Internal Market,Industry,Entrepreneurshipand SMEs

Digital Transformation Monitor

New York City:The World's FastestGrowing StartupTechnology CenterJuly 2017

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A renewed focus on innovation andtechnology

The rapid development of digitalinnovations in New York over the pastfew years led to the recent eclipse of theBoston area as the most dynamicecosystem for tech companies in thecountries. This emphasis on digitaltransformation and innovation wasnotably enabled by the presence ofpowerful private investors such asventure capital firms and businessangels, the growing number ofincubators as well as accelerators andsupport from city leaders.

Manhattan, the heart of NYC economicactivity

The digital wave has particularly hitManhattan borough and startups arenow highly concentrated on this area.This high concentration notably resultsfrom the unequal repartition ofinfrastructures and most of thebroadband connection in Manhattancompared to other NYC boroughs.

An attractive and globally renownedworkplace

The high-tech industry’s young andcreative workforce is attracted by NewYork because of its dynamic andprestigious image, its diversity, its largepool of successful entrepreneurs andtalents and its modern infrastructures.Academic institutions and creativeindustries also draw people to NYC,providing new ideas and talents for thecity.

New York City: The World's Fastest GrowingStartup Technology Center

NYC’s digital story: public leadership foreconomic diversification

NYC’s recent growth is partly attributedto the massive efforts of theadministration of former Mayor MichaelR. Bloomberg to diversify the city’seconomy and reduce its dependence onWall Street as an economic engine. Theobjective followed by the Bloomberg andnow the De Blasio Administration isclear: to establish New York as theworld’s top-ranked Digital City, based onindices in Internet access, OpenGovernment, citizen engagement andindustry growth.² The figure belowprovides an account of these four pillarsdriving NYC digital strategy since 2012.

While New York was lagging behind the Silicon Valley in California and Boston regardinginnovation and entrepreneurship before 2010, its recent performances are remarkable. Astudy conducted by the Center for an Urban Future¹ concluded that the technologyindustry is growing faster in New York City than anywhere else in America. Today, NYCappears as a leading hub for the development of new technology companies andhundreds of startups are mushrooming every year in the city thanks to the stronginvolvement of all the public and private stakeholders.

Under the leadership of the City'sChief Technology Officer, the Mayor’sOffice of Technology and Innovation(MOTI) leads the City of New York’s“Smart City, Equitable City” strategyfor technology and innovation.

As part of this effort, MOTI works toimprove the lives of all New Yorkersby:

• Establishing principles andstrategic frameworks to guideconnected device and Internet ofThings (IoT) implementation;

• Serving as the coordinating entityfor new technology and IoTdeployments across all Cityagencies;

• Collaborating with academia andthe private sector on innovativepilot projects, and

• Partnering with municipalgovernments and organizationsaround the world to share bestpractices and leverage on theimpact of technologicaladvancements.

Mayor's Office of Technology 3

© T photography/Shutterstock.com

Problem statement

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INDUSTRY

A vibrant digitalsector

ENGAGEMENT

A citizen-centricdigital experience

OPENGOVERNMENT

Technology andculture

ACCESS

Internetconnectivity for

all

An investment wave contrasting with thecountry’s slowdown

Private investors are another pillarsupporting New York’s massive startupgrowth. The number of venture capitaldeals in NYC has been rising since thelast five years while it is slowingeverywhere across the nation. Deals donot only concern mature startups but arealso providing funding for risky andearly stage ones.

Source http://mashable.com/2012/02/06/new-york-city-digital-road-map/#.RhHdVtmg8qz

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New York City: The World's Fastest Growing Startup Technology Center

Since the Bloomberg Administration,the local government considersdigital technology as the future of theeconomy and therefore makes agreat deal of effort to diversify NYC’seconomy from finance and fashion tohigh-tech. The local government alsostrives to develop a comprehensivedigital transformation strategy incollaboration with globalstakeholders.

New York’s Digital City Strategy:engaging New Yorkers for aninclusive digital ecosystem

Digital technology is revolutionizingthe way cities communicate andengage with its citizens for moreaccountability and transparency.This is why New York adopted in2011 the Road Map for the DigitalCity, a holistic digital strategylaunched by former Mayor MichaelR.Bloomberg and Chief DigitalOfficer Rachel Stern to enable NYCto become the world's leadingdigital city.

