Massachusetts Innovation News & Events

Jim Kerstetter of CNET Tongue Lashed in Cambridge

Article Courtesy of: CNET

Why I had it all wrong about Boston’s High-Tech scene

A Silicon Valley reporter returns to Massachusetts with a bad attitude about the commonwealth’s tech market.

The locals happily inform him he can pound sand.
Jim Kerstetter  by  - Article Courtesy of:  CNET

Charles River Boston Massachusetts

Charles River Boston Massachusetts (Credit: Photo courtesy Evelyn Rodriguez-Anton)

A foggy picture for Boston’s high-tech community?

CAMBRIDGE, Mass. — I’m at a crowded tech schmoozefest, and Tim Rowe, the pied piper of local startups, is giving me a serious talking-to about my blase attitude toward the local tech industry.

“I’d like you to think about what you’re saying and look at the facts,” Rowe says with growing intensity. “I think you’re going to see your perception and the facts don’t add up.”

No startup culture? Look around here in the Cambridge Innovation Center in Kendall Square, ground zero for New England startups, Rowe says. There are about seven floors filled with nearly 450 startups and offices for two major venture capital firms, Charles River Ventures and Highland Partners. And there’s more academic research and development spending in Cambridge than any other part of the country, including the San Francisco Bay Area.

It’s true. About $4 billion annually just in Cambridge versus $1.3 billion in the Bay Area, according to the National Science Foundation. And that stuff in the college labs, we all know, often leads to game-changing companies like Google.

“I’d like you to think about what you’re saying and look at the facts. I think you’re going to see your perception and the facts don’t add up.” –Tim Rowe, CEO of Cambridge Innovation Center, partner at New Atlantic Ventures

Not enough talent? This neighborhood right next to the Massachusetts Institute of Technology has more programmers per capita than anywhere in the world. That’s true, too. Look it up, Rowe says.

It’s a late Thursday afternoon and I’m in the fourth-floor meeting hall of the Innovation Center, which has all the brushed metal and floor-to-ceiling glass that you’d expect of a tech hangout. I’m here for the weekly Venture Cafe, a mix of how-to training sessions for entrepreneurs and old-fashioned glad-handing. It’s a scene you could find on just about any weeknight in San Francisco: Aspiring startup bosses are shouting to be heard by investors who are trying hard to look interested as the beer flows, wine is served, and a determined group of Southeast Asian techies serve what I think is a sweet Thai tea.

Rowe, who has run the place since 1999, is the emcee of the weekly event. Trim, clean-cut and in khaki pants, the quick-talking, native New Englander and MIT graduate is mounting a spirited defense of the local tech market.

And I am not making him happy with my Silicon Valley-centric worldview.

So what are the facts about the Boston area’s tech community? Everything Rowe says is indeed true, even if few people, even here in the home of the Celtics and Romneycare, seem to realize it. Per capita — and it’s important to look at the number in relation to the overall population — Boston and Cambridge in particular have more software developers and more R&D investment than anywhere in the world.

Perception, however unfair, is another matter. Depending on who’s counting, New York City passed greater Boston in total venture capital deals about five quarters ago. Silicon Valley and neighboring San Francisco dwarf the Boston technology market, as they always have. And Facebook — oh, Mark Zuckerberg, why did you have to found your company in a Harvard dorm room and then move the whole kit and caboodle to California? You have no idea the tooth-gnashing you’ve caused here.

The VC data is tricky, of course. In the first quarter, the Massachusetts share of venture deals was 10 percent, one percentage point behind New York and 30 percent behind California, according to CB Insights. (See the embedded document above.) But in total funding, California has a 49 percent share, followed by Massachusetts with 11 percent and New York with 6 percent. That relatively strong second ranking has much to do with the Bay State’s strong showing in health care. In high-tech areas such as Internet and mobile tech, it’s a distant third. And that, fellow Bostonians, is why our area is often considered an also-ran in high tech.

The boomerang

I returned to Boston several years ago after a decade in San Francisco. My view of the Boston high-tech industry has gone something like this: Once upon a time huge companies like Digital Equipment and Wang made minicomputers (think a slightly less lumbering version of a mainframe) and dominated the tech landscape. They were headquartered near Rte. 128 surrounding Boston, and were by the mid-1980s what Google and Apple are today.

