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What's the Matter With Boston Tech?

Why does Greater Boston keep losing its consumer tech startups? And does it really matter?

Vjeran Pavic for Re/code

Ten framed and autographed company logos hang on the wall above the lockers at the Harvard Innovation Lab, located in the bottom floor of the business school’s Batten Hall, across the river from the university’s main campus.

These are the promising startups that graduated from the iLab, which launched three years ago to help the university’s students start and grow their own businesses. Within the region, the iLab was seen as a means to make up some ground against the veritable startup factory of Stanford University and hang onto more of the tech businesses that form in the Greater Boston area.

But if they’re succeeding on the former score, the latter remains in question.

Among the startups displayed on that wall, Pymetrics and Handy relocated to New York, myLingo landed in Los Angeles, FuelEd set up in Houston and Plastiq announced in July that it would move to San Francisco’s tech-centric South of Market district.

That last one surely stings the most, as it fits into what has become an uncomfortable pattern of local entrepreneurs decamping from Boston to the San Francisco Bay Area to set up or build up their consumer tech businesses, including the founders of Facebook, Dropbox, TaskRabbit and Evernote.

And those are just the famous cases: 65 percent of Harvard’s alumni and 41 percent of MIT’s go on to launch businesses in other states, while fewer than 15 percent of UC Berkeley and Stanford’s graduates leave California to do so, according to a 2012 study by CB Insights.

The open questions are why, whether the region is changing in ways that will prevent the next breakout tech successes from making the cross-country trek — and whether it really matters.

Many of the region’s entrepreneurs, executives and academics interviewed for this article argued it actually doesn’t matter, which sounds an awful lot like hometown pride talking. And to some degree, of course, it is.

But it’s also, in part, a reaction based on local economic realities that aren’t well appreciated beyond the region’s borders, especially among those keeping score in Silicon Valley.

Here’s the critical point: Notwithstanding the occasional high-profile departure, tech is booming in Boston. Hundreds of startups are forming, industry giants are setting up major outposts, money is flowing, rents are rising and construction cranes are everywhere. A growing number of big public offerings and acquisitions have funneled billions into the economy.

But it’s not primarily focused on pure consumer tech — those apps, social networks and venture-capital-subsidized instant-gratification services that characterize the West Coast’s obsession du jour. Instead, it’s a tech boom broadly defined, covering robotics, big-data analysis, natural-language translation, network infrastructure and the hard technical research pouring into the private market from the region’s powerhouse universities. It also overlaps heavily with the region’s major hometown industry: Biotech and life sciences.

“We’d rather innovate than imitate,” said Michael Davies, a senior lecturer at MIT and chairman of consulting firm Endeavour Partners in Cambridge, Mass. “This is an incredibly strong, highly differentiated source of innovation with assets that no one else can replicate.”

boston-through-the-fence

Red-hot center

A Jones Lang LaSalle report declared this summer that Greater Boston has the second-highest tech employment in the nation, behind only Silicon Valley.

Some 145,000 jobs and counting are spread across startups like Abine, Fetchnotes and RunKeeper; established tech brands such as Akamai, EMC, Nuance, Raytheon and Zipcar; robotics firms including iRobot, Rethink and Bluefin; online travel services like TripAdvisor and Kayak; and newly public tech companies such as Wayfair, HubSpot and Care.com.

What is arguably the red-hot center of all this stands at One Broadway Street in Cambridge, where the Longfellow Bridge drops Bostonians into Kendall Square, the bustling biotech and increasingly tech-tech district.

It’s the headquarters of the Cambridge Innovation Center, a kind-of-incubator, kind-of-landlord that boasts more than 700 startups and other firms in an increasing number of buildings across Greater Boston. That’s up 250 percent from six years ago.

Along the way, a growing collection of accountants, consultants, investors and large tech firms have set up in the center or within nearby blocks. Since 2007, Apple, Amazon, Google, Facebook, Twitter and Microsoft have all opened satellite offices here, tapping into talent pouring out of MIT, Harvard and other universities, and scouting the area for potential partners, customers and acquisitions.

(To cite a few examples from recent years: Google nabbed Android, Boston Dynamics, ITA Software and Zync; and Twitter picked up Spindle, Crashlytics and BlueFin Labs — not to be confused with the robotics company mentioned above.)

