TikTok Chief Executive Shou Zi Chew is pictured on the day he will testify before a House Energy and Commerce Committee hearing entitled “TikTok: How Congress can Safeguard American Data Privacy and Protect Children from Online Harms,” as lawmakers scrutinize the Chinese-owned video-sharing app, on Capitol Hill in Washington, U.S., March 23, 2023.
Evelyn Hockstein | Reuters
For several years now, ByteDance’s TikTok has been the focus of lawmakers and intelligence officials who fear it could be used to spy on Americans. Those concerns took center stage during a five-hour grilling of TikTok’s CEO back in March.
But while TikTok has been the one in the spotlight, other Chinese apps that present similar issues are also experiencing massive popularity in the U.S.
Concerns about ByteDance stem in large part from a national security law that gives the Chinese government power to access broad swaths of business information if it claims to be for a national security purpose. U.S. intelligence officials and lawmakers fear that the Chinese government could effectively access any information that China-based app companies have collected from American users, from email addresses to user interests to driver’s licenses.
But that doesn’t seem to have swayed many consumers, as several China-based apps are still booming in the U.S.
For example, the shopping app Temu, owned by China-based PDD Holdings, has the number two spot on the Apple App Store among free apps as of late May. It also held the number 12 spot among digital retailers in the 2022 holiday season for unique visitors to its site, topping stores like Kohl’s, Wayfair and Nordstrom, according to Insider Intelligence, which also credits visibility on TikTok for its rise.
Meanwhile, ByteDance-owned apps CapCut and TikTok hold the fourth and fifth spots on the App Store rankings. Chinese fast fashion brand Shein holds fourteenth.
And between late March and early April, after the TikTok CEO hearing before Congress, ByteDance’s Lemon8, saw nearly 1 million downloads in the U.S., Insider Intelligence reported based on data from Apptopia. It’s an app with similarities to Pinterest and Meta’s Instagram.
These apps share some of the features that have worried the U.S. government about TikTok, including about whether some of these firms adequately protect U.S. user data when operating out of China (TikTok has stressed that U.S. user information is only stored on servers outside of China). Like TikTok, these apps collect user information, can analyze trends in their interests and use algorithms to target consumers with products or information that is likely to keep them engaged with the service.
But experts on China and social media say there are important differences between these apps and TikTok which might explain the relative lack of attention on them. Among the most important of those features is the scale of their presence in the U.S.
In just 17 days after launch, Temu surpassed Instagram, WhatsApp, Snapchat and Shein on the Apple App Store in the U.S., according to Apptopia data shared with CNBC.
Stefani Reynolds | Afp | Getty Images
Even as they grow, the U.S. userbase of many popular Chinese apps is still dwarfed by TikTok’s massive U.S. audience of 150 million monthly active users.
TikTok sister app Lemon8, for instance, has an estimated 1.8 million monthly active users in the U.S., according to Apptopia.
While TikTok has had 415 million downloads in the U.S. since its launch here, CapCut has had 99 million, Temu 67 million and Lemon8 1.2 million, according to Apptopia.
Only Shein surpasses TikTok in downloads among this group of apps, though it launched far earlier in the U.S. in 2014. Shein’s app has 855 million downloads in the U.S. since its debut, though Apptopia estimates it has about 22 million monthly active users.
“An app with a thousand, or even a million users in the U.S. does not present the same widespread cybersecurity threat that an app with 100 million users has,” said Lindsay Gorman, senior fellow for emerging technologies at the German Marshall Fund’s Alliance for Securing Democracy.
Gorman said as the U.S. considers the threat posed by TikTok, it will also need to develop a framework for how to evaluate the relative risk of Chinese apps. The scale should be one factor, she said, and the type of app, including its ability to spread propaganda, should be another.
“The ability for a Chinese technology platform to represent critical information infrastructure in a democracy has to be part of that calculus when assessing risk,” Gorman said. “That’s where I think the analogies with power grids or energy infrastructure are applicable. We we would not allow the authoritarian regime to build significant components of our energy infrastructure and rely on an authoritarian regime for that.”
That means that an app like ByteDance’s CapCut may present a lower risk, both because of its smaller user base and because it’s meant to edit videos, rather than distribute them.
“We’re really at the beginning stages of even recognizing that a broader characterization and categorization is actually needed,” Gorman said, adding that rather than playing whack-a-mole with Chinese technology that poses a threat to U.S. national security, the country should develop a more systematic framework.
