Success Breeds Success and the Evolution of NextGen Commerce in NYC
I've been involved in the NYC tech scene for about 20 years, having made my entrepreneurial debut in 1996 when I launched Community Connect, an early social networking company, from my apartment. After growing the company into a profitable business and selling it off to Radio One in 2008, I’ve been investing in early-stage NextGen Commerce (NGC) startups in the city and mentoring founders as they face the early obstacles of getting their companies off the ground. Throughout all this time, I’ve had a first-row seat to the enormous growth and shift in trajectory of New York’s tech community, specifically in the NGC vertical.
The NGC tradition in the city has always been especially strong, considering New York's stature as the retail capital of the world. After all, with the city's dense concentration of diverse needs, interests, and customers, there’s plenty of opportunity for businesses to step up and fill those needs in new and innovative ways. Today, NGC companies make up over 30% of NYC-based companies valued at over $100 million, including the likes of Jet.com, Etsy, Shutterstock, Liveperson, Quidsi, Seamless, Blue Apron, Warby Parker, Harry’s, and Rent the Runway.
But it’s not hard to remember when NYC Tech was still in its nascent stages, with tales of super successful startups and those attaining unicorn status hailing only from the West. New York-based startups were scrappy, to say the least, and many faced pressure to move to the Bay Area to gain real traction. New Yorkers were still largely focused on financial services through the early 2000s, and it wasn’t until the financial crisis of 2008 that things really started to change for our tech community. Once our longstanding financial institutions proved to be far less stable and sexy than they once were, some of the city’s smartest and most talented individuals redirected their efforts to the burgeoning startup sector, which quickly became the new “cool”. It was at that time that we saw guys like Marc Lore leave finance to start Diapers.com (and eventually Jet.com), and Dave Gilboa leave Allen & Co. to launch Warby Parker. As this migration from the world of finance to the increasingly appealing startup world progressed, it became clear that these entrepreneurs would not only learn and understand how to build great business, but that as they took more and more swings at the plate, their rates of success and the size of those business would grow exponentially, as well.
Since the start of that critical talent infusion, we’ve seen a huge jump in the number of startups coming out of the city. This came as no real surprise; New York has always been the city of hustle and talent, with a rich and storied history of entrepreneurship. That culture of entrepreneurship has been passed down from generation to generation, and as the city saw the birth of increasing numbers of successful startups, it has continued to breed successive generations of experienced operators who have taken the lessons learned at their previous startups and become founders in their own right. In New York City, we are now seeing experienced operators and multi-time founders seemingly 10 times as frequently as we did five years ago, and that’s a critical reality when it comes to a maturing marketplace.
Nowhere is this idea of “success breeding success” more evident than in the NGC vertical. In our NextGen Commerce Genealogy, we illustrate the tangled web of founder and company relationships, which details the comprehensive lineage of the entire NGC ecosystem in the city. Tracing its roots back to the media and advertising companies of the 1990s, today’s NGC founders have learned from their previous employers how to approach problems and run successful companies. The growth of the industry - in terms of value, velocity, and scale - speaks to the great foundation of entrepreneurial and operational wisdom that continues to be passed down to successive generations of companies.
Deep employee-founder relationships traverse the entire NGC terrain. Take, for example, the AOLs, Quidsis, and DoubleClicks of the city, all of which became breeding grounds for successive founders. From these companies, we witnessed the birth of Gilt Groupe, founded by DoubleClick veterans Kevin Ryan and Dwight Merriman, and AOL veteran Alexis Maybank. Gilt alone spawned over 20 companies, a number of which, including GLAMSQUAD, Nomad Health, Flow, and Zola, have since become some of the most successful startups in the city. And Gilt is not the only company that has proven itself as a launchpad for entrepreneurial talent. The companies that have given rise the greatest number of subsequent NGC founders are Gilt (21 companies), Quidsi (7), Lot18 (7), and Rent the Runway (7).
In looking at the map, you can see the exponential growth of the NGC sector since the rise of that first generation of companies. Generation 1, which we’ve defined as those companies founded between 1996 and 2005, saw a total of 21 companies having raised $1.87 billion in total funding. Generation 2, made up of companies founded between 2006 and 2010, showed 86% growth in the number of companies founded (39), with funding totaling $2.91 billion. And Generation 3, companies founded between 2011 and 2016, saw 146% growth in the number of companies launched (96), with total funding of $3.13 billion.
These statistics shouldn’t come as a complete shock, given the frequent headlines covering new and upcoming IPOs, the growth of NYC-born startups attaining unicorn status, and increasing rates of VC investment from both local investors and from those across the country. In the last five years, the volume of venture capital investment in NYC-based startups has grown 5x, and from 2014-2016 alone, the aggregate value of NYC-based tech companies valued over $100 million grew almost 70%.
Exit activity is also on a major upswing. From 2009-2015, exit activity for VC-backed companies in NYC has outpaced the rest of the nation by 70%, and last August’s Jet.com’s $3.3 billion acquisition by Walmart - the largest NGC exit for a NYC-based startup - was a real watershed moment for NYC tech. As our community continues to evolve, we expect to see increasing numbers of large companies and large exits. Other successful NYC exit winners, including Trello, Shutterstock, Etsy, and Blue Apron (which still has an extremely impressive growth story, despite a disappointing start on the public market), offer every founding team clear models for building enduring tech winners in the largest, most diverse and dynamic city in the country.
We’ve written before about the importance of experienced operators and serial entrepreneurs to a growing tech ecosystem. Increasingly large and successful businesses will continue to be built by former employees of previous generations of startups, who have learned from their earlier battles and apply those lessons to future endeavors. The increasingly successful businesses that are poised to come out of this city will serve as even formidable training grounds for future founders and tech leaders, and our rich tradition of entrepreneurship and relentless hustle will continue to be passed on from generation to generation. This is the spirit that’s come to define NYC Tech, and we take great pride in being a part of this thriving ecosystem.