New York (Yes, New York!) is tech city

December 6, 2010, 8:00 AM UTC

Watch out, Silicon Valley. Thanks to Google, Foursquare, and others, the Big Apple is fast becoming home to some top Internet talent.

New York’s tech cred is on the rise: Manhattan-based Foursquare’s geolocation service is the envy of Silicon Valley. Facebook bought out two New York startups, and Google just purchased the huge Chelsea building where it employs nearly a tenth of its global workforce. Now incubators are sprouting downtown, venture capital firms are opening New York offices, and prominent angel investors are spending more time with the scores of developers who crowd into shared workspaces across the city. “New York was 5% of our portfolio just two years ago, and now it is 20% and climbing,” says investor Ron Conway, who today spends 10 days each quarter in the city.

Cheerleaders have long tried to position New York as tech city, but the numbers never held up. In 2005, Internet-content companies in New York received $61 million, while Silicon Valley firms raked in $209 million. Fast-forward to 2010: In the first nine months of this year, venture firms invested $138 million in New York companies, while the Valley’s Net players received $205 million, down from $554 million a year ago.

Why New York, and why now? For many of today’s Internet companies, the competitive advantage lies in the innovative nature of their products, not necessarily their technological prowess. Thanks to Internet-based services such as EC2 from Amazon (AMZN), startups can essentially rent the supercomputing power they need and can launch — and thrive — with fewer than two dozen employees. And while Manhattan has always been home to digital-sales executives, engineers (actual techies) now are moving East. Google (GOOG) has more than 1,000 engineers in New York, some of whom may stick around to start their own ventures. “Not all of them are willing to take risks,” says Fred Wilson of Union Square Ventures, “but many of them could be convinced.”

Indeed, an entrepreneurial ecosystem is springing up in Silicon Alley. Betaworks in the trendy Meatpacking District has funded and supported a healthy portfolio. TechStars, a national program that lets entrepreneurs compete to win seed investment and mentoring, is accepting applications for its first round of New York companies.

New York’s tech aptitude has not gone unnoticed by Silicon Valley. Facebook recently purchased local web service companies Hot Potato and The founders moved to Palo Alto, but many employees stayed in New York. “I’m psyched to be in New York,” says Steve Greenwood, who was’s head of business development until November. “This is the epicenter of the next Internet revolution!” These days there’s good reason to believe he might be right.