But in the meantime, U.S. consumers continue to turn to Chinese apps.
“Among the most downloaded apps consistently are Chinese-based ones like Temu and CapCut,” said Jasmine Enberg, principal analyst covering social media at Insider Intelligence. “And then of course, there’s the early growth of Lemon8, which suggests that the appetite for Chinese apps in the U.S. is still growing.”
For e-commerce apps, the risk of spreading harmful misinformation may not be as high as on a social media service. An e-commerce platform like Temu or Shein is likely a less viable platform to spread propaganda than a video app like TikTok.
“People just aren’t really spending the same amount of time on commerce apps and they’re not exposed necessarily to the same kind of content that could potentially have a negative impact on young people,” Enberg said. “I also don’t necessarily think that the connection to China for some of these apps is as clear to the average consumer and I also don’t think that consumers are really going around thinking about where the apps that they’re using originate from.”
Still, the U.S. could find a reason for concern. A recent CNN report that found Temu sister company Pinduoduo, a shopping app popular in China, contained malware. The parent company of both apps, PDD Holdings, did not respond to a request for comment. Research staff at the U.S.-China Economic and Security Review Commission pointed to that report in assessing Temu’s data risks, though an analyst recently told CNBC that Temu has not been as “aggressive” in requesting access to consumers’ data as Pinduoduo.
At least one group has viewed the pressure on TikTok as an optimal time to raise concerns with another Chinese company popular in the U.S.: Shein. The group Shut Down Shein, which is a “coalition of individuals, American brands and human rights organizations,” according to executive director Chapin Fay, launched the day that TikTok’s CEO was hauled before Congress.
Customers hold shopping bags outside the Shein Tokyo showroom in Tokyo on Nov. 13, 2022. Reuters reports the fast fashion retailer is targeting a U.S. IPO in the second half of 2023.
Noriko Hayashi | Bloomberg | Getty Images
“We were sort of agnostic on the timing, but we wanted to make sure that while people are talking about TikTok, there’s this other nefarious actor, Shein, who’s also collecting data and doing it all under the radar and also doing these other even worse things like slave labor,” said Fay, managing director of Actum consulting firm.
The group specifically takes issue with Shein’s alleged use of forced labor, as Bloomberg reported last year that tests revealed that cotton in clothes shipped to the U.S. were linked to a region in China where the U.S. government has said forced labor is deployed. China has denied the use of forced labor.
Shut Down Shein also rails against the company’s alleged use of an import loophole to avoid tariffs. Through the de minimis trade tax exemption, the group says, individual customers become the importer of their fast fashion goods, a practice that came up at a recent hearing by the House Select Committee on Strategic Competition between the United States and the Chinese Communist Party.
A Shein spokesperson said in a statement that it “complies with the domestic tax legislations of the countries in which it operates.” The spokesperson also said that Shein has “zero tolerance for forced labor,” takes seriously visibility across its supply chain and requires suppliers to follow a “strict code of conduct.”
Fay said it’s important to recognize that the way Shein has been able to grow its brand and gain new customers, in large part via so-called influencer hauls, is through TikTok.
Faced with national security worries over TikTok, lawmakers have considered several proposals that could lead to a ban. But critics fear some proposed solutions could create a slippery slope of unintended consequences. And some say the most effective long-term solution for curbing the use of Chinese apps may be fostering an environment for robust alternatives to grow.
Perhaps the most prominent of the bills that could lead to TikTok’s ban in the U.S., the RESTRICT Act, would give the Commerce Secretary the power to recommend barring technology that comes from a select group of foreign adversary countries if they determine the risks cannot be sufficiently mitigated otherwise.
Though the proposal quickly garnered serious attention for its heavy-hitting group of sponsors, including Senate Intelligence Committee Chair Mark Warner, D-Va., and Commerce subcommittee on communications ranking member John Thune, R-S.D., it’s since appeared to lose the early momentum. That’s due in part to concerns raised by the tech industry and others that the bill could give the executive branch broad power to seek a ban on certain technology.
