When it comes to building startups in Boston, success begets success

When HubSpot founders Brian Halligan and Dharmesh Shah conceived of their inbound marketing startup in 2004, they were still graduate students at MIT, and inbound marketing was not well understood. They were able to develop that idea into a successful company and eventually went public in 2014. Today, the Boston-based company has a market cap of over $30 billion.

There were several elements that contributed to its favorable outcome. The founders met at one of the premier universities in the world. They had an idea, but they were at a place that nurtured ideas, in a region with experienced venture investors who saw the potential of the company. That gave them the ability to raise capital, refine their plans and grow the company. All of that 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, to name but 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’s possible for the many people who dream of building a successful business in the Boston area.

As these companies generate wealth for the founders, that in itself provides an angel funding system where founders flush with cash from their exits support a new generation of founders, and on it goes in this virtuous wealth-generating cycle. What’s more, these companies also produce other entrepreneurs, who leave and start their own companies, often supported financially by their old bosses.

In the lead up to our Early Stage event taking place in Boston on April 25, I spoke with some local Boston investors and advisers to help paint a picture of what makes the Boston startup ecosystem so successful.

Although 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 part of it. It’s really a regional or even statewide perspective, but however you look at it, PitchBook counts venture investment dollars and puts the Boston area in fourth place nationally in Q4 2023. For a small city in a small state, that is 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 City, 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 well above its weight when it comes to venture investment? Emily Knight is the president at The Engine Accelerator, an MIT spinoff that works with founders trying to convert big ideas from research labs into startups, sometimes known as “tough tech.” She says it’s a combination of factors, starting with the 35 colleges and universities in Boston alone. When you expand the map to include the Boston metropolitan area, which includes Cambridge, that grows to 44 and adds Harvard, MIT and Tufts to the list.

She says that these universities are breeding grounds for new ideas. “There is a lot of research and a lot of infant innovation being translated into companies coming out of these universities,” she said.

Lily Lyman, a partner at Underscore VC, a Boston-based investment firm, says the university system is a big 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 are here in Boston and why we are bullish on Boston,” Lyman said. In fact, about a third of Underscore’s portfolio came straight out of the university system in the area, with a big emphasis on Harvard, MIT and Northeastern.

That leads to a second and related element of pure talent coming out of all these schools. Rudina Seseri, managing director at Glasswing Ventures, says that talent piece is so important and there is no shortage of STEM students constantly flowing out of these schools.

“If you just think of the raw talent, and then you look at where the AI and ML talent is coming from, there is an incredible pool of talent, which matches up nicely with my firm’s investments in enterprise and cybersecurity, and this region has done very, very, very well in that regard,” she said.

When you put it all together, Lyman says, you get some of the primary building blocks for a successful startup ecosystem. “The combination of the tech, the R&D that is happening here and the talent that is coming through here, it’s unparalleled,” she said.

That’s not to say that Boston isn’t lacking in certain amenities, especially for young founders, that the bigger cities have in bunches. These limitations are well-documented. There is a shortage of affordable housing, the public transit system is crumbling, traffic is awful, 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, every city has its own issues. She says what’s truly important is offering a place where startups can thrive. “What we can affect is how entrepreneurial-friendly and supportive we are. So from offering free spaces to more and more areas for incubators and accelerators and discovery, to providing access to customers and to platforms that can accelerate innovation,” she said.

There are indeed a number of incubators and accelerator programs like Mass Challenge, Greentown Labs, IDEA and Roxbury Innovation Center, among others offering a place to nurture early-stage ideas.

And what Boston may lack in nightlife, it surely makes up for in brain power and long history of startup success. As Seseri says, success begets success.

“I would say more than anything we need to support more founders. We need to support more successes. We need those successes so that the wheel continues spinning at a faster rate,” she said.

Boston offers a world of advantages for startup founders