Reflections post NY State Innovation Summit 2025 Rochester
We attended the New York State Innovation Summit in Rochester at the end of October, organized by FuzeHub and supported by the Empire State Development's Division of Science, Technology and Innovation. With over 500 participants, the energy was palpable—entrepreneurs, investors, university leaders, and government officials all partnering to build something meaningful in Upstate New York.
We've been to many startup events on both coasts, and what strikes us most about Upstate NY is the collaboration. Partnerships run seamlessly between state government, universities, investors, and entrepreneurship support organizations. There's a genuine sense of community here that feels different from the competitive intensity we've experienced elsewhere.
But we couldn't leave Rochester without confronting the elephant in the room: the striking disparities between the Upstate NY and Bay Area startup ecosystems.
The Scale of Capital, a Sobering Reality
Let us start with the numbers, because they're impossible to ignore.
Last year, the U.S. maintained its position as the global leader in venture capital, accounting for 57% of total worldwide deal value. But when you look at the state level, the disparities are dramatic. California accounted for 48.8% of all U.S. venture capital, continuing its dominance, followed by New York at 10.6% and Massachusetts at 8.1%.
At the end of 2024, U.S. VC firms closed 14,320 deals worth $215.4 billion. They raised $76.8 billion across 538 funds— with $43 billion raised in California by 197 funds, and $15 billion raised in New York by 93 funds.
In terms of invested capital, California received 55% (or $118.5 billion) spread across 4,354 companies. Bay Area startups alone captured $90 billion in venture capital. New York took 11.6% (or $25 billion) across 1,867 companies.
These numbers can't be blamed on the number of active investors. In 2024, California had 3,939 and New York 2,120. For more granular data, consult NVCA.
Upstate NY operates at a fundamentally different scale. For example, Ithaca's startups have collectively secured over $75 million in funding. New initiatives like Upstate Biotech Ventures launched with $6 million to support around 20 companies. Compare that $6 million fund supporting 20 companies to single Bay Area rounds exceeding $4 billion.
Is It a Lack of Talent?
The short answer is No.
The Bay Area hosts approximately 49% of all U.S. Big Tech engineers and 27% of all startup engineers, creating an unmatched density of technical talent. But Upstate NY has a different advantage: over 100 institutions of higher learning serving over half a million students and receiving some $2.5 billion in R&D grants.
The problem isn't producing talent—it's retaining that talent after graduation.
Massachusetts offers an interesting comparison. A comparable concentration of talent consistently places MA in third:
$6.19 billion raised across 26 funds (despite having 1,078 active investors)
$16 billion invested (7.6% of the total) in 844 companies
$115.1 billion in assets under management, after California ($713.8B) and New York ($215.4B)
So talent isn't the bottleneck. Something else is going on.
The Core Differences: Size and Speed
Bay Area funding produces "blitzscale or die" companies—you either become a unicorn or you're a failure. The abundance of capital means startups can afford to lose money for years chasing market dominance.
Upstate NY funding produces "sustainable innovation" companies—you need a path to profitability within 2-3 years because there won't be a $50M Series B to bail you out. Government grants and smaller VC rounds mean companies must prove commercial viability faster, focus on actual customers over growth metrics, and often target B2B or government contracts with clearer revenue paths.
The VC funding dynamics create fundamentally different types of companies in each region. Bay Area startups aim for massive moonshots and platform plays, where Upstate NY builds on practical innovation and research translation.
The irony: Bay Area's capital abundance means more companies chasing speculative, world-changing ideas. Upstate NY's capital constraints mean more companies building practical solutions to real problems—just at a much smaller scale.
The Cultural Divide: Failure and Founder Psychology
Listening to the Commercialization Competition at the summit, I kept thinking about how founders here approach risk differently than what I've seen in Silicon Valley.
Bay Area: High Stakes, Low Stigma
In Silicon Valley, failure is a badge of honor. But this creates brutal pressure—founders stay in zombie startups for years because pivoting is celebrated, but quitting means you didn't hustle hard enough. The real pressure isn't from admitting failure—it's from accepting it. The abundance of capital means you can afford to keep swinging: founders launch multiple companies, treat startups like experiments, and failure has become inexpensive.
Upstate NY: Lower Stakes, Traditional Stigma
There's no celebration of failure here, no FailCon conferences, no "fail fast" mantras. The pressure is quieter but more practical—you're operating in communities where business failure carries real social cost. Founders go "all in" on one venture, focus on sustainable models from day one, and build businesses intended to be profitable, not just acquired.
Upstate NY founders face traditional business pressure—making payroll, serving customers, achieving profitability—but they're allowed to simply build a business rather than performing the exhausting theater of disruption.
How Culture Shapes Capital Structure
Bay Area: Mega-Fund Consolidation
In 2024, the top 30 VC firms secured 75% of all U.S. venture capital fundraising, with Andreessen Horowitz alone raising over 11% of all VC funds. Serial experimentation requires deep pockets—VCs need massive funds to support multiple swings. Capital agglomerators don't care if they throw $100M into a Series B that goes to zero because that's a measly 1-2% of their fund. The low stigma around failure means VCs can afford 9 failures for 1 unicorn. Bigger funds have lesser returns, but generate massive management fees (2% of billions) that keep the lights on. The cultural permission to fail repeatedly means they can raise Fund V even if Fund III hasn't returned capital.