Sen. Mark Warner (D-VA)
Drew Angerer | Getty Images
“While I understand that Americans enjoy the convenience of Chinese e-commerce and the creative tools of many Chinese communications apps, we have to reckon with the fact that these companies ultimately are beholden to the demands of the Chinese government,” Warner said in a statement. “We’ve had an important and overdue conversation about the predatory and invasive practices of U.S. tech firms in recent years; those same concerns are valid with the growing sway of these foreign apps – and then exacerbated by the manner in which these PRC-based companies serve as instruments of PRC power.”
One of those critics of the bill’s current scope is Andy Yen, CEO of Proton, which makes an encrypted email service and VPN. While Yen believes that TikTok should be banned in the U.S., he fears the RESTRICT Act is currently too broad to effectively do so without additional consequences.
In a recent blog post, Yen argued that the bill would give the Commerce Secretary overly-broad power to designate additional governments as foreign adversaries and feared that ambiguous language in the bill could be used to penalize individuals who use VPNs to access apps that are banned in the U.S.
In the post, Yen suggested these issues could be resolved with changes to the bill’s language to make it more targeted and limited in scope.
Speaking on the “Pivot” podcast recently, Warner stressed the need for a rules-based approach that could be legally upheld to deal with tech from foreign adversaries. He said he believes criticism of the bill, including that it would target individual VPN users or that U.S. companies that do business in China could be swept up in enforcement action, is not valid, though he said he is open to amending the bill to make that more clear.
“There is a very legitimate national security concern here,” Yen said. “So I think it is something that regulators do need to tackle and this is why Congress is trying do something. But I think we need to do it in a way that doesn’t undermine the values of freedom and democracy that make America different from China.”
Still, a TikTok ban would have other effects in the U.S., like yielding more market share to existing tech giants in the U.S. like Meta’s Facebook and Instagram. Proton has been an active proponent of antitrust reform to create what some companies see as a more level playing field for tech developers in the U.S.
Yen said the solution to creating more competitive digital markets in the U.S. is not to allow risky Chinese companies to run rampant, but rather “to have a level playing field that can allow other American companies or European companies to compete in the U.S. fairly.”
That’s a goal shared by Jonathan Ward, an expert on China who founded the Atlas Organization consulting firm.
“The best way that we can do this is to create alternatives,” Ward said. “Because even if these companies don’t take root in our own market, even if we’re able to successfully deny them access here, as we did with Huawei, they can flourish in other parts of the world,” he added, referring to the Chinese telecom company that’s been placed on a U.S. entity list over national security concerns.
“We’re also going to have to stand up American and free world alternatives to these companies because you can’t let them take over industries that matter or create apps that become integral to the fabric of our societies,” Ward said. “And that’s going to require an effort that goes beyond the Congress and into the sort of entire system of democracies worldwide.”
Vitalik Buterin, the man behind ethereum, talks crypto and the U.S. crackdown
Ethereum co-founder Vitalik Buterin in Prague, where he finds refuge with like-minded programmers looking to change the world through cryptography-powered technology.
PRAGUE — For Vitalik Buterin, the idea of home is fleeting.
The Russia-born coder, who built ethereum in his late teens, doesn’t stay long in any one city anymore. Meanwhile, the list of places he won’t go keeps growing.
“There’s definitely a bunch of countries that I would have very gladly visited three years ago, that I’m much, much more apprehensive about visiting today,” Buterin told CNBC in an interview in the Czech Republic.
Buterin singled out his homeland of Russia as one of the destinations he now avoids. The Canadian emigre has both Ukrainian and Russian roots but has actively supported the resistance movement in Ukraine. It has also become clear that pursuing privacy technologies and open-source code carries risk in certain global jurisdictions, giving Buterin new hesitation — for instance, the creators behind the open-source protocol Tornado Cash face charges in both the Netherlands and the U.S. Tornado Cash is used by some people to protect their privacy in the still-nascent crypto market, but a mixing service can also be used by criminals or nation-states to launder money. Many in the industry worry that targeting the developers who build a tool, instead of just the bad actors using that tool, sets a dangerous precedent.
“Even in countries that the mainstream considers to still be fairly normal places — I definitely worry about those more,” Buterin says.
The decentralized lifestyle suits Buterin, a 29-year-old programmer whose influence in the crypto sector transcends lines of code — or geography. Prague is one new center of gravity where he now finds refuge with like-minded programmers collectively looking to change the world through cryptography-powered technology.
Ethereum co-founder Vitalik Buterin speaks at ETHPrague 2023, an international conference drawing crypto developers from around the world.
