NYC lags Silicon Valley and other cities to rank 5th on list of top startup ecosystems

If New York City wants to be the top spot for startups, it isn’t just Silicon Valley that it needs to beat. In a report released Tuesday on the world’s most active startup ecosystems, Startup Genome ranked New York fifth — behind Silicon Valley, Tel Aviv, Los Angeles and Seattle. Startup Genome, which began as an academic research project, provides tools for startups and investors to benchmark progress.

It’s hardly a shocker that longtime tech hub Silicon Valley took the No. 1 spot. But, over the past couple of years, New York has become more of a magnet for entrepreneurs and it’s surprising to see the city lag behind not just one location, but four. As my colleague Ryan Kim reported earlier this year, East Coast industries, like media and advertising, as well as the rise of local angel investors and venture capital firms, have made the city more of a draw for entrepreneurs.

Bjoern Lasse Herrman, CEO and co-founder of the Startup Genome, said that while he and his team were also surprised that New York didn’t come in second, several factors contributed to its new position.

“The goal of the rankings were to be able to look at the ecosystems less [in terms of] the pure number of companies but from the standpoint of being able to identify specific advantages and disadvantages,” he said.

In compiling the list, the company measured the cities across several indices: startup output (the total activity of entrepreneurship in a given region, controlling for population), the availability and activity of funding sources, the performance of startups (as measured by revenue, job growth and other variables), the mindset of entrepreneurs, how quickly startups adopt new technologies, the availability of mentors and support and the talent of founders. Startup Genome relied on data from the more than 50,000 companies that have used its Startup Compass benchmarking tool, as well as surveys.

While New York may best most other cities in terms of the sheer amount of startup activity, Herrman said its “startup output” index slipped once they factored in population.  He also said that relative to other cities, New York has fewer early investors willing to fund companies in their riskiest stages — a characteristic that is typical of younger startup ecosystems, he added.

Anecdotally, from the constant stream of funding announcements, it seems as though New York has a healthy supply of angel investors and venture capital firms. But Herrman said New York’s “funding index” was lower than that for Silicon Valley, Tel Aviv and Boston, which have longtime investors and serial entrepreneurs who are now actively investing.

New York does, however, distinguish itself in other ways, Herrman said. In fact, he added, out of the top eight ecosystems, New York is the most differentiated from Silicon Valley because of its focus on advertising, e-commerce and fashion. As the company reported in an earlier study, New York also beats out other cities on another key metric: the percentage of female startup founders.

In addition to the five companies mentioned above, the report’s list of the top 10 ecosystems included Boston, London, Toronto, Vancouver and Chicago (in that order).

Image by SeanPavonePhoto via Shutterstock.