When the founders of Hubspot Brian Halligan and Dharmesh Shah founded their inbound marketing startup in 2004 while they were students at MIT and inbound marketing was not well understood. They managed to turn this concept right into a successful company and eventually went public in 2014. The Boston-based company’s current market capitalization is over $30 billion.
Several elements contributed to the favorable result. The founders met at certainly one of the world’s leading universities. They had an idea, but they were in a spot that nurtured ideas, in a region with experienced enterprise investors who saw the corporate’s potential. This gave them the chance to raise capital, refine their plans and develop the corporate. All of this was possible because they were situated in the Boston area.
Every city needs a success story like Hubspot, but Boston has many others, including iRobot, Wayfair, Acquia, and Carbon Black, to name a number of. Just last 12 months, Klaviyo went public, joining a parade of startup success stories. Some have been bought. Some went public. But all of them showed what is feasible for many individuals who dream of building a successful business in the Boston area.
Because these corporations generate wealth for the founders, this constitutes an angel funding system in itself, where the founders flush out money from their exits, supporting a brand new generation of founders and continuing this virtuous cycle of wealth generation. Moreover, other entrepreneurs also leave these corporations and begin their very own corporations, often financially supported by their former bosses.
In the lead-up to our Early Stage event on April 25 in Boston, I spoke with several local Boston investors and advisors to help paint an image of what makes Boston’s startup ecosystem so successful.
While there are a lot of dimensions to the success of a business ecosystem, we often have a look at the cash invested to measure how well a selected area is doing. When we speak about Boston, the town is just an element of it. This is absolutely a regional and even statewide perspective, but any way you have a look at it, PitchBook counts enterprise dollars and puts the Boston area fourth in the nation in the fourth quarter of 2023. For a small city in a small state, that is pretty impressive.
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Two of the remaining 4 are in California. San Francisco is in the lead (which is not any surprise to anyone), followed by New York, Los Angeles and Boston. In the fourth quarter of 2023, Boston accomplished 208 transactions, totaling $3.5 billion in investment in the region.
How does Boston punch well above its weight when it comes to enterprise investing? Emily Knight is president of The Engine Accelerator, an MIT spinoff that works with founders trying to turn big ideas from research labs into startups, sometimes referred to as “hard tech.” He says it’s a mixture of things, starting with 35 colleges and universities in Boston itself. When you expand the map to include the Boston metropolitan area, which incorporates Cambridge, that number increases to 44 and adds Harvard, MIT, and Tufts to the list.
He says these universities are a breeding ground for brand spanking new ideas. “There is a lot of research and a lot of cutting-edge innovation being translated into companies coming out of these universities,” she said.
Image credits: PitchBook
Lily Lyman, a partner at Underscore VC, a Boston-based investment firm, says the university system is the major reason her firm decided to launch in Boston. “It’s a huge piece of the puzzle and honestly, it’s a big reason why we’re here in Boston and why we’re focused on Boston,” Lyman said. In fact, about one-third of Underscore’s portfolio got here directly from the university system in this area, with a heavy emphasis on Harvard, MIT and Northeastern.
This leads to the second and related element of pure talent coming from all of those schools. Rudina Seseri, managing director of Glasswing Ventures, says talent is so necessary that STEM students are consistently flowing out of those schools.
“If you only think in regards to the talent itself after which have a look at where the AI and machine learning talent is coming from, you see an incredible talent pool that’s a very good fit for my company’s investments in enterprise and cybersecurity, and this region has done well in that regard very, very, excellent,” she said.
Lyman says once you put it all together, you get the essential building blocks of a successful startup ecosystem. “The combination of technology, the research and development that happens here, and the talent that comes through here is unparalleled,” she said.
That’s not to say that Boston is not lacking in amenities, especially for young founders, that are abundant in larger cities. These limitations are well documented. There’s a shortage of inexpensive housing, the general public transportation system is in disrepair, traffic is terrible, bars close at 2 a.m. – and the town, with its Yankee modesty, doesn’t do a very good job of promoting itself.
Seseri says that while Boston could have some limitations, each city has its own problems. He says it’s really necessary to offer a spot where startups can grow. “We can influence how friendly we are to entrepreneurship and how we support entrepreneurs. So from offering free spaces to more and more areas for incubators, accelerators and discoveries, to providing access to customers and platforms that can accelerate innovation,” she said.
Indeed, there are a lot of incubators and accelerator programs similar to Mass Challenge, Greentown Labs, IDEA and Roxbury Innovation Center, amongst others, offering a spot to nurture early-stage ideas.
And what Boston may lack in nightlife, it definitely makes up for in brain power and a protracted history of startup success. As Seseri says, success breeds success.
“I might say that at first we’d like the support of more founders. We must support further successes. We need these successes to make the wheel turn faster,” she said.
Credit : techcrunch.com