Photo: Pavel Sinagl
We met in a sparsely furnished room at the top of a sprawling industrial complex in the Holešovice district, a neighborhood once synonymous with slaughterhouses and steam mills, that’s now home to Bohemian artists and some of crypto’s most rebellious believers. The interior of this deceptively nondescript structure is a honeycomb of labyrinthine corridors and winding staircases that snake into its fortress-like belly, echoing the complexity of crypto to the unfamiliar.
Today, the biggest challenge for Buterin and the ethereum community is making sure that it provides actual value to people.
“The way that I see the ethereum ecosystem in general is that the last decade was the decade of kind of playing around and getting ethereum right. This decade is the decade where we have to actually build things that people use,” Buterin said, hands clasped, as he leaned forward from his perch on an ergonomic-friendly kneeling chair.
He is arguably the most influential cryptographic developer alive today, but Buterin wasn’t trying to step into the limelight when he wrote the ethereum white paper in 2013. Still, years after shunning public accolades and demurring countless invitations to speak to the press, he can’t shake the fame — or the superlatives used to describe him.
Buterin was named the world’s youngest crypto billionaire at age 27 as the crypto market swelled to its peak in 2021. They call him “V God” in China, Time magazine dubbed him crypto royalty in its April 2022 cover story, and he faces mobs of fans desperate for a moment of his attention — and a selfie — virtually anywhere he goes on the planet.
But Buterin isn’t really any of those things.
He isn’t the prince of crypto. He isn’t a cult leader of new gen cypherpunks. He isn’t the wonkiest wonk, or the nerdiest nerd. He regularly gives away his fortune to worthy causes, knocking down his net worth. And he isn’t, according to his own estimation, the be-all and end-all authority on the ethereum network.
He is, however, someone who cares deeply about realizing his vision of a world where, among other things, humans have equitable access to money no matter who they are or where they live.
ETHPrague 2023 was held at Paralelní Polis in the Czech Republic.
Buterin finds that cryptocurrencies realize their greatest utility in emerging economies — a phenomenon that has gained momentum in recent years.
“The stuff that we often find a bit basic and boring is exactly the stuff that brings lots of value to them right now, like making payments work, and savings,” Buterin said, referring to lower-income countries.
“Just being able to plug into the international economy — these are things that they don’t have, and these are things that provide huge value for people there,” Buterin told CNBC. “It’s hard to even be interested in really abstract stuff like decentralized social media, when you don’t really have those kinds of basics done.”
As U.S. investigators pressed criminal charges against the likes of Sam Bankman-Fried and federal regulators such as the Securities and Exchange Commission began cracking down on what they called the trade of unregistered securities, the action in crypto began to move overseas.
Whereas investors in the U.S. tend to treat crypto as more of a get-rich-quick opportunity and a way to trade on volatility in a less-regulated market than traditional securities, Buterin typically gravitates to developing markets around the world — including Africa, where he traveled in February — where he sees tangible, day-to-day use cases for the technology he helped to build.
“When I visited Argentina back at the end of 2021, lots of people use crypto, lots of people love crypto,” he said. “I literally got recognized on the streets of Buenos Aires more often than I got recognized in San Francisco.”
But for crypto to become truly useful on a global scale, Buterin told CNBC, it ultimately has to move out of centralized entities such as custodial trading platforms and it must be simpler to use.
“I found coffee shops without even looking for them that just happened to accept bitcoin and ether — but the problem is, they were all using Binance,” said Buterin.
He said he appreciates centralized exchanges such as Binance for offering a smoother user experience to non-technical people living in countries where the average GDP is less than $10,000 per capita. Nevertheless, he believes that it must become more decentralized.
“Those centralized actors are vulnerable to, you know, both pressure from the outside and to themselves being corrupted,” he said.
Last year, a wave of bankruptcies in the crypto sector exposed grift throughout the industry.
A lot of people got rich before the increase in interest rates and subsequent collapse of Luna in May 2022 set off a chain reaction that sent the entire market tumbling down, spurring a crypto winter that persists to this day. Bankman-Fried, the ex-CEO of now-bankrupt crypto exchange FTX, for example, faces criminal charges alleging that he promulgated a multibillion-dollar fraud scheme. Binance, the world’s largest crypto exchange by trading volume, is being sued by both the SEC and the Commodity Futures Trading Commission over a raft of accusations, including the assertion that Binance commingled billions of dollars worth of user funds with its own money.
