Does this mean that Boston is already well served by venture capitalists? Does that mean West Coast and European investors think the tech scene here doesn’t have enough “upside,” as investors like to call it?
First, the data. There’s no shortage of money in Boston. According to Pitchbook, a funding database, VCs invested $35 billion in Greater Boston area startups last year across all industries, making it the No. 4 city in the United States, after San Francisco, New York and Los Angeles. But New York is on fire, falling from 4th place ten years ago to 2nd place. (Miami is not in the top 10 list.) Venture capital firms headquartered here raised nearly $12 billion in new capital for investment last year, putting us in third place after San Francisco and New York. But again, New York also rose in those rankings, taking over what had always been Boston’s spot.
I asked people who have worked in venture capital and startups for at least the last decade what they think of venture capital firms revolving around Miami and New York.
Todd Dagres, founder of Spark Capital, a Boston-based venture capital firm that has invested in startups such as Wayfair and Twitter, said, “Boston has been in decline for decades. avant-garde, but the trend isn’t great. Dagres cites four reasons for Miami’s appeal to investors: “taxes, COVID-related remoteness from main office, weather, and the political environment.” Florida has a Republican governor and no income tax, and Republican Miami Mayor Francis Suarez has promoted the city as a hospitable place for startups.
“For New York,” Dagres says, “it’s an exodus from California and the pull of the Big Apple.” But he thinks New York’s rise “will be more transient” because of the city’s winter weather, taxes (New York City levies a personal income tax, in addition to the state), and left-wing politics.
“Massachusetts needs to think hard about how to establish an environment that will attract founders and investors,” Dagres said, citing the state’s proposed “millionaire tax” on earnings over $1 million. “The people we want in Massachusetts can go where they want now, more than ever,” he says. “There can be no resting on laurels.”
Adam Medros is a former TripAdvisor executive who is now COO of Embark Veterinary, a DNA testing company for pets. He sees Miami attracting “the tax-dodging crowd” and “the crypto crowd,” referring to cryptocurrency-related businesses. For tech companies that can now hire employees remotely, Medros says, “geography doesn’t matter as much is probably a net negative trend for Boston.” By contrast, for biotech companies, where many employees must work together in a lab, “geography may matter more than ever, and Boston could be a clear winner on that front.”
“Miami happened spontaneously during the shutdowns, due to a pro-tech mayor and the lack of pandemic restrictions and a large convention space,” says Joe Kinsella, a Boston entrepreneur whose latest startup CloudHealth Technologies, was acquired by VMware in 2018. It started to hear the Miami buzz when cryptocurrency conferences started happening there at a time when “no other city would host them,” because of COVID. “It was definitely a snub against Boston and many other cities that had strict lockdowns,” he says. “But there are legitimate VCs leading the charge, so it’s more than just a reaction to pandemic lockdowns now.”
But New York, Kinsella says, “has been kicking our ass for several years now,” having launched companies such as Etsy, Kickstarter and Shutterstock, a photo licensing site. “Unlike Miami, NYC’s rise isn’t a recent trend. They’ve been building a technological force for years, and it shows no signs of slowing down.
He adds, “I think the biggest thing we can do to make Boston a bigger tech destination — beyond the things we need to do to be a better city — is to have a mayor and/or a pro-tech governor. Boston technology has been built on excellent public-private partnerships.
At Boston venture capital firm Underscore, co-founder Richard Dulude says he spent several months with relatives in Miami during the pandemic and had the chance to assess the startup scene there. “They not only have top-down support from the mayor and others, but a real influx of people,” Dulude said. “Florida has had the highest number of people entering the United States in recent years, and Miami has been a big beneficiary. You’ve had founders who made this move, investors who made this move, and tech company employees. While Dulude says he evaluated some startups while living in Miami, he has yet to make any investments in them.
Of the venture capitalists’ decision to establish outposts in Miami and New York, Dulude says there are “a lot of backers in Boston already.” These companies “didn’t see the same scale of white space here as in other geographies.”
When I reached out to a handful of venture capital firms that recently opened offices in New York or Miami, seeking comment, I received only one response, from Menlo-based Threshold Ventures. Park, California, the West Coast Venture Capital Link. Managing Partner Emily Melton explained that “New York-based businesses are a growing force in our portfolio” and that one of her partners moved to the city last year. Threshold has already made a handful of investments in New York startups — outside of California, Melton said, that’s the other market where the company has continued to spot great investment opportunities. He also backed a Boston startup.
“Very few people who move somewhere to build a startup will choose the second largest startup ecosystem, but many will choose #1,” says Kabir Hemrajani, co-founder and CEO of Cambridge Guilds startup, which is building a portfolio of cryptocurrency for video gamers. “When you look at where to do a startup on the East Coast, New York wins for ease of funding and community, outside of biotech. Even if Boston is No. 2, it will be far behind. Hemrajani says his startup recently raised an initial round of capital led by investors based not in Boston, but in Europe and San Francisco. He says he wishes there was a lot more seed funding for more startups here — giving Boston a better chance of creating big tech successes.
Kristen Anderson, founder of a startup that helps the self-employed manage their healthcare, retirement and other benefits, wrote a Publish last year explaining why she decided to move the company, Catch, from Boston to New York. In it, she rapped “conservative and traditionalist venture capitalists” as one of the factors behind the move. (She also cited a dearth of consumer-focused financial services startups here to hire employees.) Her startup has raised nearly $20 million in funding in its short lifespan — none of that from investors. Boston-based investors.
If Boston’s tech scene isn’t getting an influx of new investors like Miami and New York, it may be wise for the existing ecosystem of venture capital firms to take a hard look at how they are perceived by founders, and for policy makers need to consider if and how they want to support the health of the VC and tech scenes here.
Scott Kirsner can be contacted at [email protected]. Follow him on Twitter @ScottKirsner.
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