Wednesday 21 January 2015

New York's Silicon Alley: the once and future (?) IPO wasteland

With all of the talk about Silicon Alley, the name given for high tech
activity in New York, the fact remains that successful technology IPOs emanating from New York have been few and far between. How few and far between was brought home last week in a report that Etsy (located in what is called the Dumbo neighbourhood of Brooklyn) is preparing for an IPO some time as early as Q1 2015. The company is reportedly seeking to raise up to $300 million. The last time that a tech company from the New York area raised such an amount was during the dot-com bubble of nearly 15 years ago.

Etsy offers a website that enables people to sell both handmade crafts and vintage goods (think of a 1957 turquoise Royal Quiet De Luxe typewriter). As such, the company can be said to engage in the craft niche of the e-commerce space, where 800-pound gorillas in the form of and Alibaba enjoy a pre-eminent position. Approximately 26 million items are listed for sale on the Etsy site. Its revenues derive from a 20-cent charge for sellers to list products and it takes a 3.5% cut from each item sold. It also earns sums from advertising and payment processing. The report states in 2013 the company posted $1.35 billion in gross merchandise sales, and it is presumed that this figure was greater for 2014.

There is something quite extraordinary in the fact that New York seems to be a wasteland for generating tech companies with significant IPO potential. One only has to compare this (lack of a) track record with the oversize IPO success of Israel, which continues to create hi tech companies that attract public funding. The question is—why? A piece by Jeremy Quittner, “A Tale of Two Cities: Why Silicon Alley Isn’t the Next Silicon Valley (Yet)”, which appeared last year on, offered some thoughts.
1. “NYC is a strong market for advertising technology, financial technology, some commerce, and a few other smaller segments, but it's not aligned with where most venture dollars are going these days," quoting Dave Zilberman, a partner at Comcast Ventures who moved about from New York to Silicon Valley.

2. Zilberman pointed to software as a service, cloud computing, network and computer security and enterprise computing a start-up areas attracting big money. It seems that New York is not strong in any of them. Recall that Etsy Crafts itself is a niche e-commerce site.

3. Culture was also mentioned. Again, quoting Zilberman, “Silicon Valley has a stronger culture of risk-taking than New York City. It's simply a function of people with the right skill set and risk tolerance to work for a startup."

4. Drilling down further, it appears that the bulk of job growth in New York has been in designing, managing, and operating computer systems. Notable in this regard is digital media and software publishing. What is missing, however, is what is described as areas “heavy on engineering and new product development--jobs more likely to lead to innovation and starting ups.”

5. As observed by says Ross Fubini, partner at Canaan Partners in Menlo Park, California, "Innovation and creating great companies is all about the people--and Silicon Valley is special in that regard, because of the number of entrepreneurs, investors, engineers, and the culture that come together in a uniquely effective and creative way."
In light of Quittner’s piece, the obligatory question is—can New York ever change the situation? Most certainly the issue continues to be raised and many in New York wrestle with the problem. All those engineering graduates from Berkeley and Stanford certainly give Silicon Valley a leg-up, but New York is still a magnet for creative and ambitious types. Nevertheless, whether that is enough to ever create an environment ripe for successful establishing tech companies with notable IPO potential remains an open question.

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