Instead of placing blind trust in a central intermediary to act in the best interest of the customer, Buterin said, he believes the ideal solution comes down to writing better code so that users can deal directly on-chain.
“We need the experience on-chain to actually be good for regular people to use,” Buterin said.
“We need it to actually be possible to do ethereum payments in a way where the transaction fee is less than five cents a transaction; in a way where the experience doesn’t suck and randomly fail 2.3% of the time; in such a way that you need a Ph.D. in ethereum sciences to actually figure out what’s going on,” he said.
Ethereum co-founder Vitalik Buterin speaks at ETHPrague 2023, an international conference drawing crypto developers from around the world.
Photo: Pavel Sinagl
Privacy and security are also key priorities.
“People need to have wallets that are actually secure, where if they lose the keys, they’re not going to lose everything,” Buterin added.
A national digital currency could provide the ease of use he envisions, but he believes that decentralization is also critical, otherwise they’ll devolve into another version of the existing banking system — only with more surveillance built in.
“That was a space where I think I had somewhat more hope, probably, naively, five years ago, because there were a lot of people who wanted to do things like make them blockchain friendly, give actual transparency and verifiability guarantees, and some kind of level of actual privacy,” Buterin said, referring to central bank digital currencies, or CBDCs.
CBDCs are a type of blockchain-based virtual currency that is fully regulated and has the backing of a country’s central bank. The People’s Bank of China, which is arguably the leader in CBDCs thus far, has been piloting its take on a CBDC for almost a decade. As of June, transactions using the digital yuan, or e-yuan, hit nearly $250 billion. But as CBDCs catch on, concerns have been raised about financial surveillance and monitoring tools which can be baked into these government-issued digital currencies.
“As each and every one of those projects come to a certain maturity,” Buterin said, the privacy-preserving bits “all sort of fall away as the thing comes closer and closer to being a 1.0. We get systems that are not actually much better than existing payment systems, because they just basically end up being different front-ends for the existing banking system.”
“They end up being even less private and basically break down all of the existing barriers against both corporations and the government at the same time,” he said.
Vitalik’s father, Dmitry, introduced him to bitcoin in 2011.
Both Vitalik and Dmitry Buterin, a computer scientist who had lived outside Moscow, were intrigued by the idea of a decentralized currency that operated outside the reach of governments or central banks. But Vitalik was keen to advance this new kind of decentralized ledger technology so that it could be put to greater use.
What ultimately put him on the map was baking smart contracts — a programmable piece of code that aims to replace middlemen such as banks and lawyers in certain types of business transactions — into the blockchain. It was a game-changing innovation for the sector that led to an explosion of projects and initial coin offerings, or ICOs, built on ethereum.
Today, the network serves as the primary building block for all sorts of crypto projects, including non-fungible tokens, or NFTs; decentralized finance, or DeFi; and web3, a still somewhat amorphous buzzword for a third generation of the internet that is decentralized and built using blockchain tech. Meanwhile, ethereum’s native token, ether, is the world’s second-biggest cryptocurrency by market cap after bitcoin.
Ethereum co-founder Vitalik Buterin speaks at ETHPrague 2023, an international conference drawing crypto developers from around the world.
Photo: Pavel Sinagl
In ethereum circles, hackers are known as BUIDLers — an intentional misspelling of the word “builders” in a sort of homage to the bitcoin meme HODL, or “hold on for dear life.” The meme-off may seem silly, but it gets at the core of what separates these two very different sets of people.
Bitcoiners tend to move more slowly on development, prioritizing security and decentralization above all else, while ethereum programmers tend to be more cavalier. While they aren’t necessarily breaking things as they go, they do move fast and tinker aggressively.
Last year, for example, the ethereum network fundamentally altered the way the blockchain secures its networks and verifies transactions, slashing its energy consumption by more than 99% in the process. Before this upgrade, both the bitcoin and ethereum blockchains had their own vast networks of miners all over the planet running highly specialized computers that crunched math equations in order to validate transactions. Proof-of-work uses a lot of energy, and it is one of the industry’s biggest targets for criticism.
But with the upgrade, ethereum migrated to a system known as proof-of-stake, which swaps out miners for validators. Instead of running large banks of computers, validators leverage their existing cache of ether as a means to verify transactions and mint new tokens.
