Why New York City is giving Silicon Valley a serious run for its money

NYC is both leading and competing with SV in key sectors, including AI, advanced manufacturing, cyber security

Published September 15, 2018 10:00AM (EDT)


Fifteen years ago, New York City was a tech afterthought. Today, it is ranked the second highest performing startup ecosystem in the world after Silicon Valley. More significantly, in certain tech sub-sectors it beats Silicon Valley at its own game, a trend that may continue.

By reinventing its metropolitan economy to recruit top-notch human capital and promoting technology, startups, and venture capital financing, NYC accomplished the economic ambition of every city in the world. Strikingly, NYC managed this feat without a strong engineering base by relying on the natural strengths of its existing economy, its diverse industry base, its human capital diversity, and its desirability as a place to live. This was not an accident. New York intentionally and aggressively leveraged its unique business, cultural, and contextual advantages to recruit a technical workforce it did not educate to achieve elite global tech status.

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As a result of this far-sighted deal, and close collaboration between its public and private sectors, NYC now has over 7,000 startups, valued at $71 billion, and it received over $11.5 billion in venture capital funding in 2017. It is the home to the most “unicorns” in the U.S. after Silicon Valley, including WeWork (valued at $20 billion), Infor ($10 billion) and AppNexus ($2.2 billion). The city employs over 326,000 people in its tech sector (over three times its East Coast rival, Boston), hosts over 100 incubators and over 200,000 businesses with 20 or fewer workers, which employ a total of over 600,000 people. 10 percent of all U.S. developers live in the NYC metro area, average NYC tech job wages are 49 percent higher than average NYC private sector wages, 83 percent of NYC’s tech companies plan on hiring more talent in 2018 than 2017, and 53 percent will increase hiring by over 20 percent in 2018.

Global startup and tech ecosystems now drive vibrant and sustainable economic growth across the world. Cities that can participate flourish, while those that cannot, languish, so the motivation is acute. In 2017, global venture capital investments in startups reached over $140 billion and total value creation of the global startup economy from 2015-2017 reached $2.3 trillion, up 25.6 percent from 2014-2016. The four top growing tech sub-sectors include advanced manufacturing and robotics (up 189 percent in early stage funding deals over the past five years), agriculture technology and new food (up 171 percent), blockchain (up 163 percent), and artificial intelligence, big data, and analytics (up 77.5 percent).

Very notably, New York City is among the leading locations in three of these subsectors. In advanced manufacturing, it hosts the most 3D printing activity in the world. NYC also boasts city-specific initiatives that foster the progress of Advanced manufacturing. New Lab, based in Brooklyn, is a multi-disciplinary technology center and public-private partnership focused on advanced manufacturing that hosts over 100 companies.

The Futureworks NYC program is a component of New York City’s Industrial Action Plan which is an accelerator and network of affordable manufacturing spaces aimed at increasing local production and creating well-paying jobs. FutureWorks NYC recently announced plans to open an advanced manufacturing center in Brooklyn Army Terminal to allow affordable access to space and equipment for emerging entrepreneurs.

There are also now more artificial intelligence and machine learning positions in NYC than there are in San Francisco, which is noteworthy given that venture capital funding for artificial intelligence grew by 463 percent from 2012-17. Gartner says that AI will be in almost every new software product by 2020, and Google CEO Sundar Pichai claimed that AI will be more transformative to humanity than electricity.

Lastly, there are over 100 cybersecurity companies headquartered in the city, targeting cyber- crime, the fastest growing crime in the 21st century and since 2017 there have been over $1 billion in VC investments in NYC’s cybersecurity firms. Among them are are Mark43, a law enforcement software company that raised $77.8 million and ., a retail fraud prevention company that raised $50 million.

The sine qua non of the modern tech industry is trained technical personnel. Without a critical mass of coders, engineers, and scientists, no tech hub can survive. The creation and maintenance of such a community allows former founders to fund current startups, new founders to find (and commiserate with) other entrepreneurs at similar states of development, and perpetuates local, in-person sharing of expertise and experience. There are a limited number of such trained people in America, so the competition to attract and retain them, both by companies and by cities, is intense and zero-sum. In 2016, there were 6.9 million U.S. scientists and engineers, comprising 4.9 percent of total U.S. employment. Science and engineering employment was mainly concentrated in two occupational groups, computer occupations (57.6 percent) and engineers (23.6 percent). These are good jobs to have: in 2016, the mean wage for all scientists and engineers was $94,450, while the mean wage for all other occupations was $49,630. Similarly, domestic demand for data scientists is growing by an estimated 12 percent per year: by 2024, the U.S. economy could lack as many as 250,000 data scientists. Where companies see these people as those who create more value, cities see them as people who pay more taxes.

