Testimony of

The New York Technology Council

Before
The New York Council
Committee on Technology in Government

December 16, 2009

Good morning, my name is Paul Ellis. I am appearing today on behalf of the New York
Technology Council (NYTC), of which I am a board member. First of all, I want to thank Council
Member Brewer and the rest of the New York Council Committee on Technology in Government
for holding this hearing on this important topic and providing NYTC with an opportunity to testify.

Introduction of the New York Technology Council

As the New York Technology Council is a new organization in the New York City area, I
would like to take a moment to introduce the organization to you and to explain our background
and purpose. As this Committee may be aware, the New York Software Industry Association, or
NYSIA, has recently ceased operations. NYSIA, which has frequently testified before this
Committee, was very active in the promotion of the software industry in New York City. In light
of the good and important work that was done by NYSIA in the past and in an effort to carry on
and to expand on that tradition, NYTC was formed, with the support of NYSIA, as a non-profit
organization. Just last week, NYTC hosted a well attended event in midtown Manhattan to
launch the organization, and we again want to thank Council Member Brewer for taking time out
of her busy schedule to attend.

Our members and sponsors range from startup companies to companies such as
Google and Verizon. The mission of NYTC is to work with business, academic institutions and
local government in an effort to make New York City a center of excellence for technology and
to sponsor educational programs, panel discussions, university internship programs and other
activities to support that mission. Thus, we look forward to working with this Committee and its
members and staff going forward to assist in the important role this Committee has in supporting
the technology industry in the City. While NYTC has its roots in the software and IT sector, the
goal of the organization over time is to become a vocal advocate and supporter of the various
other technology sectors which are well represented in the City. NYTC intends to advocate for
both near-term initiatives that assist its current member companies in their efforts to survive and
thrive in the City as well as longer term initiatives which will help New York City to become a
more supportive environment for the technology industry in the future.

The Opportunity for New York City

We know that we do not need to convince this Committee of the importance of startup
technology companies to the City’s economy. It has long been recognized that small
businesses are a significant source of new jobs. Among small businesses, high technology
startups, due to their potentially fast trajectory of growth, can be especially valuable as a source
of job creation. Moreover, startup companies tend to be very efficient users of capital
resources. That is to say, given the low capital requirements of many technology sector startup
companies, small investments in this sector can reap significant benefits in terms of job growth.
 As has often been chronicled, most recently in the Final Report of the Governor’s “Task
Force On Diversifying The New York State Economy Through Industry-Higher Education
Partnerships” as well as the report from the Center for an Urban Future on Building New York
City’s Innovation Economy, New York has significant assets that it should be able to leverage in
developing an environment that is supportive to startup companies. Among these assets are its
world class research institutions, its strong base of financial institutions, its location at the nexus
of various industries, including finance and media, and its status as a culturally rich metropolitan
center that in of itself is a significant draw to highly trained, ambitious entrepreneurs.

Obstacles to Realizing the Goal

Yet, as we all know and as these reports have similarly identified, New York City lags
behind other areas such as Silicon Valley and Boston in terms of the number of startup
companies the amount of venture capital investment, and other critical indicia.

In reaching an understanding of the factors that prevent New York City from becoming a
more robust center for startup companies, there are several factors which NYTC believes are
important. Given that this hearing is putting particular attention on helping startup companies to
survive, I will focus on those factors that have the most impact on existing companies that are
trying to become better-established.

A perennial concern for these companies is the limited availability of affordable research
facilities and office space. This factor alone can make it difficult for startup companies to
establish themselves and stay in New York City compared to the reduced price of such facilities
just a short distance out of town.

Another significant factor is the inability to hire enough well-trained personnel. Although
the importance of a constricted technology workforce has diminished somewhat in the current
economic conditions, it continues to be a concern, and will no doubt reemerge as an important
factor once the economy improves.

A further concern, particularly given current economic conditions, is the access to capital
necessary to fund early operations. New York has never had many sources of early stage
venture capital financing, and given the economy, access to such financing, as well as to angel
financing, has only become more difficult. Similarly, the general constrictions on debt financing
have certainly impacted startup companies as well.

