When Hubspot founded Brian Halligan and Dharmesh Shah conceived their inbound marketing startup in 2004, they were still graduate students at MIT and inbound marketing was not well understood. They managed to turn this idea into a successful business and eventually went public in 2014. Today, the Boston-based company has a market capitalization of over $30 billion.
Several elements contributed to its favorable outcome. The founders met at one of the largest universities in the world. They had an idea, but they were in a place that nurtured ideas, in a region with experienced venture capitalists who saw the company’s potential. This gave them the opportunity to raise capital, refine their plans and grow the business. All of this was possible because they were in the Boston area.
Every city needs a success story like Hubspot, but Boston has many more, including iRobot, Wayfair, Acquia, and Carbon Black, to name a few. Last year, Klaviyo went public, adding to the parade of startup success stories. Some have been purchased. Some have become public. But they all showed what’s possible for the many people who dream of building a successful business in the Boston area.
As these companies generate wealth for their founders, this in itself constitutes an angel financing system in which founders with cash from their exit support a new generation of founders, and it continues in this virtuous cycle of wealth generation. Additionally, these companies also produce other entrepreneurs, who leave and start their own businesses, often financially supported by their former bosses.
Ahead of our Early Stage event taking place in Boston on April 25, I spoke with local Boston investors and advisors to help build a picture of what makes Boston’s startup ecosystem successful.
While there are many dimensions to a successful business ecosystem, we tend to look at dollars invested to measure how an area is performing. When we talk about Boston, the city is only part of it. This is actually a regional or even national perspective, but no matter which way you look at it, PitchBook counts venture capital investments and puts the Boston area fourth nationally in Q4 2023. For a small town in a small state, that’s pretty impressive.
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Two of the remaining four are in California. San Francisco (unsurprisingly) leads the way, followed by New York, Los Angeles and then Boston. In the fourth quarter of 2023, Boston closed 208 transactions, representing a total investment of $3.5 billion in the region.
How does Boston stand out when it comes to venture capital 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 called “hard tech.” She says it’s a combination of factors, starting with Boston’s 35 colleges and universities alone. When you expand the map to include the Boston metro area, which includes Cambridge, it expands to 44 and adds Harvard, MIT, and Tufts to the list.
According to her, these universities are fertile ground for new ideas. “There’s a lot of research and a lot of nascent innovation that translates into companies coming out of these universities,” she said.
Image credits: Presentation book
Lily Lyman, a partner at Underscore VC, a Boston-based investment firm, says the university system is one of the main reasons her company decided to launch in Boston. “It’s a huge piece of the puzzle and honestly, it’s one of the biggest reasons why we’re here in Boston and why we’re bullish on Boston,” Lyman said. In fact, about a third of Underscore’s portfolio came directly from the region’s university system, with a particular focus on Harvard, MIT and Northeastern.
This leads to a second related piece of pure talent coming from all of these schools. Rudina Seseri, managing director of Glasswing Ventures, says talent is very important and there is no shortage of STEM students constantly coming out of these schools.
“If you just think about raw talent, and then look at where AI and ML talent is coming from, you’ll see that there is an incredible pipeline of talent, which aligns well with my company’s investments in enterprise and cybersecurity, and this region has done very, very, very well in that regard,” she said.
According to Lyman, when you put it all together, you get some of the main building blocks of a successful startup ecosystem. “The combination of technology, R&D that’s happening here and the talent that’s emerging here is unprecedented,” she said.
That’s not to say that Boston doesn’t lack certain amenities, especially for young founders, that larger cities have in clusters. These limitations are well documented. There’s a shortage of affordable housing, the transit system is crumbling, traffic is terrible, bars close at 2 a.m. — and the city, with its Yankee modesty, is not good at promoting itself .
Seseri says that while Boston may have some limitations, each city has its own problems. What’s really important, she says, is providing a place where startups can thrive. “What we can influence is how entrepreneurship-friendly and supportive we are. So it’s about offering free spaces to more and more areas for incubators, accelerators and discovery, up to providing access to customers and platforms that can accelerate innovation,” he said. -she declared.
There are indeed a number of incubators and accelerator programs like Mass Challenge, Greentown Labs, IDEA and Roxbury Innovation Center, among others, providing a place to nurture early-stage ideas.
And what Boston may lack in nightlife, it surely makes up for in brain power and a long history of startup success. As Seseri says, success breeds success.
“I would say more than anything we need to support more founders. We need to support more success stories. We need these successes to keep the wheel turning at a faster pace,” she said.
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