On April 13, NYC based Yext went public, prompting CB Insights to produce this chart showing the 15 biggest tech exits in NYC over the last five years:
I was struck by the relatively small amount of wealth ($11.3 billion) created by NYC (population 8.4 million) vs. other cities with dramatically smaller populations.
Take Jerusalem for example, a city with a population of just 810,000, which is less than one-tenth the population of New York. Jerusalem already has an exit in 2017 (Mobileye) worth $15.3 billion, 35% more wealth then NYC has created from these 15 exits over the last five years. You could argue Mobileye was an anomaly, but you’d be wrong:
Tiny Jerusalem had a $5 billion exit (NDS) in 2012, almost as much as NYCs top 4 exits combined.
Even less impressive then the amount of wealth created by NYC tech companies that have exited, is the performance of the these companies after exit.
Etsy has lost 35% of it’s value since it’s IPO (and 65% since it’s first day close). OnDeck is down 75%+ since it’s IPO. Yahoo has indicated it may need to write down the entire goodwill of it’s Tumblr acquisition, or about 65% of the value it paid. IPO investors in SFX Entertainment (which I appreciate wasn’t really a tech company, but who am I to argue with CB Insights?) lost 100% when the company filed for bankruptcy.
So why hasn’t NYC created the wealth in tech exits that other tech ecosystems have?
The Problem With NYC
A few weeks ago, there was a great report published called: “The Global Startup Ecosystem Report 2017”, which ranked dozens of different tech ecosystems around the world across a variety of factors:
According to this chart, there is no problem with NYC. In fact, it ranks 3rd in the world in “Performance”, which Startup Genome says takes in to consideration: “Startup Output, Exits, Valuations, Early-Stage Success, Growth-Stage Success, and overall Ecosystem Value.”
Interestingly, Jerusalem “narrowly fell outside of this year’s top 20 ecosystem index”.
Los Angeles is ranked 9th, even though Snap recently exited at $20 billion.
Chicago is ranked 18th, and they had Groupon, which IPOd at $12.7 billion.
So, to tell you the truth, I don’t really know why NYC hasn’t had any huge tech exits. Last week, Oracle acquired NYC based Moat for a reported $850 million. That’s another nice win for the NYC ecosystem. But it’s not huge.
I recognize that there are 15 private unicorns in New York, including WeWork (which I don’t think is a tech company), which recently raised money at $16 billion. So maybe it’s more a question of timing, than an inherent problem. But in any case, I think this is an issue the ecosystem here needs to appreciate.
But the lack of big tech exits in NYC should concern everyone who cares about the NYC tech ecosystem because the health of an ecosystem is ultimately driven, at least in part, by the money received during exits.
Money received during exits is a major source of capital for ecosystems, as some of that capital gets invested back in to the ecosystem, creating a virtuous circle of capital. Exits also create a slew of seasoned tech executives who leave the exited company with the knowledge of how to build a big company, creating a virtuous circle of human capital.
Without big exits, the ecosystem is like a roach motel; money can come in, but it doesn’t get out. And that’s not a good thing for anyone.