“When we opened here in 2007, it was pretty quiet,” said Annmarie Levins, general manager of Microsoft’s civic-engagement efforts at the software giant’s New England Research & Development Center, affectionately known as NERD. “But in the past couple years, this place has exploded.”

Changing landscape

Leah Busque landed on the idea for TaskRabbit one night in 2008, after she and her husband realized they had run out of food for their 100-pound yellow lab, Kobe, just as they were leaving for dinner.

The couple initially set up shop within Zipcar’s headquarters in Boston, and raised an early round of funding from angel investors the following spring.

But during an incubator program at Facebook’s Silicon Valley headquarters that summer, Busque met West Coast investors ready to write much bigger checks.

Shortly after raising $1 million from Floodgate and Baseline Ventures, the company (then named the far-less-catchy RunMyErrand) relocated to San Francisco. Busque wanted to be closer to investors betting on the company, and intended to make the city the company’s second market.

“At the time, getting a seed round done for a consumer Internet startup in Boston was a lot harder than getting a round done here,” she said.

Certainly, a lot has changed since.

The startup competition and accelerator MassChallenge launched in 2010 in the Innovation District on the South Boston Waterfront, which has become its own hotbed of tech activity. Last year, CIC opened the doors to District Hall there, as well, offering public space for meetings, events and workers.

A number of other new venture capital firms, incubators, workspaces and startup contests have emerged in recent years, including Hack/Reduce, the Artisan’s Asylum, Bolt, Greentown Labs, Hack/Reduce, LearnLaunch, Smarter in the City and more.

 Jason Jacobs, chief executive of RunKeeper
Jason Jacobs, chief executive of RunKeeper
Vjeran Pavic for Re/code

Kayak co-founder Paul English started the new venture capital fund Blade earlier this year specifically to fund and support consumer startups, in the hope of shifting the region beyond its business tech roots.

“It’s depressing to me how many consumer companies come out of Boston,” he said. “I think you can literally count on one hand the number of pure consumer plays that are worth billions of dollars that have been created in Boston.”

“If I were to look at the iPhones of anyone working in this office, all the apps are created in California, and then maybe a few in New York,” he said. “And none in Boston.”

During the last four quarters, businesses in the metropolitan area raised more than $3.9 billion, up nearly 15 percent from the comparable period ending in 2008. Greater Boston businesses secure the fourth-most tech venture capital of any region, according to Jones Lang LaSalle — and the most venture capital all told on a per capita basis.

“Now there’s more of an ecosystem of likeminded people, the capital to seed them, and the infrastructure in place,” said Jason Jacobs, chief executive of RunKeeper, one of Boston’s best-known consumer tech startups. “That didn’t exist when I was first getting started.”

“People probably got sick of watching people start here and go west,” he added. “It’s like how much value are we, as a region, going to just keep let slipping through our fingers?”

Of course, the recent departure of Plastiq, cited as one of the region’s rising consumer tech stars at the outset of the reporting for this series, raises the question of how much has really changed that matters.

The payments company didn’t respond to a request for an interview. But it tucked a short explanation into the end of a press release announcing that it raised $10 million in a Series B round led by Khosla Ventures of Menlo Park, Calif.

“Plastiq headquarters, currently located in Boston, will relocate to the heart of SoMa in San Francisco by Q4 in order to recruit even more top talent and immerse itself in the thriving startup landscape,” the company said.

For all the progress that’s been made, there’s a lingering sense among local entrepreneurs that Massachusetts venture capitalists are stingier with their dollars, less apt to write as many checks or add as many zeros as their West Coast counterparts. (The wisdom of that for any specific investment is, of course, harder to assess in the thick of a boom than in the wake of one.)

Greater Boston’s startup ecosystem also simply isn’t as big as Silicon Valley’s, said Abby Fichtner, hacker in residence at Harvard’s iLab, in an interview before the news of Plastiq’s departure.

“There are so many founders there who have had exits and can put money back into the community,” she said. “We’re really good at solving tough problems, but for the consumer Web, it’s easier to launch in Silicon Valley.”

boston-at-night-route9

Reliant on science

But others don’t see that as a problem.