Finally, the community or ecosystem that we have in New York to support successful
startup companies has yet to reach the level of development of that to be found in Silicon
Valley. An oft-cited factor in the attractiveness of Silicon Valley to startup companies is its rich
and well-connected environment of inventors, first-time and serial entrepreneurs, investors and
others that are vital to a robust community of startup companies. While such a community
certainly does exist in New York City, it is not as well developed as that to be found in the Bay
area. The people are here, but the community would benefit from additional organizations,
locations, and programs that create opportunities for them to meet and coordinate their efforts.

Overview of Valuable Programs

The following are the types of programs that NYTC believes can have the most
significant short term impact in supporting and promoting startup companies in New York City:
 • While perhaps of more value to companies that have become somewhat established, tax
credits can be a valuable tool to support early stage companies.
• Business incubators can be of great value in managing real estate costs and
administrative overhead of startup companies.
• Seed investments funds and loan guarantee programs can be a vital source of startup
capital, especially in difficult economic times.
• Programs that increase and help to retain the pool of skilled talent can assist in
generating the personnel needed by startup companies and then ensuring that they stay
in the New York City area rather than disappearing to other parts of the county.
• Finally, activities that help to build and support the entrepreneurial community, and
perhaps just as important, publicize the existence of a community that we already have,
can add significant value at relatively low cost.

I will conclude my remarks by focusing briefly on two types of initiatives that NYTC
believes can have the most immediate impact in assisting existing companies to survive through
the current economic slowdown and in improving the environment for startup companies
generally.

Access to Seed Funding

First, one of the most significant difficulties currently facing our members is access to
capital. Venture funds in NYC have never been a significant source of start-up funding and in
this environment are even less so. VC funding tends to be targeted toward companies that
have gotten past the start-up stage, have made it to market and are generating revenues. In
the current climate, however, early-stage venture financing is even more difficult to secure.

Angel investors have tended to be a more ready source of start-up capital. But given the
difficult economy, sources of angel investment have also diminished.

NYTC believes that finding ways to assist start-up companies with initial funding is an
area where the City could make a meaningful impact. Without question, the City has made
some good strides in this area in the last couple of years. NYC Seed, for example, is the sort of
program that deserves sustained support and we would urge that it and similar programs be
expanded and provided with additional funding.

We believe there are other types of programs that could also be useful. One proposal
that has been made in the past is a loan-guarantee program. Startup companies have difficulty
getting access to credit, due to their lack of revenues and hard assets. A loan guarantee
program would help to address that problem.

Raising the Profile of the City’s Tech Community

The second area that we would urge the Committee to consider is programs that raise
the profile and awareness of the technology community in the City.

The reality is that New York has an established and growing startup community. But
given all of the other activities that occur in the City, it gets less attention than it should. Thus, in
addition to working on building up that community, we would urge efforts that help to tell the
world what we already have. As is often said, “Perception is reality,” and that certainly applies
to the technology community in New York. If we work to build a stronger perception of this City
as a technology center, people will begin to recognize the great technology assets that New
York has.

Events like the NYC BigApps Competition are the sorts of activities that can generate
meaningful “buzz,” without requiring significant commitments of additional scarce funds. Such
activities raise the profile of the technology community, helping to retain the skilled people we
have and helping to attract others to the area. At the same time, they help to give further
momentum to the ecosystem necessary to generate the startup companies and to allow them to
thrive.

Conclusion

In closing I would like to point out that the involvement of City government in this area
over the last couple of years has been gratifying and very beneficial to the start-up community.
It is the strong hope of NYTC that the City will continue to be a vocal advocate for technology
businesses, even after stability has been restored to the financial services industry. For the
technology industry can be a vital sector of this City’s economy, and the City can truly be a
center of excellence in this area. But to get there will take the sustained commitment of the City
to the enterprise. NYTC looks forward to working with this Committee and other elements of
City government to make this vision a reality.

Thank you for your time and attention.