Silicon Valley or Silicon Alley: startup cultures compared

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It’s the debate that’s been argued by rappers, surfers, chefs, swing dancers, and oyster connoisseurs: which is better, East Coast or West Coast? Setting aside the fact that many of the country’s finest originations come from burgs scattered across the heartland, the two regions where the ocean meets the terra firma have long been seen as the dual epitomes of American culture, fashion, and business. As an increasing number of Estonian-run startups have also located to either Silicon Valley or NYC, we take a look.

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New York City, of course, has been the financial capital of the U.S. for nearly two centuries, with its cadre of powerful banks and stock exchanges synonymous with centralised power and corporate predominance. The West, on the other hand, early on earned the prefix “wild” thanks to its crop of free-spirited (to put it mildly) entrepreneurs and fortune-seekers. The rise of Silicon Valley in the 1950s and its peak with the late ’90s explosion of tech start-ups were perfectly in keeping with its heritage of maverick business people.

But in recent months, the Big Apple has been gunning hard for tech entrepreneurs and investors, hoping to add “best startup environment” to its long list of accolades. Before you buy a one-way ticket to San Francisco, take a look at what each area has to offer you and the tech start-up you’re trying to get off the ground and consider whether Silicon Valley or Silicon Alley (of NYC) gives you the best chance to find agreeable investors, the most business-friendly governments and environments, and the most simpatico people to work with.

Pedigree Wars: New York vs. California

From Google’s beginning as BackRub to the explosion of LinkedIn, Silicon Valley has paved the way for tech business formation.

Sergey Brin and Larry Page met at innovation hub at Stanford University and collaborated on a search engine called BackRub that ran on the school’s servers. Shortly after landing $100,000 from Silicon Valley player Andy Bechtolsheim, the co-founder of Sun Microsystems, the two moved into the storied Google Garage in Sept. 1998, for which they paid $1,700 a month. By the following June they’d outgrown it, had $25 million more in seed money from Menlo Park-based Sequoia Capital and Kleiner Perkins Caufield & Byers, and were off to change the face of the Internet.

“The best engineers and designers and everything else are here (California).”
- Sahil Lavingia, founder of Gumroad, a San Francisco-based e-commerce site for creatives.

With $103 million of investment capital from Sequoia Capital, nearby firm Greylock, and other venture funds, business networking site LinkedIn grew to its current size of 200 million users and nearly $1 billion in revenue in 2011. CEO Jeff Weiner was previously an exec at Yahoo!, another legendary Bay Area startup founded by two Stanford grads.

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More recent phenom tech startups to come from the Valley are DropBox and Airbnb, which together are now valued in the area of $7.5 billion. The latter connects budget-conscious travelers with friendly homeowners willing to rent out everything from spare rooms to tree houses; in 2011, it garnered $117 million in investments from Sequoia Capital, Greylock, and Valley-based Y Combinator, among others. San Francisco-based file hosting provider DropBox announced a $250 million round of funding from several of the same companies in 2011, and in Nov. 2012 it passed the 100 million user mark.

Silicon Valley has recently experienced a surge in a still-new segment of tech startups: the edtech, or educational technology, company. Andrew Ng and Daphne Koller of Stanford created the million-student-strong, $22 million-funded Coursera (with $16 million from Kleiner Perkins Caufield & Byers), while Udacity — an online course provider founded by three Stanford academics — is close behind, with upwards of 750,000 users and $15 million in Series B funding. Local competitor Udemy has been offering free and paid online courses since 2010 and enjoys over 500,000 users with $16 million in Series B funding.

“As NYC becomes more of a start-up hotspot, both entrepreneurs and investors are flocking to the area.”
– Brian Scordato, Find Your Lobster founder

Kicking off with $10 million in funding from NYC’s Union Square Ventures, Twitter creator and NYU grad Jack Dorsey, Zach Klein of VC firm Founder Collective, and a few others, tech startup Kickstarter helped entrepreneurs to crowd-fund over $27 million in 2010 and over $99 million in 2011 to create their own products and companies. The company employs 52 people at its Lower East Side office.

