Markings

The Council of the City of New York October 27, 2008 Committee on Economic Development jointly with the Committee on Small Business Oversight: Encouraging the Growth of the City’s Technology-Based Business Sector Testimony of David S. Rose, Chairman of New York Angels

Good afternoon. My name is David S. Rose, and I am a serial entrepreneur-turned-early-stage-investor who has been founding and financing technology companies in New York City since 1983.  I testify today as Chairman of New York Angels, the largest and most active organization of professional technology angel investors in New York City. Our 75 members, including many of the best-known high-tech investors on the East Coast, have invested over $35 million into more than four dozen early stage technology companies during the past six years. The question being addressed by the Committees today, how to encourage the growth of the City’s technology-based business sector, is an extremely important one…although I must say that this hearing is reminiscent of the movie ‘Groundhog Day’. This is not the first time that I, or other witnesses at today’s hearing, have appeared in this room testifying on this same issue before one or both of these committees. My first time came over a decade ago, at the dawn of the dot com boom. At that hearing, I and others spoke about the need for a technologically skilled workforce, early stage financing support, technology transfer initiatives, IT venture incubators, and more. Over two years ago, the Committee on Technology had a similar hearing, with much the same speaker list. One year ago this week, the Committee on Economic Development held a hearing on this same exact topic. Unfortunately, the results of all these hearings have, to put it mildly, been disappointing. Today, however, New York City’s economy is in a different place, and perhaps the body politic, in both its legislative and executive incarnations, is at last ready to take action, and the action that needs to be taken is very simple and straightforward. Let us start by analyzing the basic conditions necessary for a thriving early-stage technology environment in any city: 

(1) a base of entrepreneurs with high tech experience; 

(2) educational institutions supporting both entrepreneurship and state-of-the-art technology programs; 

(3) access to early stage capital to fund new ventures; 

(4) affordable work spaces for startups, and the infrastructure supporting them; 

(5) access to a technologically skilled workforce; and 

(6) coordination, integration and promotion surrounding all of the forgoing. This is, indeed, a daunting list. Now let us see how New York City rates on these criteria. 

One, Entrepreneurs: New York has over 12,000 high-tech enterprises, plus an additional 34,000 self-employed high tech workers. The New York Tech Meetup, a self-organized, informal group of technologists and tech entrepreneurs that meets monthly, has over 7,500 members. New York City has more technology entrepreneurs than any other place in the world, outside of California’s Silicon Valley. Entrepreneurs are not a problem! 

Two, Educational institutions: New York has over 75 universities and colleges within the city limits, more than any other city in the world. These include some of the finest business school entrepreneurship programs in the country at NYU, Columbia and Baruch, as well as engineering and technology programs from the pioneering Interactive Telecommunications Program at NYU, to the Brooklyn Enterprise on Science and Technology at Polytechnic, to award winning departments and programs at Columbia, CUNY, Cornell, Cooper Union, New York Institute of Technology, and more. Education is not a problem! 

 

Three, Funding: New York City has over 300 venture capital firms and half a dozen angel investment groups, more than any place in the world except Silicon Valley. Even before the establishment of NYC Seed, the City’s own startup fund, there were dozens of venture funds specializing in seed and early stage technology companies, and in the years since the dot com crash, members of New York Angels have invested over $35 million into technology startups. This year alone there have been over 120 VC and organized angel financings of seed and early stage tech deals. Access to capital is not a problem! 

Four, Startup Spaces: With over 350 million square feet of commercial real estate within the City, New York has affordable, functional office space for startups at every conceivable price point. In addition to typical office, industrial and loft space throughout the five boroughs, there are a host of shared work spaces designed specifically to support high tech startups. From Tech Space, Sunshine Suites and New Work City in Manhattan, to Williamsburg CoWorking and Ditmas Workspace in Brooklyn, to Poly’s BEST incubator, Columbia’s Audubon incubator, and my own SparkPlace technology center, startups can move in tomorrow to ready-to-go workspace for as little as $500 a month. Real estate is not a problem! 

Five, Technology Workforce: Last year’s study by the New York Industrial Technology and Assistance Corporation found that the New York metropolitan area employs over 620,000 people in technology jobs, generating earnings of over $12.5 billion, making it the world’s largest center of high-technology employment. Tech workforce is not a problem! 