Buterin insisted that ethereum’s move to a proof-of-stake model is more likely to stand up against government intervention.
“Proof-of-stake is actually easier to anonymize and harder to shut down than proof-of-work is,” he said. “Proof-of-work requires huge amounts of physical equipment and requires huge amounts of electricity. These are exactly the kinds of things that drug enforcement agencies have decades of experience detecting.”
About the ethereum network, he said, “On the other hand, you’ve got your laptop. You just need a VPN somewhere, and you hide it in a corner. It’s not perfect, but it’s definitely much easier to hide.”
In previous appearances in Denver and Paris, Buterin’s stage presence was colored with a subtle unease. But one-on-one in Prague, he really came alive, dropping the tics and effortlessly swapping the role of elusive coder for open-minded educator.
His transparent communication style, coupled with his willingness to engage in profound philosophical discussions around concepts such as quadratic funding — a way to crowd-raise a central crypto treasury that is then used to fund public goods projects in ethereum, all with the help of an algorithm designed to optimize spending decisions — and soulbound digital identities on the blockchain have turned him into a trusted thought leader within the crypto community.
Notably, Buterin is also very willing to field any question posed to him — especially those that address critiques of the network and of the scope of his leadership position today.
Take the example of his own outsized role in the cryptocurrency he created. Unlike the pseudonymous and hidden Satoshi Nakamoto, who created bitcoin, Buterin is very much the face of ethereum.
Some see this as a significant point of weakness for the network, because governments could target either Buterin or the Ethereum Foundation. But Buterin rejects those contentions. He said that five years ago a lot more was dependent on him personally and on the foundation, but today, clients — that is, software applications built on top of the blockchain that operate independently — have taken on a lot of the work. Ethereum has become its own self-governing ecosystem, with no single point of failure, he said.
“Even if the foundation got some magic freezing order in every jurisdiction at the same time, and if something happened to me at the same time, there’s entire companies that are sole maintainers of ethereum clients that would totally be able to continue,” explained Buterin.
They call it the philosophy of subtraction.
“I think one of the ways of describing its aim is basically that the Ethereum Foundation isn’t trying to kind of be a zealot, a long-term operator or dominator, or anything like that,” he said. “The goal of the Ethereum Foundation is to foster things that, once they start, can continue in a way that’s totally independent.”
In terms of what’s next for ethereum, Buterin said a big priority is focusing on privacy and scalability through zero-knowledge rollups.
ZK-rollups are transactions bundled into sets and executed off-chain. This layer-two technology plays a major role in future upgrades that will ultimately help to make ethereum faster and cheaper to use.
“There’s definitely an extent to which there are diverging interests and there is the extent to which I think the ecosystem does need to find a way to fight hard for the right to continue to build things with the kinds of privacy that we’ve been used to for thousands of years,” Buterin said.
Clarification: Buterin does not believe he’s been targeted by any countries specifically and does not consider himself an outlaw, but is apprehensive about visiting certain countries because of his work.
New York is a tech startup hotbed after almost a decade-long run of IPOs
Olivier Pomel, co-founder and CEO of Datadog, speaks at the company’s Dash conference in San Francisco on Aug. 3, 2023.
Albert Wang, a native Californian, moved to New York from Boston with his wife a decade ago and got a job as a product manager at Datadog, which at the time was a fledgling startup helping companies monitor their cloud servers and databases.
New York had its share of startup investors and venture-backed companies, but it wasn’t a hotbed of tech activity. The San Francisco Bay Area was the dominant tech scene. On the East Coast, Boston was better known as the hub of enterprise technology.
But Datadog grew up — fast — going public in 2019, and today it sports a market cap of over $28 billion. After four years at the company, Wang left but chose to stay in New York to launch Bearworks, providing software to sales reps. The city is totally different from the place he encountered when he arrived, and you can feel it when you’re out at a bar or restaurant, Wang said.
“Now it’s extremely diversified — there are more people doing startups,” he said. Before, “you tended to be surrounded by consultants and bankers, but more and more now, there’s tech.”
Datadog’s initial public offering was followed less than two years later by UiPath, which develops software for automating office tasks. They were both preceded by cloud database developer MongoDB in 2017 and e-commerce platform Etsy in 2015.
None of those Big Apple companies are huge by the tech industry’s standards — market caps range from $9 billion to just under $30 billion — but they’ve created an ecosystem that’s spawned many new startups and created enough wealth to turn some early employees into angel investors for the next generation of entrepreneurs.
