a market capitalization slightly exceeding $2 billion.
Individuals from these companies, including a few of their founders, have launched new startups in New York. Additionally, major players in the tech industry such as Google and Salesforce have expanded their presence in the city, making it easier for tech startups to find individuals possessing the requisite skills.
Furthermore, investors who traditionally favored the Bay Area have recently established a presence in New York.
“It’s unquestionable that you can achieve significant success in New York,” stated Bicer confidently, emphasizing the city’s growing appeal to prominent venture capital firms such as Andreessen Horowitz, GGV Capital, Index, and Lightspeed Venture Partners, which expanded their presence there in 2022.
Additionally, in July of this year, Sequoia Capital, Silicon Valley’s highly esteemed firm and the largest venture investor in MongoDB, established an office in New York.
Eliot Horowitz, co-founder of MongoDB in 2007 and currently involved in developing a robotics software startup called Viam in New York, echoed this sentiment. He noted that the most notable change between then and now is that nobody doubts the potential of New York as a thriving business hub.
Horowitz belongs to an expanding cohort of accomplished entrepreneurs who are reinvesting a portion of their wealth into the growth of New York. He provided support to DeliverZero, a startup that enables individuals to order food in reusable containers that can be returned after use. Currently, DeliverZero collaborates with approximately 200 restaurants and even some Whole Foods outlets across New York, Colorado, and California.
DigitalOcean Co-founder’s Commitment to New York’s Growing Tech Ecosystem
Wainer, one of the co-founders of DigitalOcean, has made investments in a collaboration software startup named Multiplayer, in collaboration with Bowery Capital.
Additionally, he has shown support for Vantage, a cloud cost-monitoring startup founded by former DigitalOcean employees Brooke McKim and Ben Schaechter. Vantage, currently staffed by 30 employees, boasts a substantial customer base, including notable names like Block, Compass, and PBS, as reported by Schaechter.
Despite relocating to Florida, Wainer remains committed to nurturing his new ventures in New York. Together with his fellow DigitalOcean co-founder, Ben Uretsky, he initiated Welcome Homes, a company that offers technology enabling people to design and order new homes online.
According to Wainer, Welcome Homes currently has homes worth over $47 million under construction, and he makes periodic visits to the company’s headquarters every month or two.
Wainer pointed out that companies like DigitalOcean, which boasted a workforce of over 1,200 employees by the end of the previous year, have played a pivotal role in enabling individuals to acquire expertise in various areas of technology, such as cloud software marketing and product management.
“The talent pool has significantly expanded,” he remarked.
This expansion of talent has simplified the startup landscape for Edward Chiu, co-founder and CEO of Catalyst, a company specializing in software designed to provide businesses with deeper insights into their customers. During his tenure overseeing customer success at DigitalOcean, Chiu noted that finding individuals with relevant expertise was a challenging task.
“Even just a decade ago, that particular function wasn’t highly relevant in New York City,” Chiu noted. “These days, it’s quite effortless to hire for any role in New York City.”
Collaboration and Mentorship
The tech ecosystem in the city is rapidly maturing. When Steph Johnson, a former communications executive at DigitalOcean and MongoDB, embarked on the journey of securing funding for Multiplayer, a venture she co-founded with her spouse, they sought the guidance of Graham Neray.
Investing in the upcoming generation, Neray, who previously served as chief of staff to MongoDB CEO Dev Ittycheria before launching his data-security startup Oso in New York, offered to introduce the founders of Multiplayer to a network of 20 potential investors.
“True to his word,” Johnson remarked, “he provided invaluable assistance.” She humorously noted that due to Neray’s exceptional support, she and her spouse even joked about naming their startup “Graham.”
In a sense, Neray was reciprocating the help he had received when establishing Oso. To get Oso off the ground, Neray sought assistance from Datadog’s Pomel, and he also sought a connection through Ittycheria.
“I hold immense admiration for Oli and his remarkable accomplishments,” Neray remarked, referring to Pomel. “He possesses a rare combination of strengths in both product development and market strategy. Being in New York and focused on infrastructure, I saw him as someone I could learn a great deal from.”
Ultimately, Pomel decided to invest in Neray’s startup, and so did Sequoia Capital. Consequently, the startup has expanded its client base to include over 50 companies, among them Verizon and Wayfair.
New York’s Thriving Tech Ecosystem
In the previous year, MongoDB announced the establishment of a venture fund. Pomel mentioned that he and other Datadog executives have contemplated a similar move, considering the creation of an investment division.
“We aspire to nurture the ecosystem in which we recruit talent, so we’re increasing our investments in the New York and France regions,” Pomel affirmed.
Ittycheria has been an eyewitness to New York’s renaissance in the startup scene. He conveyed that when he established BladeLogic, a server-automation company, back in 2001, his initial preference was to launch it in New York. However, he had to relocate it to the Boston area due to the city’s limited access to a wellspring of entrepreneurial talent.
Then came MongoDB. By the time Ittycheria assumed the role of CEO at the database company in 2014, New York was “beginning to witness a growing surge in venture activity, thanks to its access to customers, a skilled workforce, and capital,” as noted by Ittycheria. He regarded the company’s IPO three years later as a pivotal moment because it marked the first instance of an infrastructure software company in the city going public.
He added that the IPO served as a demonstration to the market that it was entirely feasible to “establish and expand deep technology companies in New York, not solely restricted to Silicon Valley.”
Over the past decade, New York has evolved into a thriving tech ecosystem, challenging its West Coast counterparts. Companies like Datadog, MongoDB, and UiPath have paved the way, collectively fostering a startup-friendly environment.
In 2022, New York ranked second in startup investments nationwide, a testament to its vibrant tech community’s resilience and growth potential. The city’s transformation is exemplified by accomplished entrepreneurs reinvesting in its success, attracting venture capital giants, and nurturing the next generation of startups.
While challenges persist, New York’s tech scene remains on an upward trajectory, with its diversity and talent pool driving innovation and entrepreneurship.