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INNOVATION ECONOMY

In N.Y.-Boston venture rivalry, there may be no clear winner — or loser

Dennis Crowley, founder of FourSquare, and Dennis Crowley, founder of FourSquare, and
By Scott Kirsner
Globe Staff / June 27, 2010

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In the heart of a baseball fan, there is only space for one team: the Red Sox or the Yankees. And rarely does the allegiance flip.

In the tech world, Boston entrepreneurs have historically taken it for granted that Boston venture capitalists loved them first, best, and forever.

But lately, they can’t help noticing how many local investors seem to be “carrying bags of money south on the Acela,’’ as Jules Pieri puts it. Pieri is founder of a Lexington e-commerce start-up called Daily Grommet Inc.

Representative of the classic Boston venture capital firm is .406 Ventures: Not only is the firm’s waterfront office a mini-museum of Ted Williams memorabilia, but most of the partners’ investments are concentrated inside Route 495.

Much more Manhattan-centric is Spark Capital, with headquarters on Newbury Street, but with only four investments in Massachusetts. Founded in 2005, Spark has put money into New York start-ups like Boxee Inc. (which brings Internet videos to living room televisions), OMGPOP (a developer of technology for Web-based games), and ExtensionFM (a service that helps organize MP3 music files). Partner Bijan Sabet, a Long Island native, even owns up to being a diehard Yankees fan.

“When it comes to Web-based businesses and consumer Internet, NYC has more going on than Boston,’’ Spark founder Todd Dagres wrote via e-mail, before acknowledging that Boston still tops New York in biotech, clean-tech, and technology for corporate customers. “On any given day, there is a Spark partner in NYC,’’ he writes.

Spark isn’t alone in trying to discover the next DoubleClick (the online advertising firm acquired by Google for $3.1 billion) or Foursquare (today’s über-hot mobile application, growing faster than Twitter did). Boston-area investors are attracted by Big Apple start-ups trying to change the way we buy, the way marketers communicate with us, and the way we consume media on all sorts of devices.

Last December, Polaris Venture Partners in Waltham opened up the third of its Dogpatch Labs incubators near Union Square in Manhattan, offering free office space, Internet access, and coffee to a group of handpicked entrepreneurs. (The other two labs are in San Francisco and Cambridge.) Today, the New York lab houses about 40 entrepreneurs working on 16 different businesses. One start-up, Stickybits Inc., which is developing clever new uses for barcodes, raised $1.6 million last month from Polaris and other investors.

Chris Sheehan, managing director of angel investing collective CommonAngels, in Lexington, said that he hopes to bring more New York entrepreneurs north to pitch their businesses to his members. “In terms of capital-efficient start-ups in the mobile space, or consumer Internet, there’s a lot happening down there,’’ Sheehan says.

At Highland Capital Partners in Lexington, partner Bob Davis says “we’ve been going down there more often, without question.’’ The firm has put money into three New York companies since February, including Pixable, a photo-printing business that was born on the Massachusetts Institute of Technology campus. (That deal has not yet been officially announced.)

In March, Matrix Partners of Waltham dispatched partner Nick Beim to New York to open a new office there; Matrix had earlier backed Gotham start-ups like TheLadders.com, a career site focused on jobs that pay six-figure salaries, and Gilt Groupe Inc., a members-only shopping site focused on luxury goods. (BuyWithMe.com, a group-purchasing site, was based in Boston in January, when Matrix handed $5.5 million to the company; the company has since relocated to New York.)

And Founder Collective, a venture capital firm started last year by a trio of entrepreneurs and investors, initially set up offices in Cambridge and New York. But so far, the firm, which has $40 million to invest, hasn’t put money into a single Bay State start-up, focusing instead on New York and California. Managing partner Eric Paley says that will soon change.

New York, Paley says, “has lots of confidence. Boston doesn’t seem to have that. For whatever reason, Boston still thinks it should have been Silicon Valley.’’ He also cites the ready availability of capital from individual investors in New York as a big plus; that angel funding can help a new business get to the stage where a venture capitalist is comfortable investing.

In Boston, some entrepreneurs gripe about investors’ sudden surge of interest in New York. Kabir Hemrajani, founder of Boston-based RiotVine Inc., a start-up that helps urbanites find fun local events and then collect a group of friends to go to them, is among those who wonder whether they might have better luck attracting funding if they simply picked up and moved to Manhattan. (Hemrajani already has a cofounder who works in Piermont, N.Y.) Others, like Paul Deninger, the Waltham-based vice chairman of the Manhattan investment bank Jefferies & Co., fret about the magnetic lure New York is exerting on many young entrepreneurs educated in Boston.

But perhaps the start-up world doesn’t need to resemble the Red Sox-Yankees rivalry. Paley suggests there’s an opportunity for the two cities to collaborate. “It’s really one big ecosystem,’’ he says. “To a certain degree, it’s the Northeast venture and entrepreneurial community, not Boston vs. New York.’’

There are already a few examples of companies splitting their operations between the two cities. ScanScout Inc., a company that helps manage advertising shown in online videos, has 30 employees focused on product development and engineering in Boston and about 20 employees in New York dedicated to sales and business development. “Our Boston office is next to South Station,’’ says founder Waikit Lau, “and our New York office is near Penn Station. You can take the first train down there and the last train back.’’

Assured Labor Inc., which helps companies in emerging markets recruit employees using mobile phones, has one founder working in Cambridge, at Polaris’s Dogpatch facility, and another at the Dogpatch outpost in New York.

And DataXu Inc., a company headquartered in Boston that aims to make online advertising more effective, also has a sales office in New York. The technology comes from MIT, “but New York is where most of the major buyers of advertising are,’’ says chief executive Mike Baker. “We as Bostonians are on better footing than our competitors in California because we’ve got Acela.’’

Jeffrey Bussgang, an investor at Boston’s Flybridge Capital Partners who serves on DataXu’s board, believes the two cities can benefit from one another’s strengths. Boston entrepreneurs say it can be tough to hire executives with media sales and consumer product experience here, and in New York, entrepreneurs complain about hiring skilled software developers.

“If we could cut down the Acela trip to two hours,’’ Bussgang says, “that would be a win for everyone.’’

Scott Kirsner can be reached at kirsner@pobox.com. Follow him on Twitter @ScottKirsner.