For a long time, Tumblr founder David Karp was New York's one-man answer to Silicon Valley. He looked just like a typical Valley entrepreneur. Young, floppy-haired, and often sporting a hoodie, Karp was obsessive about his product. Revenue and business development seemed lower down on the agenda. Just like Silicon Valley start-ups, Karp was willing to take on tens of millions of dollars in venture capital to execute his vision. As conventional Valley wisdom goes, he built an audience (a massive one, 300 million-strong), and assumed that advertisers would be eager to buy ads.
When they didn't, Tumblr sold. Yahoo acquired the company for $1.1bn in May. The company had just $16m left in the bank, out of the $125m it had raised from venture capitalists.
It's no coincidence that, around the same time, New York's other poster child for Silicon Valley-like success, Foursquare, experienced the same thing. After five years of venture capital-supported growth and little revenue, the social networking app was running low on funds. The company had to scramble to convince new investors that it could make money through paid recommendations of local restaurants and bars. Foursquare eventually raised debt to avoid taking a "down round", which would have valued the company lower than in past rounds of funding. CEO Dennis Crowley, New York tech's other visionary, was suddenly on the defensive.
New York tech is growing up. But with the growth comes some pain.
Back when Tumblr and Foursquare were getting started (2007 and 2009, respectively), New York's tech scene was more of a small community than a thriving ecosystem. You had high profile media start-ups like The Huffington Post intermixed with a handful of successful advertising and financial tech companies serving the city's traditional industries. And that was about it.
But the financial meltdown of 2008 had some of the smarter graduates reconsidering their banking ambitions, creating a new population for the New York tech industry. "A lot of talented people coming out of school decided not to tuck their shirts in after they graduated," says Ed Zimmerman, chair of the tech group at law firm Lowenstein Sandler.
Meanwhile, mayor Michael Bloomberg – himself an entrepreneur – became New York tech's loudest cheerleader. He backed it up, too, launching initiatives like the "We are Made in NY" portal, BigApps, a contest for building apps on the city's application programming interface (API), and WiredNYC, a rating platform that for Internet speed in office buildings.
Prior to this new Bloomberg-endorsed era, New York start-ups had a reputation for focusing too much on monetisation. That's not always encouraged in Silicon Valley, where irrational risk-taking and wild ambition – the kind of guts and vision demonstrated by Karp and Crowley – creates the magical home runs. You don't build a Facebook, or Google, or Twitter by optimizing for revenue on day one, the thinking goes. This new era was all about building a Silicon Valley-style company. The crowd at a New York Tech Meetup, which boasts 33,000 members, famously boos anyone who asks about business models.
New York is now home to more than 1,000 start-ups spanning a broad range of industries. Tech is the city's second-largest contributor to private sector wages after finance, according to a new study commissioned by the mayor's private foundation. Since 2007, tech and information services jobs have grown 11% to 262,000 positions, which create $3bn in annual salaries. New York emerged from its 2008 recession faster than the rest of the US thanks to its booming tech sector, according to the report. Some of that growth comes via Silicon Valley. Google's Chelsea offices employ more than 3,000 people; a number of top-tier venture firms including Accel Partners, NEA and Canaan Partners have opened offices in New York.