Several of the most notable entrants to the Web media and social networking sector in recent years were born and raised in the Big Apple. Nearly 100 million people (including President Obama) turn to the Midtown Manhattan-product Tumblr for their short-form blogging needs. The Flatiron District is home to BuzzFeed, “the viral Web in realtime.” It’s received over $46 million in investments from Menlo Park’s New Enterprise Associates, New York-based Lerer Ventures, RRE Ventures, and Hearst Media. Foursquare grew out of cofounder Dennis Crowley’s graduate thesis at NYU. Most of its $21 million in funding has come from Silicon Valley’s Andreessen Horowitz and O’Reilly AlphaTech Ventures and NYC’s Union Square Ventures.

In the area where shopping meets tech, two NYC start-ups stand out. In 2007, MIT grad Mike Bryzek and Berkeley alum Phong Nguyen assembled a team of designer sample sale shoppers and launched Gilt, an online discount clothes site. It snagged a whopping $138 million in funding, over half from Japanese telecom company Softbank and a handful of Silicon Valley firms. Fab recently hit 10 million users, earning its position on Fast Company’s Most Innovative Companies of 2013 list.

Government support and investment capital availability

The Valley is not one unified city — in fact, it encompasses roughly two dozen cities from San Francisco (now an honorary member thanks to its proliferation of available tech jobs) to Gilroy — so unlike NYC, it doesn’t have one mayor acting as head cheerleader for its startup prowess. However, San Francisco’s Mayor Ed Lee isn’t sitting on his hands. He’s declared October Innovation Month in the City by the Bay to celebrate its tech companies. And he oversaw the creation of sf.citi to facilitate dialogue between tech startups and local government that drives growth and innovation.

“Words cannot describe the power of the serendipitous encounters you have when the entire Bay Area is full of entrepreneurs and investors.”
- Peter Clark, userfox CEO

The Valley is also home to a slew of venture firms that seem to pop up on the rosters of every breakout tech startup. Greylock, Sequoia Capital, Andreessen Horowitz, NEA, Menlo Ventures, MHS Capital, and others with headquarters in the area lend Silicon Valley its reputation for seed capital paradise. In the last financial quarter of 2012 alone, California companies received 51% of the $6.6 billion invested across the U.S.

When it comes to incubators and seed accelerators, Silicon Valley is similarly hard to beat. Mountain View’s Y Combinator (of Airbnb and Dropbox fame) has a stable of 316 companies, the top 21 of which combine for a worth of $4.7 billion. The well-known 500 Startups has been “blowing up start-ups since 2010″ from its Mountain View headquarters. San Fran is even home to a “first-of-its-kind” Civic Startup Accelerator that fosters entrepreneurs looking to bring tech developments to City Hall.

And, of course, there’s Stanford University. The area, and arguably the world, would be a very different place if not for the campus that lies between west Menlo Park and Palo Alto. Stanford has collected more than $1 billion in royalties from the innovations that have originated there and been released to the global economy, from the early days of HP in the ’40s and ’50s to today’s cloud services. The interplay between the students, academics, and industry is constant and can’t be overstated.

Mayor Michael Bloomberg has made it his personal mission to transform the Big Apple into a tech start-up mecca. He touts the NYC Entrepreneurial Fund, a $19 million bank for early stage capital for tech start-ups, as “the first of its kind outside Silicon Valley.” He’s also overseen the launch of a network of incubators and pledged to ramp up computer science training courses for adults and for high school students through the Academy for Software Engineering.

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Recently, 500 Startups opted to open a coworking space instead of an accelerator in NYC, saying the city actually had more accelerators than Silicon Valley (estimates put the number as high as 700). One standout example that Gotham has over Cali is a branch of the ultra-exclusive Techstars, which admits less than 1% of the thousands of companies that apply to be mentored by the likes of Foursquare’s Crowley, Tumblr founder David Karp, Etsy CEO Chad Dickerson, and more. Accelerators like First Growth Venture Network offer CEOs a no-equity-required option for meeting experienced tech vets and angel investors.