But then the PC revolution happened… somewhere else. The minicomputing companies failed to adapt to smaller, easier-to-use devices and eventually disappeared. Insert your dinosaur metaphor here. Then the dot-com boom happened, and while Boston had its fair share of companies like the search engine Lycos, it didn’t produce a new giant, a new Yahoo, eBay, Amazon, or Google. The most interesting local companies, mostly focused on the plumbing for networking and mobile tech, were acquired by Silicon Valley heavyweights like Cisco and Intel.

The one Boston-area giant that has emerged over the last two decades is the data storage company EMC and, rightly or wrongly, it has earned a reputation for insularity. Or just being boring. Another exception? The Roomba maker iRobot.

And then social media came along and, far as I could tell, Boston had HubSpot and that’s about it. Last fall, Zuckerberg returned and (I will assume) unintentionally rubbed salt in the wound when he said that if he had to do it all over again, he’d have kept Facebook in the Boston area. Nice of him to say that. He also mentioned that Facebook would open a local office somewhere down the line. About six months later, Facebook still doesn’t have an office in Boston, though there are rumors of a shadow office — which usually means there are people telecommuting from home.

As for me? Like many people, I returned to the East Coast to be closer to family and because I wanted my kid in good public schools, which San Francisco sadly lacks. But I worked West Coast hours on the East Coast so I could stay on top of what was going on out there. The local companies were barely on my radar.

But by the time I’d made it to this local startup-fest at the Innovation Center, crazy as it sounds to outsiders, I’d started to buy into this notion that Boston has a vibrant tech scene. Now, I’m not deluded enough to think the next generation of hot consumer tech companies are going to be here. That horse has long since left the barn.

Still, people here are good at solving problems. And the next big problem to hit tech will be big data: How do you make sense of those once-unimaginable volumes of data going into big consumer sites? Traditional databases and tools won’t cut it, and many of the people trying to figure out that issue are right here.

They’re just not as cool as the millionaire hipsters and wannabes of San Francisco’s movable feast of a tech scene.

How did I go from cynical to an embarrassing-for-a-journalist Polyanna? That involved a visit to old-school venture capitalists on the “Money Hill,” a trip to the fringes of local gentrification, a meeting with three more VCs who clearly had better things to do than listen to me, and an interview with the CEO of a newly minted public company whom I’d interviewed years ago when he was running another company in San Francisco.

Put it all together: Do you have an open-minded reporter trying to let the facts dictate his analysis, or the sad case of a homer who believes against all odds that his team is going to win? Probably a bit of both. I am, after all, a Red Sox fan; denial comes naturally.

The Money Hill

Waltham, Mass., sits about 15 miles west of Boston along Rte. 128. For anyone traveling along the highway to points north, it’s where the roadway gets unnervingly curvy and a series of old radio and TV towers are mounted on rocky hills above. If you look closely, you’ll also see signs you could just as well see along Rte. 101 in Silicon Valley — Oracle, Cisco, and the like. Those used to be local companies. They’ve long since been acquired.

Just a short drive away, tucked into an office park, is what local tech folks used to call the Money Hill. It’s where several venture capital firms were headquartered for decades. Today, many of them have relocated to Cambridge, but a few remain. Two weeks before my scolding in the Innovation Center, I’m on the hill in the offices of North Bridge Venture Partners, enjoying a quiet cup of coffee with two senior partners, Jamie Goldstein and Jeffrey McCarthy.

At least I think it’s the Money Hill. I’ve asked three different people where exactly the Money Hill is, and I’ve received three different answers. Regardless, it’s a very nice hill, sloping steeply and giving the row of offices on top a fine view, even on a rainy day like today, of a reservoir and forested neighboring hills which may or may not be the real Money Hill.

Goldstein and McCarthy are ticking off local companies they’re excited about. Some they’ve invested in. Some they are merely excited about. There’s Endeca, Demandware, Acquia, A123, Heartland Robotics, QD Vision, and many others. Some are cloud computing or software as a service companies, some are energy companies, some are doing research in new materials. There are also biotech companies and big-bet energy research investments.

“Are we less creative? I think that’s totally wrong.” –Venture capitalist Jamie Goldstein

If there’s one thing in common among them, it’s that none of them are consumer tech companies. No quick-hit mobile app outfits here. Instead, it’s companies like QD Vision, an outfit out of MIT that’s working on technology for displays in things such as flat-screen televisions. They are, thankfully, terribly patient with my less-than-charitable questions about the local tech industry, particularly when I ask why the local tech scene has fallen so far behind? Are people in Boston more risk averse than Californians?