A focus on transparency and ondirect communication

The main objectives of the digitalstrategy are to enhance the localgovernment's outreach,engagement and communicationwith New Yorkers, to increase NewYorker's access to digitaltechnologies and especially to theInternet. The underlying idea is thatNew York is already a global digitalleader and that in order to reach thenext level it needs to become thehome of the next digital revolution.The mayor has therefore partneredwith several social media companiessuch as Facebook, Twitter andSnapchat in order to foster thedirect interaction with NewYorkers,

Realised benefitsand newopportunities

2User-friendly websites and platforms

The City is committed to increasingthe government’s transparencyand to improving the lives of NewYorkers as well as their digitalaccess. This commitment is notablyenabled through the developmentsof platforms, such as NYC Platform,an open government frameworkfeaturing Application ProgrammingInterfaces (APIs) for City data.Furthermore, the website nyc.gov,consulted by approximately 2.8million visitors per month, will beoverhauled and redesign to make itmore user-friendly and intuitive. 1

A robust entrepreneurial ecosystem

The strong and diversified economicstructure of the city together with itsdynamic start-up ecosystem is keyfor the city’s digital transformation.Over the past 5 years, the numberof start-ups created in NYC hasboomed, driving a flow of venturecapital money into growingindustries such as real estate tech,clean-tech, ad-tech, food-tech andfintech.

Overall, there are today over 1,000web-based technology start-ups inthe city. Gilt, an online shoppingwebsite created in 2007 and valuedat one time at over $1 billion onpaper or Tumblr, the famousmicroblogging and social networkingwebsite are good examples ofdynamic start-ups that have recentlyemerged in NYC.

This trend is not about to stop asmany new start-up blossomed in2015 and 2016 and are exciting ITexperts from all over the world. Thedynamism and the success of thelocal tech ecosystem is based onseveral pillars:

- a strong network of privateinvestors,

- economic activity concentration;and

- a rich pool of ICT talents.

Leveraging on NYC’s position ofglobal financial center

In terms of support toentrepreneurship, New York has hada lot of success and companies haveless difficulties in securingsignificant funding thanks to its thenumerous venture capital firms andbusiness angels. NYC startupgrowth’s model, based on theabundance of incubators andaccelerators fueled by large privateinvestments has worked a lot inrecent years. Its success is notablyillustrated by the recent creation andinternationalization of hundredsstartups from New York.

The concentration of economicactivities in Manhattan

New York is a relatively small city(Manhattan is only 13.4 miles by 2.3miles), which means that the majorpart of the city’s activity is focusedon the same small area and thatcompanies are concentrated alltogether. This concentration ofcompanies, talents, infrastructuresand resources creates a dynamicclimate where it is easy tonetwork, find new talents and co-create.

Map of NYC’s digital startups

©J.Bowles https://nycfuture.org/pdf/New_Tech_City.pdf

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New York City: The World's Fastest Growing Startup Technology Center

Drivers andobstaclesThe rise of the digital economy hasbeen fostered by a series of driversincluding support from severalcategories of stakeholders. It wasalso enabled thanks to theprominent presence ofinfrastructure and intrinsiccharacteristics that favournetworking and make the city’s thefastest growing start-up technologycentre.

3Training ICT talent to attract newICT talent

Both public and private stakeholdershave worked hard to attract brainsfrom all over the world. Thanks tothis strategy, New York benefitstoday from a rich pool of creative,engineers and business talentwhich creates a virtuous cycle forglobal students and entrepreneurs.ICT talent coming in New York areturning the city into an even-moreinnovative and business-friendlyecosystem which attracts manymore talented people.

Matching global talents withinnovative companies

New York tries to rely on its realizedbenefits and its robustentrepreneurial and start-upsnetwork to consolidate its local techecosystem and compete with theSilicon Valley and otherinternational tech hubs. The city hasmassively invested to create aspecial point of density in lowerManhattan which has the capacityto attract and pool urban techentrepreneurs from all over theworld.

