3 things holding New York tech back

August 30, 2012: 3:03 PM ET

Yes, the technology scene in the Big Apple is surging. But these factors still stand in the way.

new_yorkFORTUNE -- New York is no Silicon Valley.

It's been a great year for the New York City tech scene. Facebook (FB) began to build an engineering team in midtown. Mayor Michael Bloomberg announced plans for Cornell University to build a new applied sciences and engineering school on Roosevelt Island. And local entrepreneurs Kass and Michael Lazerow recently sold their social enterprise software startup, Buddy Media, to Salesforce.com (CRM) for a whopping $745 million.

Every couple of years, we write the story about how the New York tech scene is coming of age -- and every couple of years that story becomes more true. Five years ago when I began covering the technology for Fortune, I traveled to the Bay Area once or twice a month to keep up with the most important trends in the field. This year, I have been far less frequently because nearly everyone with whom I need to speak comes through New York -- or lives here.

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But make no mistake, Silicon Alley has yet to become a true rival for Silicon Valley. It still lacks some of the most vital components of a mature ecosystem. Here are the top three:

1. Money
There are a number of angel and early stage investors in New York City, but later stage investment funds can be hard to find.

Just ask Ben Lerer, CEO of the dude media empire Thrillist. This summer he raised $13 million. A manager himself in the seed stage venture fund Lerer Ventures, Lerer has a deep bench of connections. However, when he began to approach investors, he found there were relatively few folks in New York to pitch. "I had to get on a plane. I couldn't do it here," he told me. Ultimately, Oak Investment Partners led the round with managing partner Fred Harmon, who is based in Palo Alto, joining the board. Bob Pittman's Pilot Group, based in New York, made a follow-on investment.

2. People
In a word, we need more of them -- particularly the technically inclined. "The new york tech talent pool is better than ever, but still isn't quite at the valley level for sheer number and average experience level of engineers," says FourSquare General Manager Evan Cohen.

This is changing. ZocDoc CEO Cyrus Massoumi says it's easier to find great engineers in New York City than it was even four years ago, but they are young. "Lots of super smart aspiring entrepreneurs I talk to who are serious winners are missing technical leadership as their key ingredient," he says. "As the new generation of engineers mature in their careers, however, I think this problem will dissipate."

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3. Exits
New York City is short on massive tech success stories. Though Buddy Media's acquisition is generally heralded as the most successful in NY to date, it still falls well short of a billion dollars. And as Flybridge Capital Partners' Jeffrey Bussgang recently pointed out, not a single New York tech IPO has taken place in 2012.

These data points suggest a larger question: can New York City birth and grow a next-generation tech giant with the ambition and the acquisitive appetite of a Google or a Facebook? "We are missing the mentorship and culture to really go for it and build big companies and tackle really big problems," says Venrock partner David Pakman. He blames the lack of massive exits, saying "there are few mentors to encourage local entrepreneurs to go big or go home. This will change over time, but it is in stark contrast to the Valley's culture of "only big is cool."

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About This Author
Jessi Hempel
Jessi Hempel
Senior Writer, Fortune

Jessi Hempel is a New York-based technology writer for Fortune. She has written extensively about digital media, online advertising and social networking. Before joining Fortune in July 2007, Hempel worked at BusinessWeek and most recently served as their innovation department editor. Hempel is a graduate of Brown University and received a Masters in Journalism from The University of California at Berkeley.

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