“I hear that all the time,” Goldstein says. “Also, are we less creative? I think that’s totally wrong.” After all, he argues, the long-term bets they’re making take more courage than throwing a few hundred thousand here and few hundred thousand there at a bunch of startups.

“The 500 Startups model?” I ask. That, for those of you who haven’t been slavishly following the startup scene, is a venture company that’s spreading money far and wide in little piles to see what sticks.

“We’d never do that,” says Goldstein.

There’s another big difference between Goldstein and McCarthy and the VCs out west: They’re not celebrities. No Marc Andreessen or Dave McClure here. These are behind-the-scenes guys. They’ve funded 180 companies over 18 years, and they don’t expect to do much more than that. They do have an office in San Mateo, Calif., McCarthy says. “It’s not so different than what we do here,” he quickly adds.

They agree that Boston has not had a big hit in a long time. There hasn’t been a company so important that it created the proverbial ecosystem of smaller, feeder companies around it. Inktomi, the big Web plumbing company, is a strong company but hardly the center of an ecosystem and Demandware recently had an IPO that, unlike Facebook, did not slide backward after its first day. That could be a big name over time. But it’s certainly not there yet. Shoot, it’s not even profitable.

After talking to the North Bridge partners, I think believing the local tech market gets beyond a talent pool for the big guys out west requires two things: A leap of faith, and that assumption that the next big thing in tech is solving the big data problems that Boston’s tech crowd has historically been very good at solving.

The gentrification-resistant neighborhood

Two days later, I ask more questions of Coach Wei, the CEO and co-founder of Yottaa, a “big data” company in a little, unassuming office in Boston’s Downtown Crossing district.

Downtown Crossing is a tightly packed neighborhood of pedestrian malls, narrow streets and an air of decay. Despite years of trying by city officials, this compact area has avoided the renaissance enjoyed by the rest of the city’s downtown. Blame the loss of a few landmark department stores or poor planning. Whatever the cause, it’s the kind of place that makes you peek over your shoulder if you’re there after dark. Not surprisingly, the rents here are cheaper than nouveau-hip Kendall Square across the Charles River.

Born in China’s Hunan province, Wei went to work for EMC in 1998, when it had 6,000 employees. He was one of eight people who built EMC’s ControlCenter software for data management. When he left two years later, the company had 25,000 employees.

“We’re not trying to be the next Twitter. We’re not trying to be the next Facebook.” –Yottaa CEO Coach Wei

He started a company called Nexaweb, which ran into legal wrangling with EMC that he’d rather not talk about. That led him to Yottaa in 2009, which he thinks is tackling the proverbial “next big market opportunity,” big data.

“I never really thought about moving to California,” says Wei. “Staying here was the right thing to do… There’s a lot of advantages here,” he says. The people who know how the Internet works best are local, he says. It’s a tremendous talent pool for people who understand Internet arcana such as DNS protocol routing. It’s a big reason Google and Microsoft have large and growing offices in Cambridge.

Now if he wanted to do a consumer tech company, he admits he’d probably thinking about heading west, where there are lots of experienced hands in product development, marketing, and management.

“But we’re not trying to be the next Twitter,” Wei says. “We’re not trying to be the next Facebook.”

OK, I’m starting to get it, I think. You want to be Mark Zuckerberg, move to California and take your friends with you. You don’t want to be the Hooded One? No need to go west, young man. But don’t count on anyone making a movie about you.

The Charles River gang

The next week, I visited the offices of Twitter investors Charles River Ventures. Who better to shed light on the future of Boston’s tech scene than the VCs who invested in Twitter? (Albeit notably, out of their other office in Silicon Valley.)

Just a few months ago, Charles River moved into one of the top floors of the Innovation Center. I’m meeting with partners Jon Auerbach, Izhar Armony, and via videoconference, Devdutt Yellurkar. Auerbach used to be a reporter and was nominated for a Pulitzer for The Wall Street Journal. This, of course, is terribly interesting to me, as would any encounter with a writer who found something else to do for a living.

“Like Hillary Clinton said, it takes a village. But if you try to do consumer Web here, you do not have a village.” –Venture capitalist Izhar Armony

Unfortunately, I’m here to talk about the Boston high-tech market. It’s the end of the day and the partners have squeezed in time for me between two “partner” meetings that I assume involve serious discussions of how and why Twitter will make an awful lot of money for all of them.