Tim Rowe, chief executive of the Cambridge Innovation Center, said you can’t blame consumer tech startups for moving to Silicon Valley any more than you can blame financial companies for moving to New York or fashion businesses for setting up shop in Milan.

Consumer tech simply isn’t Boston’s core strength. On the other hand, it does boast an unparalleled concentration of life-sciences companies hard at work on curing diseases. And within tech proper, the local focus tends to fall on solving harder technical challenges, he said.

(Get ready for some fighting words, Silicon Valley.)

“We’ve found the resurgence of consumer tech here has been, maybe, more sophisticated companies that are a little more reliant on actual science, like Kayak or ITA Software or HubSpot,” Rowe said, during at interview at the Cambridge Innovation Center’s headquarters. “They’ve got a lot more scientists and PhDs, and that’s more of a classic Boston profile.”

The only problem he acknowledged is that Boston sucks at marketing itself, so the rest of the world doesn’t know about the success under way on the ground.

“There’s something I affectionately refer to as the New England School of Marketing,” he said. “Which is, if you’re doing something great, hide it; if you’re rich, drive a Volvo. This is the New England mentality.”

 Tim Rowe, chief executive of the Cambridge Innovation Center
Tim Rowe, chief executive of the Cambridge Innovation Center
James Temple for Re/code

He was one of at least five people to bring this up in interviews for this series, including Levins, Fichtner, Davies and Gordon Jones, managing director of the Harvard Innovation Lab.

“There’s an ethos in Boston: Work hard and look like you’re working hard,” he said. “I think that sometimes mutes some of the good things that are going on.”

Fortune’s Dan Primack touched on a related issue in a thoughtful piece at the beginning of the year (“What’s really wrong with Boston tech?”): The relative lack of national tech reporters based in the Boston area.

“When it comes to the big tech sites that most entrepreneurs and investors read, Boston is largely invisible,” Primack wrote. “Just like Boston’s tech scene is being starved by the absence of a large cornerstone company, it also is being thwarted by its absence of a vibrant (and wide-reaching) tech media.”

The hard stuff

But it must be stressed, as Primack did, that it’s not just a perception problem. Or, rather, perception problems have a way of becoming reality problems.

If the belief persists among local entrepreneurs that you can’t land the big venture rounds or draw the bright media spotlights you need to become a mass-market success, why would they stick around?

The fact is that you can’t point to a tech company in the area with the kind of mainstream prominence of a Google or a Twitter. And the region hasn’t produced nearly the volume of acquisitions or IPOs as Silicon Valley in recent years, in tech or otherwise.

While venture-backed companies in the Boston area raised $2.6 billion in public offerings since the beginning of 2012, businesses in the San Francisco Bay Area raised nearly $26 billion, according to data complied for Re/code by Thomson Reuters and the National Venture Capital Association.

That 10X difference adds up to enormous impacts on local wealth and the region’s tax base, and holds back the wave of startups that inevitably follows as workers cash out and try their own hands as entrepreneurs.

So saying it’s all okay because “we do the hard stuff” can come across as a rationalization for what are economic-development failures by any accounting, most notably including the fact that Facebook’s IPO alone accounted for $16 billion of the gap between the regions.

It also overlooks a lot of work under way in Silicon Valley that’s plenty hard and important, such as Elon Musk’s efforts to push mainstream acceptance of electric cars, or just about anything going on at Google X, the secretive lab developing smart contact lenses, self-driving cars and Internet balloons.

There are perfectly valid reasons why those things draw more attention than, say, “Kayak or ITA Software or HubSpot.”

But Rowe built up to a bigger point: Chasing down consumer tech at the expense of what Greater Boston is best at would be precisely the wrong thing to do, at least in part because few observers expect the kind of ardor and valuations we’re seeing for dating apps, social networks and Ubers-for-whatever to last.

He argued that the next great corporate empires are more likely to emerge at the intersection of tech and life sciences, squarely in Greater Boston’s sweet spot, than from ever more variations on today’s consumer-tech themes. In other words, there’s a good chance they’ll form within walking distance of the Cambridge Innovation Center, if not within it.

“It’s nice to have an app that’ll allow you to order pizza faster,” he said. “But something that allows you to beat Alzheimer’s is possibly going to have more value.”

Additional reporting by Jason Del Rey.

This article originally appeared on Recode.net.

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