Six, Coordination, Integration and Promotion: Supporting and coordinating and promoting all of these breathtaking resources, New York has…oh, right. Nothing. Nada. Zip. That, I suggest, is the problem. It certainly isn’t for lack of trying from within the industry. Many programs have been started by smart, energetic people, and have done great things. These include ITAC’s FasTrak Tech program, the New York Software Industry Association's myriad programs, the New York City Partnership’s technology efforts, the erstwhile New York New Media Association, the incubation and tech transfer initiatives at NYU, Poly, Pace, Columbia and the New York Institute of Technology, the technology and web MeetUps, Gary Sharma’s weekly calendar of all the City’s high tech events, the numerous independent self-help organizations in and around the tech sector…and New York Angels, our early stage investment consortium. The problem, however, is that although we all know and support each other, there is no central, City-sponsored, pro-active coordinating entity to leverage all of these independent activities. Why? Because the City has yet to make this a priority and commit itself to answering the challenge. This brings us to point number two: funding. Here we are in New York City, the economic capital of the world, and despite paying lip service to the goal of supporting its startup technology sector, the City has not allocated any funds at all to back such an initiative. We are not talking about hundreds of millions of dollars, let alone the billions that the large venture capital firms invest. We are talking about something more than lip service and the reallocation of existing programmatic funds. Realistically, an initiative of this sort, in a city the size of New York, will require an investment of single-digit millions of dollars annually, dedicated to this goal. This is a drop in the bucket compared to the overall City budget, but, a drop with a potential hundred-fold payoff in the overall economic future of New York. If the political will to undertake such a venture exists, let us consider how it should be organized and what should it entail. It needs to be a dedicated, high-profile, independent activity of the New York City Economic Development Corporation, established and funded with consistent, vocal and visible support from the Mayor and the City Council. It should have a small, dedicated staff reporting to a dynamic, entrepreneurial executive with direct, hands-on experience in the technology sector. The venture—let us, for the sake of simplicity, call it “New York Tech”—would have the mission of encouraging the growth of the City’s technology-based, early stage business sector. It would not deal with large, established entities or major employment or real estate programs. Those are important, but should be handled elsewhere within EDC. New York Tech’s target constituency should be the small, high-potential tech entrepreneurs, who will become tomorrow’s Googles or Microsofts. New York Tech would carry out its mission through five strategic programs: 

1) Establishing a directory and web site that will serve as the central coordinating locus for everything happening in, around and about New York’s technology community. It will provide one-click access to resources, guides and services, from work spaces to funding sources, from educational courses to government programs. It will have a calendar of everything happening in the sector, a comprehensive How To section, and answers to frequently asked questions about starting and developing a tech business in New York City. 

2) Sponsor and organize real world events and online communities that bring together all of the constituents that make for a vibrant, growing technology sector. New York Tech should be a ubiquitous brand name at every tech networking event in the City, from MeetUps to Expos, from financing pitches to ITAC’s FastTrak Tech, from the nextNY mailing list to InternetWeek (which should build on this year’s success to become a permanent Spring event.) 

3) Convene semi-annual summit meetings of all the major institutional constituents in the sector, including universities, venture funds, angel groups, corporations and government agencies. These would be both strategic planning sessions to guide future support efforts, as well as networking sessions among industry leaders to ensure that one hand knows exactly what the other is doing. Each constituent group would thus know when, where and how to get additional support for companies with which they were involved. 

4) Serve as the promotional and publicity arm for New York’s tech sector, blowing the City’s entrepreneurial horn and standing up as the focal point for anyone seeking to start or develop a high tech company here. It should not be possible for any would-be tech entrepreneur within the five boroughs to NOT know that New York Tech is the first place to turn, right after the spark of ‘startup genius’ strikes. 

5) Finally, undertake an ongoing recruiting effort throughout the national technology community heralding New York’s position as the nation’s second largest, and most supportive, environment in which to start a high tech business. Taken together, these five activities have the potential to effect a sea change in the way New York City plays, both in perception and in reality, on the world technology stage. They will leverage the truly phenomenal resources that are already in place here, and will ensure that New York’s future economy is not dependent on a few giant financial services companies, but rather by hundreds—if not thousands—of true New York technology entrepreneurs who will be building the world of the future. I strongly urge the two Committees here today to work with the Administration to appropriate and invest several million dollars to create a New York Tech under the NYCEDS, that will take full advantage of the extraordinary resources, including local and state, public and private, that this great City of ours has to offer the 21st century. 

Thank you.

---

David S. Rose, described by Red Herring magazine as "patriarch of New York’s Silicon Alley" and by Crain’s New York Business as “the father of angel investing in New York”, is an entrepreneurial executive and investor with extensive experience in high technology, venture capital investing and government. He was named by Inc. magazine to the 1998 Inc 500 list as CEO of one of the fastest growing private companies in America, and Crain's named him one of New York's 25 most influential technology executives.