The project aims to make this point acrossroad and a special place whereentrepreneurs and digital expertsfrom different cities can meet andcooperate but also work in globalcompanies that are targeting theirexact skills thanks to matchingagencies. At this special place, thecity and its companies will beprovided with skills from the besttalents, a dedicated workplace andwith special professional services. 5

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Drivers

A new technology-focused campusopened by Cornell University

Cornell University is a privateresearch university and a partner ofthe State University of New York. Itsengineering and computer scienceprograms rank among the nation’stop 10 and benefits from deepfinancial resources.

It was chosen with the Technion-Israel Institute of Technology bythe Bloomberg Administration tobuild an applied sciences andengineering campus on RooseveltIsland. The objective behind is tohost an innovative and technology-focused research university thatdelivers graduate-level education.The campus is planned to open insummer 2017. 6

Key infrastructures

Due to the small size of Manhattanand the lack of affordability inhousing, workplaces for startupand SMEs such as co-workingstructures are highly sought-after.

General Assembly, created in 2011and focusing on bridging the globalskill gap, and WeWork Labs stand ascases in point. General Assemblyprovides classes and co-workingspaces for companies and has knowna great success as it already hostedover 100 early stage startups onlyone year after its creation.

WeWork Labs gathers early-stagestartups and provides them withworking areas, tools, community andconnections to help them grow froma prototype to a sustainablebusiness. Its participating membercompanies have raised over USD 1billion since the lab creation in 2010.The global objective of WeWork Labis not only to provide a nurturingenvironment for entrepreneurs butto build a community of innovatorswith shared values. It also partnerswith venture capitalists and otherindustry professionals.

Key stakeholders

Private investors, especially venturecapital firms stand as the drivingforce behind entrepreneurship andinnovation.

A major venture capital hub

The technological boom in NewYork is fueled by the recent and largeavailability of capital offered bybusinessl angels and venture funds.In 2012, 486 digital start-ups createdin the city since 2007 have receivedangel, seed or VC funding andventure capital investors havepoured over USD 8 billion intransactions involved NY-basedstartups since 2009.

General Assembly is well-known forhosting promising startups but is alsoa campus for technology, design andentrepreneurship. It was created in2011 and has today a global presencein 20 cities with over 35,000graduates.

General Assembly aims to targettoday’s digital most-in-demand skillsthrough its trainings and careertransitions offers. It both educatesindividuals and companies to bridgethe gap between job seekers andcompanies needing talents withtargeted skills. The campus isspecialized in coding, Data, design,business and career development.

General Assembly

“We would like to create a model inwhich we can match entrepreneursfrom different cities in the world toNYC itself, with the help of specialagencies that would pair companiesand entrepreneurs. This is achallenge!” –Antona Tuula, Director for Economicand Business Development, EspooMayor’s Office.

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New York City: The World's Fastest Growing Startup Technology Center

Growth in VC deals has been slowingdown almost everywhere except inNew York where venture capitalinvestment is booming.

Venture capital firms have unitedthrough the NYVCA (New YorkVenture Capital Association), whichworks with investors andentrepreneurs to advocate forinnovation, job creation andeconomic development.

A new wave of incubators andaccelerators

The flood of tech start-ups in NewYork is triggered by the dozenincubators and co-working spacesthat have opened in the city in thepast seven years, while there wereno incubator in the city before 2009.A wave of tech accelerators has alsoemerged in the city in the past fewyears.

A proactive public sector promotingprivate initiatives

The public sector and localgovernment have actively supportedthe city’s digitalisation and enteredin many public-private partnershipsto engage all stakeholders in NewYork’s technological take-off.

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Obstacles

The open database Digital. NYC

Digital.NYC is the official online hubof New York City start-up andtechnology ecosystem and aims toconnect every local companies,startups and investors and informthem about events, jobs, classes,blog, videos, workspace,accelerators, incubators, resourcesand organizations.