The human capital effects of recent tech developments have been profound. The so-called Third Wave of the Internet (where tech companies offer products and services that occur in the “real world” as opposed to purely online) and the emergence of Deep Tech (companies based on significant scientific or technical innovation such as artificial intelligence or blockchain) have changed the look of the tech crowd. Founders in these growing areas are generally older (with a median age of 39) and have graduate degrees (53 percent earned graduate degrees), a marked divergence from the earlier versions of younger, less formally educated founders. Such new founders consider multiple variables in choosing the location of their business beyond convenience and cost-effectiveness. They often weigh NYC’s multiple layers of attractiveness and these older, more established founders are beneficial and stable additions to a city’s ongoing tax base.

Talented human capital is essential to creating and maintaining a tech hub, which posed a fundamental challenge to NYC’s ascent. It lacked the traditional prerequisite of easy access to a prestigious center of academic engineering or scientific research. Silicon Valley was primarily created from its contiguity to Stanford and Cal-Berkeley, which provided it with young engineers and scientists, plentiful research funding, and significant government support. This potent and proximate mixture led Silicon Valley to midwife the births of Hewlett-Packard, Fairchild Semiconductor, Varian Associates, and Xerox PARC. Similarly, on the East Coast, Boston’s MITvard (MIT and Harvard) connection created Honeywell, Digital Equipment Corporation, and Raytheon on the Route 128 Corridor, then dubbed “America’s Technology Highway.” There was no such locus in NYC.

Though it trails in technical workforce development, NYC brings matchless advantages to its recruitment process. As the global financial capital, New York mobilizes its unrivaled access to capital as a key element in its recruiting arsenal. As an international capital of fashion, advertising, publishing, culture, and hospitality among others, New York offers a breadth of industrial, economic, and social opportunity nowhere else can equal. It is America’s largest, most diverse and cosmopolitan city: immigrants make up 46 percent of the workforce, approximately 47 percent of NYC’s tech workers are foreign born, and it has over 410,000 women-owned businesses (over double than any other U.S. city). Its culinary accomplishments have wooed people and the world over.

This persuasion campaign has succeeded. 89 percent of tech talent cite diversity as a key attraction to move to NYC, 74 percent say a diversity of industries, and 80 percent say the access to cultural institutions, entertainment, restaurants, and sport. NYC ranks first overall among 50 global cities (ahead of even San Francisco) for its ability to attract and support women-owned businesses. Even Silicon Valley’s biggest unicorns have noted New York’s value. Google purchased the Chelsea Market building for $2.4 billion to house its 7,000 NYC employees (40 percent higher than in 2015), of which nearly two-thirds are engineers. Facebook also has over a thousand employees in its Frank Gehry-designed office space at 770 Broadway.

This does not include the specific efforts New York’s city and state governments have made to buttress its tech infrastructure. NYC Mayor Bill de Blasio has doubled the funding to double the number of tech graduates from the City University of New York system by 2022 and by 2025 and every NYC public school student will learn computer science. The newly-opened tech-focused campus of Cornell University and Technion-Israel Institute of Technology was created with a $400 million grant from Mayor Michael Bloomberg’s administration (and was supplemented with a further $100 million from private citizen Michael Bloomberg’s foundation). In 2019, New York State committed $30 million to computer science education which is the largest annual funding commitment of any U.S. state.

To the deep frustration of non-Gothamites, many people simply do want to come to NYC: this explains the record 62.8 million tourists in 2017. Reflecting its historic ability to drive a clever bargain, over the past 15 years New York sealed an audacious agreement with the global tech community: leave your university towns and come to the big city. Leveraging its distinctive identity and peerless resources, New York recruited a remarkable stream of valuable tech personnel from a finite domestic and international pool, creating a world-class tech community where none should have existed. Now that’s what I call a unicorn.

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By Sam Natapoff

Dr. Sam Natapoff is the President of Empire Global Ventures LLC (EGV) where he helps companies scale both internationally and abroad and is a leading expert in international economics and business consulting. He has a Ph.D. in International Relations from George Washington University.

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