While the tech industry is still trying to bounce back from a brutal 2022, which was the worst year for the Nasdaq since the 2008 financial crisis, New Yorkers are bullish on the city that never sleeps.
Among the 50 states, New York was second to California last year, with $29.2 billion invested in 2,048 startups, according to the National Venture Capital Association. Massachusetts was third. In 2014, prior to the run of New York City IPOs, California was the leader, followed by Massachusetts and then New York.
Annual capital deployed in New York over the past nine years has increased sevenfold, NVCA data shows. And that’s after last year’s steep industrywide slump. During the record fundraising year of 2021, New York startups received almost $50 billion across 1,935 companies.
California companies raised three times that amount, and the Bay Area has its own share of startup market momentum. Following the launch of ChatGPT in November from San Francisco’s OpenAI, the city has become a mecca for artificial intelligence development.
Investors have pumped over $60 billion into Bay Area startups so far this year, with half of the money flowing to AI companies, according to data from PitchBook.
Northern California has long been the heartbeat of the tech industry, but Murat Bicer remembers what it was like for New York startups before the rush. In 2012, his Boston-based firm, RTP Ventures, presented a term sheet for a funding round to Datadog but wanted one more investor to participate.
“We talked to so many firms,” said Bicer, who left RTP for venture firm CRV in 2015. “So many at the time passed because they didn’t think you could build an enterprise software company in New York. They said it had to be in Boston.”
That dynamic challenged Olivier Pomel, Datadog’s French co-founder and CEO, who had built up a local network after working in New York for a decade. Boston had the enterprise scene. The rest of tech was in Silicon Valley.
“VCs from the West Coast were not really investing outside the West Coast at the time,” Pomel said.
But Pomel was determined to build Datadog in New York. Eventually, Index Ventures, a firm that was founded in Europe, joined in the funding round for Datadog, giving the company the fuel to grow up in the city. Pomel relocated the company to The New York Times building off Manhattan’s Times Square.
For New York to keep the momentum, it will need to churn out a continuing string of successes. That won’t be easy. The IPO market has finally shown some signs of life over the past week after being shuttered for almost two years, but investor enthusiasm has been muted and there aren’t many obvious New York-based tech IPO candidates.
Startups proliferated in New York during the dot-com boom, but many disappeared in the 2000s. Datadog, MongoDB and cloud infrastructure provider DigitalOcean all popped up after the Great Recession. DigitalOcean went public in 2021 and now has a market cap of just over $2 billion.
Employees from those companies and even a few of their founders have formed new startups in New York. Google and Salesforce are among Big Tech employers that bolstered their presence in the city, making it easier for tech startups to find people with the right skills. And investors who for decades had prioritized the Bay Area have recently set up shop in New York.
Andreessen Horowitz, GGV Capital, Index and Lightspeed Venture Partners expanded their presence in the city in 2022. In July of this year, Silicon Valley’s most prized firm, Sequoia Capital, which was MongoDB’s largest venture investor, opened a New York office.
“Today, there’s absolutely no question in my mind that you can build fantastic businesses in New York,” said Bicer.
Eliot Horowitz, who co-founded MongoDB in 2007 and is now building a New York-based robotics software startup called Viam, shared that sentiment.
“The biggest difference between now and then is no one questions New York,” Horowitz said.
Horowitz is among a growing group of successful founders pumping some of their riches back into New York. He backed DeliverZero, a startup that allows people to order food in reusable containers that can be returned. The company is working with around 200 restaurants and some Whole Foods stores in New York, Colorado and California.
Eliot Horowitz, co-founder of Viam and formerly co-founder and chief technology officer of MongoDB, speaks at the Collision conference in Toronto on May 23, 2019.
Vaughn Ridley | Sportsfile | Getty Images
Wainer, a co-founder of DigitalOcean, invested in collaboration software startup Multiplayer alongside Bowery Capital. He’s also backed Vantage, a cloud cost-monitoring startup founded by ex-DigitalOcean employees Brooke McKim and Ben Schaechter. Vantage, with 30 employees, has hundreds of customers, including Block, Compass and PBS, Schaechter said.