NY Tech Alliance: a comprehensivepartnership

NY Tech Alliance is a non-profitorganisation supporting the NewYork tech community and ecosystemand gathering more than 60,000stakeholders from technology anddigital sectors. It hosts a monthlymeetup in New York as well aseducational and social events andhas built several partnerships andprogrammes, such as “Women inTech”, an alliance promoting the roleof women in the digital industry.

TechStars is one of the best knownaccelerators operating in New York. Itwas created in 2011 and has acceptedtoday more than 100 companies intoits programs which representcollectively a market cap of over $8billion and has raised $2.95 billionsince its creation

TechStars

Key initiatives

The NYCEDC and the creation of asustainable urban economy

NYCEDC (NYC EconomicDevelopment Corporation) gathers agroup of skilled individualsdedicated to the creation of adynamic, equitable and sustainableurban economy through the focus on5 pillars: infrastructures, humancapital, city assets, the incubationand acceleration of businesses andthe culture of a global capital ofinnovation.

In this respect, NYCEDC sponsors 18incubators in several domains suchas fashion media, biotechnologies,cleantech, such as the SunshineBronx Incubator or Varick Street.

To assist local start-ups, it alsoopened a centralised informationportal about investment andeducation opportunities called NYCVenture Connect and launched acompetitive mentoring program forearly stage start-ups.

To support entrepreneurs andinnovation, former MayorBloomberg signed in 2012 the OpenData Law which requires cityagencies to post a wide range ofgovernment data to a central opendata portal. All public data will bemade available on this portal by theend of 2018. 8

Lack of real estate and affordability

If New York gathers an exceptionalpool of talents, moderninfrastructure and a highlyprestigious image, this comes at aprice: living and finding a workplaceand an accommodation areextremely costly. This can be a majorbarrier for entrepreneurs wishing tobootstrap.

Discouraging administrativeprocedures

Administrative procedures toregister a company and obtain alicense in New York are complex andlead to painful loss of time and extracosts. This is the result of slow andsometimes inefficient administrativeservices and of the large amount ofpaperwork needed for registering abusiness in NYC.

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New York City: The World's Fastest Growing Startup Technology Center

In addition, many executivescomplain about complex visaprocesses that prevent them fromhiring highly qualified talents fromabroad. This situation seems to beworsening as the Federal State isrestricting immigration laws.

The threat of a talent gap andmismatch

The lack of top-tier engineers is oneof the big barrier to the city’s growthin tech and digital sectors. This issueis even more challenging than itbecomes difficult for firms to hirehighly-qualified engineers fromabroad.

This is why the only solution for NewYork seems to train and upskill itspopulation and to motivate itsyouth to embrace engineeringcareers.

A large income and educationaldisparity

New York’s growth lacks ofinclusivity: a part of the population isnot skilled and wealthy enough tobenefit from the digitaltransformation. Today, 16% of NewYorkers lack a high schooldiploma and 35% of youth 18-24are unemployed or in low-wagejobs.9 This situation is compoundedby defects in the education system,because high schools do not alwaysoffer education and trainingmatching with local companies’needs.

As the fastest growing start-uptechnology center and one of themost renowned city in the world,New York City allows a series oflessons learnt to be drawn, whichcan serve as example to other citieswishing to embark on a similar path.Namely, providing entrepreneursa large funding capacities tonurture their business thanks tothe involvement of angelinvestors, venture capital firms aswell as incubators andaccelerators, enabling individuals todevelop their business andcooperate in dynamic workspaces,together with the activeparticipation of the local governmentand universities to bridge the globalIT skill gap.

The role of a network of angelinvestors and venture capital firms

A first lesson learnt towards thesuccessful installation of NYCdigitalisation is that providing alocally-based network of angelinvestors and venture capital firms iscritical to any region looking todevelop a sustainable innovativeenvironment.

The key action of incubators andaccelerators for digitalisation

New York’s example shows thatincubators and accelerators arefundamental ingredients at thehearth of the digital transformationof an economy. In the last 10 years,the number of incubators and early-stage accelerators has exploded inNYC and meanwhile, an amazingtechnological development hasoccurred in the city. Incubators andaccelerators provide a business-supportive environment wherestart-ups can launch and grow theirbusiness and can benefit from theexpertise of investors and otherentrepreneurs at a very low cost.

