The State of NYC’s Digital Economy in Q2 2021: Startup Ecosystem


When it comes to NYC’s startup ecosystem which has over 9,000 companies and an estimated value of over $71 billion, the first quarter of the year was characterized by the Wall Street Journal as having gone into ‘overdrive’ despite the pandemic – it represented roughly 20% of all private sector wages at the time and had been cited as the main reason the city was able to collect much greater amounts in tax revenue than had been estimated. 

With local venture capitalists and angel investors having cash available from numerous IPOs and acquisitions, it was a record breaking quarter in several ways, with March said to be the single best month in NYC startup funding history at an amount of $3.5 billion, according to online publication AlleyWatch. 


During the second quarter of the year, several publications noted the greater and diverse sources of funding available to startups.

According to the Economist, “investors who are new to the terrain have been piling in,” and “more and more pension schemes are looking to alternative investments, including venture capital.”

The Wall Street Journal even notes a new type of funding in the form of various nonbank lenders issuing asset-backed bonds, being referred to as asset-backed securitizations (ABSs), to help finance loans to startups, including those that are unprofitable. It further says that large investors are in search of “high-yielding debt to offset low interest rates in safer government and corporate bonds,” and that private debt funds are growing, in many cases replacing bank deals.

Amidst such an environment, although down from March’s record breaking funding total, April was still a strong month at $2.6 billion according to AlleyWatch, and still managed to set a record in terms of the number of startups funded at 97. 

May of this year also saw another $2.6 billion in funding, although the number of startups funded dropped to 82, representing 16.7% of startup funding in the country for the month. Total U.S. funding stood at $15.6 billion with 537 deals. 

June was also characterized as ‘robust’ by Alley Watch at $2.5 billion and 90 companies receiving funding. However, NYC’s share of total U.S. funding dropped from 16.7% to 11.6%.


During the last quarter, the NYC Economic Development Corporation (EDC) had made note of its life sciences initiative and goals to invest in related startups. In April of this year, the Partnership Fund for New York City issued a report that revealed the substantial growth of this industry into a hub attracting billions of dollars and having a sizable economic impact on the region. 

With this hub consisting of entities such as startups, medical researchers, health care institutions, universities and pharmaceutical companies, the report notes that public funding in recent years has included $1.2 billion from the city and state governments; $3.2 billion in public funding to universities and research institutions; and $2.9 billion in National Institutes of Health (NIH) funding for the New York City Metro area.

The Partnership Fund, which is the investment entity for the Partnership for New York City, also provides funding for life sciences startups through its IndieBio accelerator program together with the state, and focuses on the pre-seed stage. Over the past decade it has provided $54 million. 

A key trend according to the report is that public funding has spurred private investment at a ratio of 73 cents in venture capital funding for every dollar received from the NIH for the year 2020 and at an amount of $2.3 billion from October 1, 2019 to September 30, 2020. This has allowed New York to rank 3rd in funding among the 50 states in 2020. 

Another finding is that the industry “performed exceptionally well” during the pandemic, with vaccine manufacturer, Pfizer and Regeneron, which has produced therapeutic treatments for the Covid-19 virus as more well-known examples. 

In fact, the report asserts that NYC’s life sciences industry has reached a high-growth phase for investment and job creation with noteworthy achievements such as contributing $3.1 billion to gross city product (GCP) in 2020; creating 11,000 life science jobs between 2010 and 2020, with a total of 81,000 jobs in 2020; and creating 1.04 non-life sciences jobs in the city for every one life sciences job.


Although clearly devastating, it has been hard to determine in specific terms the pandemic’s impact on NYC small businesses outside of the tech sector or those that are otherwise not part of the digital economy.

In May of this year, the Columbia School of International and Public Affairs along with the Columbia Department of Biomedical Informatics issued a report seeking to identify the specific problems small businesses suffered due to early lockdown conditions; document the severity of the COVID-19’s impact; determine the immediate and long term needs of small businesses and enable data-driven policy making by providing the results of a survey conducted. 

As a backdrop, it noted that as of February, 47 percent of the City’s over 200,000 small businesses, which employed over 3 million people were still closed and that this “extraordinary loss has been felt in neighborhoods across the City and has touched the lives of every New Yorker.”

It also made note of the assistance programs currently available such as the federal government’s American Rescue Plan, the state government’s 2021-2022 budget allocations for its small business recovery programs, and the City government’s 2021-2022 budget allocations to support small business recovery. 

Key findings of the report include that almost all small businesses surveyed faced “significant challenges to their economic viability … in the form of significant revenue loss, staff reduction and a loss of their clients and customers,” and that restaurants tended to face even greater challenges, closing at ‘significantly’ greater rates than non-restaurant small businesses. Restaurant owners also “furloughed, reduced hours, and laid off employees” at higher rates than other types of businesses and were more likely to receive rental or financial assistance. 

Perhaps not surprisingly, the report found that technology companies were more likely to remain open and fiscally stable, with some even increasing revenue.

As a means to assist small businesses in stabilizing their revenue, the report recommends low interest loans or direct grants with minimum debt burdens and maximum flexibility in determining how to spend the revenue and that rent relief and legal assistance in negotiating new leases should be made available at free or low cost. 

Other key recommendations specify that government must provide regulatory relief and that the EDC and/or Department of Small Business Services must work closely with the City’s network of business associations, business improvement districts (BIDs) and chambers of commerce to initiate a ‘cross-sector’ small business recovery. It also recommends working closely with the Partnership for New York City’s Small Business Network.

Categories: Comparative Advantage, Digital Economy, Startup Ecosystem

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