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When it comes to building a startup in Boston, success leads to success

When Hubspot was founded Brian Halligan and Dharmesh Shah conceived their inbound marketing startup in 2004, when they were graduate students at MIT and didn’t know much about inbound marketing. They grew the idea into a successful company that eventually went public in 2014. Today, the Boston-based company has a market capitalization of more than $30 billion.

Several factors contributed to its favorable results. The founders met at one of the world’s leading universities. They had an idea, but they were in a place where the idea was born, in an area with experienced venture capitalists who saw the potential in the company. This gives them the ability to raise capital, refine plans and grow the company. All of this is possible because they are located in the Boston area.

Every city needs success stories like Hubspot, but Boston has many others, including iRobot, Wayfair, Acquia, and Carbon Black, to name a few. Just last year, Klaviyo went public, adding to the startup success story. Some were bought. Some are public. But they all showed what was possible for many who dreamed of building a successful business in the Boston area.

As these companies create wealth for the founders, this in itself provides an angel financing system where the founders receive significant cash from exits, support a new generation of founders, and perpetuate this virtuous cycle of wealth creation. What’s more, these companies also produce other entrepreneurs who leave and start their own companies, often with financial backing from their old bosses.

Ahead of an early stage event in Boston on April 25, I spoke with some local investors and advisors in Boston to help paint a picture of what makes the Boston startup ecosystem so successful.

While there are many dimensions to a successful business ecosystem, we tend to measure the performance of an area by the dollars invested. When we talk about Boston, the city is just one part of it. This is really a regional or even a statewide perspective, but no matter how you look at it, PitchBook calculated the amount of venture capital investment and ranked the Boston area fourth in the country for 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 (unsurprisingly) leads the way, followed by New York City, Los Angeles, and then Boston. In the fourth quarter of 2023, 208 transactions were completed in Boston, with total investment in the region reaching $3.5 billion.

How does Boston excel when it comes to venture capital? Emily Knight is president of The Engine Accelerator, an MIT spinout that works with founders to try to turn big ideas from research labs into startups , sometimes called “hard technology.” She said it’s a combination of factors, starting with Boston’s 35 colleges and universities. When you expand the map to include the Boston metropolitan area, including Cambridge, the metropolitan areas increase to 44, and Harvard, MIT, and Tufts are added to the list.

She said these universities are breeding grounds for new ideas. “A lot of research and a lot of nascent innovation is being translated into companies by these universities,” she said.

Boston ranked fourth in total investments during the quarter, with 208, according to PitchBook data.

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Lily Lyman, a partner at Boston investment firm Underscore VC, said the university system was 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 come to Boston and why we’re bullish on Boston,” Lyman said. In fact, about a third of Underscore’s work comes directly from the region’s university systems, There is a focus on Harvard University, MIT and Northeastern University.

This leads to the second, related element of pure talent that emerges in all of these schools. Rudina Seseri, managing director of Glasswing Ventures, said talent is very important and there is no shortage of STEM students from these schools.

“If you just think about the raw talent and you look at where the AI ​​and machine learning talent is coming from, there’s an incredible talent pool that matches very well with the investments my company is making in enterprise and cybersecurity, and the region has done a really, really, really good job at that,” she said.

When you put it all together, Lehmann said, you get some of the major building blocks of a successful startup ecosystem. “The combination of technology, R&D and talent that happens here is unparalleled,” she said.

That’s not to say Boston doesn’t lack some of the amenities that big cities have, especially for young founders. These restrictions are well documented. There’s a shortage of affordable housing, a crumbling public transportation system, traffic jams, bars closing at 2 a.m. — and this city with its Yankee humility isn’t very good at promoting itself.

Seseri said that while Boston may have some limitations, every city has its own issues. What’s really important, she says, is giving startups a place where they can thrive. “What we can influence is how friendly and supportive we are to entrepreneurship. So from providing free space in more and more incubators, accelerators and discovery spaces, to providing opportunities to access customers and platforms to accelerate innovation,” she said .

Indeed, there are many incubators and accelerator programs, such as Mass Challenge, Greentown Labs, IDEA, and the Roxbury Innovation Center, that provide a place to nurture early-stage ideas.

Boston may lack nightlife, but it certainly makes up for it in brainpower and a long history of entrepreneurial success. As Ceseli said, success begets success.

“I would say the biggest thing we need is to support more founders. We need to support more successes. We need those successes so that the wheels continue to spin faster,” she said.

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