Lessons learnt

4Common work areas speed uptechnological innovation

NYC case study also highlights theimportance of gathering companies,research centers, universities,professional services and investorsin a same place. The lesson is thatclustering talents and keystakeholders fosters the creation ofan innovative ecosystem wherecompanies, individuals and investorscan benefit from the knowledge andthe dynamic of each other.

In addition, coworking hubs are veryvaluable in a city with some of thehighest real estate prices in theworld.

Universities as a key tool for creatinga local high-skilled workforce

New York’s dynamics andattractiveness are linked with theability of its top-universities tocooperate with private and publicstakeholders to know precisely therelevant and most sought-after localskills. As the digital sector faces aglobal skill gap, having aneducational system able to teachthe relevant abilities and topromote engineering and sciencecareers is vital to sustain theattractiveness of a city.

Meanwhile, New York’s case showsthe necessity for a city to offer top-tier university and trainingprograms in order to attract world’sbest talents. Human capital is one ofthe foundation of growth andinnovation, therefore attractingtalent and tailoring them to theirvery special needs are priorities forambitious digital cities.

“The consistent challenge for thecompanies we work with at any stageof development is finding good techtalent. The hunger for developers andtechnological talent is totallyinsatiable. ” –Thatcher Bell, Gotham Ventures

© Anteromite/Shutterstock.com

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New York City: The World's Fastest Growing Startup Technology Center

KeyRecommendations

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The main recommendationsstemming from the experience ofNew York as a technological hubinclude the creation of a dynamicpublic sector supporting andfinancing the creation of innovativecompanies and the adaptation of thelegislative and educationalframework to attract talents in NYC.Efforts to ensure all residents canbenefit from the opportunitiesoffered by the digital economyshould also be reinforced.

Provide a targeted public support

As previously discussed, NYCtechnology and digital sector’sgrowth has been mainly supportedby private actors and initiatives ledby individuals.

Category Role of the stakeholder

Local government- Raise awareness among all stakeholders, especially education-providers and

students, about the needs of engineers and technology experts and design a set of

incentives to promote those careers.

- Provide a broadband access to all of NYC citizens and focus on the Bronx, Brooklyn,

Queens and Staten Island instead of Manhattan to favour the installation of

companies in those boroughs.

- Facilitate administrative tasks for opening a business in NYC, especially for foreign

talents.

- Try to influence federal decision-makers in favour of a more open immigration

regarding academics and international talents.

- Take the leadership in coordinating private initiatives and inform individuals about

the available tools and supports addressed to them.

Businesses- Provide funding and support to early stage start-ups to foster innovation.

- Continue to cooperate to develop concrete innovative projects

Universities/Research

centres

- Promote science and research careers because the technology sector, coupled with

healthcare, is the fastest-growing in NYC.

- Put a stress on providing a quality education to every New Yorker and set KPIs to

measure the level of progress achieved.

Local government has alreadyachieved a lot regarding the digitaltransformation through thedefinition of ambitious and coherentobjectives and roadmaps and thenumerous collaboration with privatestakeholders. However, it could playa greater role, first by coordinatingand giving greater audience toprivate initiatives that can look toonumerous and scattered. Indeed,many support is given toentrepreneurs in NYC (networkingevents, coaching from otherentrepreneurs, financial support, …)but there is a lack of awareness oftheir existence and potential.

Second, the dynamic growth inNYC is not inclusive enough andcould benefit to a wider range ofthe local population. Indeed, thereare still 16% of New Yorkers whichdo not have a high school diploma.Local government should do moreon upskilling its workforce,promoting IT and engineeringcareers. Providing a broadbandaccess and fundamental digital skillsto its residents is also key.

© alphaspirit/Shutterstock.com

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New York City: The World's Fastest Growing Startup Technology Center

Facilitate the hiring and theimmigration of foreign talents

NYC dynamic is fueled byimmigration, especially in the digitaland high-tech sector due to the city’stalent mismatch. Therefore,complicated visa process andadministration procedures as well aslaws limitating immigration couldpresent a serious threat to NYCfuture economic progress.