Meanwhile, Wainer has moved to Florida, but he’s building his new company in New York. Along with fellow DigitalOcean co-founder Ben Uretsky, he started Welcome Homes, whose technology lets people design and order new homes online. The company has over $47 million worth of homes under construction, said Wainer, who visits Welcome’s headquarters every month or two.
Wainer said that companies like DigitalOcean, which had over 1,200 employees at the end of last year, have helped people gain skills in cloud software marketing, product management and other key areas in technology.
“The pool of talent has expanded,” he said.
That has simplified startup life for Edward Chiu, co-founder and CEO of Catalyst, whose software is designed to give companies a better read on their customers. When he ran customer success at DigitalOcean, Chiu said finding people with applicable experience wasn’t easy.
“That function, even just a decade ago, just wasn’t relevant in New York City,” Chiu said. “Nowadays, it is very easy to hire in New York City for any role, really.”
The ecosystem is rapidly maturing. When Steph Johnson, a former communications executive at DigitalOcean and MongoDB, got serious about raising money for Multiplayer, which she started with her husband, the couple called Graham Neray.
Neray had been chief of staff to MongoDB CEO Dev Ittycheria and had left the company to start data-security startup Oso in New York. Neray told the Multiplayer founders that he would connect them with 20 investors.
“He did what he said he would do,” Johnson said, referring to Neray. “He helped us so much.” Johnson said she and her husband joked about naming their startup Graham because of how helpful he’d been.
To some degree, Neray was just paying his dues. To help establish Oso, Neray had looked for help from Datadog’s Pomel. He also asked Ittycheria for a connection.
Dev Ittycheria, CEO of MongoDB
Adam Jeffery | CNBC
“I have an incredible amount of respect for Oli and what he achieved,” Neray said, referring to Pomel. “He’s incredibly strong on both the product side and the go-to-market side, which is rare. He’s in New York, and he’s in infrastructure, and I thought that’s a person I want to learn from.”
Last year, MongoDB announced a venture fund. Pomel said he and other executives at Datadog have discussed following suit and establishing an investing arm.
“We want the ecosystem in which we hire to flourish, so we invest more around New York and France,” Pomel said.
Ittycheria has had a front-row seat to New York’s startup renaissance. He told CNBC in an email that when he founded server-automation company BladeLogic in 2001, he wanted to start it in New York but had to move it to the Boston area, “because New York lacked access to deep entrepreneurial talent.”
Then came MongoDB. By the time Ittycheria was named CEO of the database company in 2014, New York “was starting to see increasing venture activity, given the access to customers, talent and capital,” Ittycheria said. The company’s IPO three years later was a milestone, he added, because it was the city’s first infrastructure software company to go public.
The IPO, he said, showed the market that people can “build and scale deep tech companies in New York — not just in Silicon Valley.”
Apple CEO Tim Cook appears in New York to celebrate iPhone 15 release
Apple CEO Tim Cook greets customers purchasing Apple’s new iPhone 15 during a launch event at the Fifth Avenue Apple Store on September 22, 2022 in New York City.
Alexi Rosenfeld | Getty Images
Apple CEO Tim Cook opened the company’s Fifth Avenue store Friday in New York to celebrate the official release of the iPhone 15 lineup, the Apple Watch Series 9 and the Apple Watch Ultra 2.
Customers flocked to the store to get their hands on the new devices, and the line stretched around the corner of 58th Street from Fifth Avenue to Madison Avenue. One man told CNBC’s Steve Kovach that he had been waiting in line since 8 p.m. the night before. Cook unlocked the store and took selfies with people as they entered.
Apple announced its new devices at its annual launch event earlier this month, and preorders opened on Sept. 15. Analysts and investors are watching closely to see whether the new iPhones can reignite the global smartphone market, which is on track to hit a decade low this year, according to an August report from Counterpoint Research.
In a Thursday note, before the launch of the devices in stores, analysts at Bank of America wrote that ship dates for the iPhone 15 Pro and Pro Max models were extended but “somewhat lower” on average compared to the pre-order cycle last year.
Shares of Apple were up less than 1% Friday morning. The company did not immediately respond to CNBC’s request for comment.
The new iPhone 15 lineup starts at $799 and features a USB-C charging port and a new titanium exterior. CNBC’s Kif Leswing tested the two new Pro iPhones, which start at $999 and $1,199, and found that the titanium is a “huge upgrade” because it makes the phone feel much lighter.
Customers can purchase the new devices at their nearest Apple Store or online.
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