Auerbach has just walked me through a recent history of the local tech industry. It’s a bit like mine, but his doesn’t mention dinosaurs. There have been lots of good companies, but none of them were breakouts. The closest has been Inktomi. I ask why consumer tech companies haven’t taken off here. Armony jumps in.

“Like Hillary Clinton said, it takes a village,” he says. “But if you try to do consumer Web here, you do not have a village.” At some point, a geography gets critical mass. Silicon Valley achieved it with the PC industry. It’s done it again with Web and social companies. Boston has whiffed on both.

Does that make it impossible to do a consumer Web startup in Boston? Not at all. Look at HubSpot. And Charles River has done seed funding for some small local companies such as Kibits and LuckyLabs. But it makes a lot more sense to go with what an area is good with. And what are Boston’s technologists good at? Solving difficult problems, not apps.

“Boston is not cheap, but it doesn’t have the same characteristics at the Valley where when things heat up, everything costs twice as much.” –Demandware CEO Stephan Schambach

A few days later, I’m on the phone with Stephan Schambach, the founder of Demandware, a moderately successful cloud computing outfit, sort of the for e-commerce service in suburban Burlington, Mass.

Interestingly, I interviewed Schambach at least 12 years ago when he was running Interworld, a San Francisco company that sold e-commerce software the old-fashioned way, through licenses. I should add it’s a bit unnerving that he says he still has his notes from that conversation. When he was thinking of starting a new company in 2004, being back in San Francisco or in Boston or New York didn’t really matter to to the native German. What did matter was venture backing, and he found that in Boston.

Does he miss San Francisco? “Sometimes I do, sometimes I don’t,” he says. “I really enjoyed my time there.” There are upsides to being in Boston, however. Employees are more loyal, there’s tremendous technical skills coming out of the universities, and “Boston is not cheap, but it doesn’t have the same characteristics as the Valley where when things heat up, everything costs twice as much.”

The merry startups

That brings me back to Rowe and his merry band of startups. Pop in on the weekly gab sessions here in the Innovation Center and there’s no shortage of aspiring entrepreneurs, like Brad Geswein, a cheery MIT alumnus with double graduate degrees in business and mechanical engineering who is running a little company that’s made a theft-proof bike light.

So I ask Geswein, who’s carrying an old briefcase that he had turned into a portable stereo (this is an MIT engineering grad, after all), if he ever considered heading to California after he graduated.

Didn’t he want to work for a cool startup? Enjoy better weather? My God, does he not understand the romance of a young man heading west to find his fortune?

“Sure,” Geswein says. “But there’s not much there that I couldn’t do here.” He managed to get $84,000 in seed funding for his young company, Gotham Bicycle Defense, through through the open-source funding outfit, Kickstarter. He’s working with a few friends on that and another startup that’s building wireless headphones. He’s having fun building things. And building things, he points out, does not require moving to California.

“Speaking with my investor hat on, I’d say I have no difficulty crediting Boston as a good place for a consumer-facing company.” –Geoff Mamlet, managing director of Cambridge Innovation Center, principal at New Atlantic Ventures

As I finish writing this piece, I exchange e-mails with Geoff Mamlet, who works with Rowe at the Innovation Center. I tell him my conclusion: There’s plenty of opportunity and resources in the Boston area if you want to solve high-tech’s difficult issues or build off cutting-edge science. But if you want to reach mass-market consumers, this is a tough place to make a go of it. He isn’t buying my line.

“I know that’s been the rap on Boston for some years, but I think it’s one of those cases where perception lags reality…” Mamlet writes back to me. “Speaking with my investor hat on” — Mamlet is a principal at New Atlantic Ventures, where Rowe is also a partner — “I’d say I have no difficulty crediting Boston as a good place for a consumer-facing company.”

Geswein is right, of course. And Rowe and Mamlet are probably right, too. To a point. But they won’t know what it’s like to wake up to the smell of eucalyptus, to live in a boom town (or a bust town). For many entrepreneurs, the journey is as important as the results. And the journey, like it or not, is a lot more interesting when you see just how fast a limited-edition Porsche can drive on I-280 on the hills above Silicon Valley.

Do you need to head west to create a great company? No.

That is, unless you’re planning on the next Facebook.

Jim Kerstetter has been writing about the high-tech industry since the 1990s. He has been a senior editor at PC Week and a Silicon Valley correspondent at BusinessWeek.

He is now senior executive editor at CNET News.

He moved back to Boston because he missed the Red Sox.

E-mail Jim.

Article Courtesy of:  CNET