NYC doesn’t come close to matching the volume of investment dollars flowing in, but the amount is rising steadily. From 2007 to 2011, the number of VC deals rose 32%, making it the only major metro area to see positive growth (in the same time frame, Silicon Valley shrank by 10%). Major players include Union Square Ventures (Kickstarter, Foursquare), Insight Venture Partners(Indiegogo, Udemy), and RRE Ventures (Buzzfeed, bitly, yipit).

As for college affiliation, NYC has a $400 million new project with Cornell in the works called Cornell NYC Tech on Roosevelt Island that should usher in a new era of innovation and design on the East Coast and attract loads of new talent. Bloomberg also recently announced new tech schools at NYU and Columbia. NYU-Poly is already home to several incubators like Varick Street, which seeks to foster innovation in biotech, cleantech, info tech, edutech, and more, NYC ACRE (short for Accelerator for a Clean and Renewable Economy), which provides both physical and virtual tenants tools to help them create sustainable solutions to environmental problems, and DUMBO, a city-backed accelerator for techies in Brooklyn.

Environmental and corporate culture

Most of us picture a young, long-haired Steve Jobs when we think of a tech startup guy in California. That youthful free-spiritedness is still very much a part of the culture of Silicon Valley — 30% of the workforce is between the ages of 25 and 44, many of them Stanford undergrad and graduate degree holders. The collegiate atmosphere pervades the area, and entrepreneurs and innovators are open to sharing ideas and collaborating. Employees regularly bounce around from one company to the next.

“Our culture is collegial, thoughtful, open, clear, fearless, and fair — I have a bias toward action. It’s okay to make mistakes, so I attempt to manage people in a way that rewards decision making and progress over analysis and process.”
- Steve Russell, Prism Skylabs CEO and founder

“Everyone is engaged in our success, and every employee is empowered to be successful — we enjoy each other’s company,” describes Richard Klein, director of customer engagement at Prism Skylabs. “Respect and humor govern personal relationships.”

Userfox’ Peter Clark put it a bit more bluntly: “Everyone in the company is opinionated and we talk a lot of crap about both our work and other companies’ work.”

“We were initially attracted to New York because of its growing tech scene – it really feels like there is a renaissance of tech going on here. It’s also not as ‘noisy’ as San Francisco, you still feel like you know everyone. The move also made a ton of sense for us because we are an advertising platform for social media. I can’t walk down the street without running into someone who works at an ad agency.”
– Austin Evarts, GoChime co-founder

NYC represents a new frontier for tech startups. Though the city once claimed mainly startup people from nearby cities and schools on the East Coast, founders are now coming from SeattleChicago, London, and elsewhere to set up shop in the Big Apple. Many see the fact that NYC’s start-up scene is not dominated by tech as a benefit, enabling them to integrate their companies with knowledgeable people from other industries. Fashion and media, in particular, are two sectors in which tech start-ups are entering and thriving. The city is also top in the country for job growth in the mobile app industry.

At the individual company level, NYC’s tech start-ups have much in common with Silicon Valley. The employees are young, talented, ambitious, and contrary to the old cliche of New Yorker, friendly. At Sparq, Hecker said his company is “all about fun, advancement and supporting each other for success.”

Each area has so many unique benefits, the deciding factor for you may come down to the negatives. If you want to be the boss, you may balk at the price of office rent in NYC, but if you are interested in helping someone else get their vision off the ground, the high cost of living in San Francisco may turn you off. The West Coast almost certainly has the weather advantage, but for food, theater, shopping, and museums, New York triumphs. The choice is up to you. So what’ll it be: “Go west, young man,” or “New York, New York”?

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Lauren’s article was first published at http://www.onlinemba.com/

Photos: Wikimedia Commons/ERPLY

About the author: Lauren Marino

Lauren Marino is a researcher at OnlineMBA.com.