This is why local government shouldworking on facilitatingadministrative procedures andlowering set-up costs for foreigntalents. There is also a need for astrong politician action pressing forrelaxation of the overhaul of USimmigration policy considered bythe Trump Administration.

Open more working places forentrepreneurs and innovators ataffordable prices

Finally, it is important to make itpossible for entrepreneurs to findworking spaces at an affordableprice to make NYC remain abusiness-friendly environment onthe long run. A compounding issue isthat the lack of space in Manhattancreates a negative trend regardingthe availability and affordability ofwork areas.

To help entrepreneurs facing thischallenge, private stakeholdersshould provide generous funding toearly stage start up, as it is difficultfor them to find banking loans due tothe risk of their business. In addition,local government should promotethe migration of economic activitiesoutside New York’s borough, forexample in the Bronx where pricesare much cheaper. To make itpossible, it is necessary to work onoffering the same level of servicesand infrastructures as in Manhattan.

References

¹ New Tech City, the Center for an Urban Future May 2012https://nycfuture.org/pdf/New_Tech_City.pdf

Michael R.Bloomberf Official Website. https://www.mikebloomberg.com/

² Road Map for the Digital City, the City of New York, 2011http://www.nyc.gov/html/media/media/PDF/90dayreport.pdf3 NYC Mayor’s Office of Tech+Innovationhttp://www1.nyc.gov/site/forward/index.page4 See ¹5 Interview with Ms. Antola Tuula, Director for Economic and BusinessDevelopment, Espoo Mayor’s Office, 2015.6 Cornell Tech's Roosevelt Island Construction Project websitehttp://construction.tech.cornell.edu/7 New York Venture Capital Almanac Report, CB Insights.https://www.cbinsights.com/new-york-venture-capital#vc-and-angel-financing-trends-in-ny8 NYC OpenData for All New Yorkershttps://opendata.cityofnewyork.us/9 New York City Skills Gap Report, JP Morgan Chase, 2014,https://www.jpmorganchase.com/corporate/Corporate-Responsibility/document/54841-JPMC-GAP-REP-AW6.pdf

Educate and upskill the city’spopulation to bridge the engineerskill gap

New York knows a great successregarding startup and companiescreation and development. But whenthey grow, startups require moreand more employees and the localpool of human resource is notsufficient enough to meet demand.The paradox is that millions of NewYorkers are looking for jobs whileemployers are struggling to findskilled workers.

The focus should be led onhealthcare and technology as theyrepresent 45% of total middle-skill job postings in 2013-2014while 46% of New Yorkers lack thepostsecondary credentials to fillthese jobs openings.

Therefore, universities and publicactors should ensure that a system ofincentives is in place to promotetechnology careers and to supporttech students.

© S.Borisov/Shutterstock.com

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New York City: The World's Fastest Growing Startup Technology Center

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About the Digital Transformation MonitorThe Digital Transformation Monitor aims to foster the knowledge base on the state of play and evolution of digital transformation inEurope. The site provides a monitoring mechanism to examine key trends in digital transformation. It offers a unique insight intostatistics and initiatives to support digital transformation, as well as reports on key industrial and technological opportunities,challenges and policy initiatives related to digital transformation.

Web page: https://ec.europa.eu/growth/tools-databases/dem/

This report was prepared for the European Commission, Directorate-General Internal Market, Industry, Entrepreneurship and SMEs;Directorate F: Innovation and Advanced Manufacturing; Unit F/3 KETs, Digital Manufacturing and Interoperability by the consortiumcomposed of PwC, CARSA, IDATE and ESN, under the contract Digital Entrepreneurship Monitor (EASME/COSME/2014/004)

Authors: Laurent Probst, Bertrand Pedersen, Olivia-Kelly Lonkeu & Lauriane Dakkak-Arnoux, PwC

DISCLAIMER – The information and views set out in this publication are those of the author(s) and should not be considered as theofficial opinions or statements of the European Commission. The Commission does not guarantee the accuracy of the data included inthis publication. Neither the Commission nor any person acting on the Commission’s behalf may be held responsible for the use whichmight be made of the information contained in this publication. © 2017 – European Union. All rights reserved.