When the founders of Hubspot Brian Halligan and Dharmesh Shah conceived the inbound marketing startup in 2004 while still graduate students at MIT and inbound marketing was not well understood. They were able to grow this idea into a successful company and eventually went public in 2014. Today, the Boston-based company has a market value of over $30 billion.
There were several factors that contributed to his favorable outcome. The founders met at one of the world’s leading universities. They had an idea, but they were in a place that nurtured ideas, in an area with experienced venture capitalists who saw the company’s potential. This enabled them to raise capital, refine their designs and grow the company. All of this was possible because they were in the Boston area.
Every city needs a success story like Hubspot, but Boston has many others, including iRobot, Wayfair, Acquia, and Carbon Black, just to name a few. Just last year, Klaviyo went public, adding to the parade of startup success stories. Some were bought. Some went public. But they all showed what is possible for the many people who dream of building a successful business in the Boston area.
As these companies create wealth for the founders, this in itself provides an angel funding system where the founders flush with cash from their exits support a new generation of founders and it continues in this virtuous cycle of wealth creation. In addition, these companies also produce other entrepreneurs, who leave and start their own companies, often financially supported by their old bosses.
Ahead of our Early Stage event in Boston on April 25th, I spoke with some local Boston investors and advisors to help provide insight into what makes Boston’s startup ecosystem so successful.
While there are many dimensions to a successful business ecosystem, we tend to look at the dollars invested to measure how well an area is doing. When we talk about Boston, the city is only a part of it. It’s really a regional or even national perspective, but any way you look at it, PitchBook counts venture capital dollars and ranks the Boston area fourth nationally in the fourth quarter of 2023. For a small city in a small state , that’s pretty impressive.
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Two of the other four are in California. San Francisco (to no one’s surprise) leads the way, followed by New York, Los Angeles, and then Boston. In Q4 2023, Boston closed 208 deals, good for $3.5 billion in total investment in the region.
How does Boston punch above its weight when it comes to business investment? Emily Knight is the president at The Engine Accelerator, an MIT spinoff that works with founders trying to turn big ideas from research labs into startups, sometimes known as “hard tech.” He says it’s a combination of factors, starting with 35 colleges and universities only in Boston. When you expand the map to include the Boston metropolitan area, which includes Cambridge, it increases to 44 and adds Harvard, MIT and Tufts to the list.
He says these universities give birth to new ideas. “There’s a lot of research and a lot of infant innovation that translates into companies coming out of these universities,” he said.
Image Credits: PitchBook
Lily Lyman, a partner at Underscore VC, a Boston-based investment firm, says the university system is a big reason her firm decided to start in Boston. “It’s a huge piece of the puzzle and frankly, it’s a big reason 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 straight out of the region’s university system, with heavy emphasis on Harvard, MIT and Northeastern.
This leads to a second and related element of pure talent coming out of all these schools. Rudina Seseri, managing director of Glasswing Ventures, says the talent piece is so important and there is no shortage of STEM students constantly flowing out of these schools.
“If you just think about the raw talent, and then you look at where the AI and ML talent is coming from, there’s an incredible pool of talent, which fits very well with my company’s investments in enterprise and cybersecurity, and that area he has done very, very, very well in that regard,” he said.
When you put it all together, Lyman says, you get some of the main building blocks for a successful startup ecosystem. “The combination of technology, the R&D that happens here and the talent that comes from here, is unmatched,” he said.
That’s not to say Boston doesn’t lack some amenities, especially for young founders, that bigger cities have in abundance. These limitations are well documented. There’s a lack of affordable housing, the public transit system is crumbling, traffic is awful, bars close at 2 a.m. — and the city, with Yankee modesty, isn’t good at showing off.
Seseri says that while Boston may have some limitations, every city has its own issues. He says what’s really important is to provide a place where startups can thrive. “What we can influence is how business-friendly and supportive we are. So from offering free spaces in more and more areas for incubators and accelerators and discovery, to providing access to customers and platforms that can accelerate innovation,” he said.
There are indeed a number of incubators and accelerator programs such as Mass Challenge, Greentown Labs, IDEA, and the Roxbury Innovation Center, among others, that offer a place to nurture early-stage ideas.
And what Boston may lack in nightlife, it certainly makes up for in brainpower 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 successes. We need these successes to keep the wheel turning faster,” he said.