Upstate NY: Government-Backed Small-Ball
New York Ventures is deploying over $300 million statewide—less than a single Bay Area Series C. Individual funds: $30M for early-stage ventures, $6M supporting ~20 biotech companies, typical investments around $1M. Without a celebration of failure, there are fewer serial entrepreneurs who can attract big checks. The government must fill gaps because private capital won't flow to regions where exits are uncertain. Regional VCs can't afford portfolio strategies—they're measured on returns, not moonshots. Each investment must work.
The Feedback Loops
Bay Area: Massive funds → Bigger bets → Some huge exits → More capital raised → Even bigger funds
Upstate NY: Small funds → Conservative bets → Modest exits → Limited LP returns → Struggle to raise next fund
Bay Area's tolerance for failure enables bigger capital formation. Upstate NY's traditional accountability constrains it.
The AI Exception That Proves the Rule
Here's where it gets really frustrating. While we're told founders need traction, that markets have corrected, and 2021 was just an aberration, AI companies play by completely different rules.
"Most first-time founders especially... they have to get significant traction to be able to raise that same round," said Michael Cardamone. "You might have to be at $500,000 ARR to raise that round now." Except for AI companies. They never faced the correction.
The Numbers:
xAI: $12B raised at $50B valuation with $100M revenue (500x multiple)
OpenAI: Losing $5B in 2024, raised $40B at $300B valuation
Anthropic: Expected to lose $2B while earning $1B, raising $3.5B at $61.5B valuation
Nobody is making money with AI—except for Nvidia.
Why Upstate NY Can't Compete:
Founder Pedigree Replaces Traction - Sam Altman had YC credibility. Anthropic was founded by former OpenAI executives. xAI by Elon Musk. An Upstate NY founder with a Cornell PhD and groundbreaking research? No network, no brand, no billion-dollar raise.
Market Defining vs. Market Serving - OpenAI's goal of $100B revenue by 2029 depends on capturing 63% of the generative AI market. They're betting on creating markets that may not exist. Upstate NY companies serve existing markets with proven demand. VCs fund the promise, not the proof.
FOMO Supersedes Fundamentals - When Character.AI raised $150M at $1B valuation to let people chat with fictional characters, investors weren't evaluating business models. They were terrified of missing "the next OpenAI."
Circular AI Money - Amazon invested $8B in Anthropic, Microsoft $13B in OpenAI, Google billions in Anthropic. These are strategic hedges by tech giants terrified of being left behind. The money flows in circles: Big Tech → AI labs → Cloud compute → back to Big Tech. Upstate NY startups don't have trillion-dollar strategic investors writing checks to avoid extinction.
The Uncomfortable Truth
The Bay Area can raise crazy rounds without traction because the entire system is designed around not requiring traction for the right people in the right sectors at the right time. Annualized recurring revenue is one of the most regularly-abused statistics in the startup world, and nobody is making money with AI—except for NVIDIA—yet billions keep flowing.
Upstate NY founders face the "prove it first" bar because they lack:
Investor recognized Founder pedigree
Network effects that create FOMO
Strategic value to trillion-dollar corporations
Narratives about "changing the world"
National reconciliation would require admitting that venture capital isn't actually about returns—it's about status, narrative, and fear of missing out. And the people benefiting from that system have zero incentive to change it.
So the answer is: it won't be reconciled. The two-tier system will persist until the AI bubble pops, at which point capital will flee to safety (not Upstate NY), a new hype cycle will emerge (probably quantum or fusion), and the same geographic concentration will repeat.
The Upstate NY founder who needs $500K ARR to raise $3M is living in reality. The Bay Area founder raising $4B at $50B valuation with $100M revenue is living in fantasy. But fantasy, it turns out, pays better—until it doesn't.
Conclusion: What I'm Taking Home from Rochester
As we unpack our notes, we are wrestling with mixed reactions.
On one hand, we are energized by what we saw at this summit. The collaboration between universities, government, and entrepreneurs here is genuine. The companies being built are solving real problems for real customers. The founders we met aren't performing disruption—they're building businesses. There's something refreshing, even noble, about that.
On the other hand, we are frustrated by the systemic inequities that make it nearly impossible for Upstate NY to compete on the national stage. Not because the ideas are inferior. Not because the founders lack talent. But because access to capital in America has become fundamentally geographic, and that geography is reinforcing itself through cultural and structural feedback loops that seem impossible to break.
But here's what we keep coming back to: maybe Upstate NY shouldn't be trying to become the Bay Area.
Maybe the goal isn't to replicate the blitzscale-or-die model, the founder theater, the zombie startups limping along on FOMO funding, or the AI companies burning billions with no path to profitability.
Maybe—just maybe—there's value in building companies that:
Serve customers from day one instead of chasing hypothetical markets
Achieve profitability instead of perpetual fundraising
Solve regional problems instead of promising to change the world
Allow founders to build businesses instead of running psychological experiments on themselves
The Bay Area will always have more capital. They'll always fund bigger moonshots. They'll always generate more unicorns (and more spectacular failures). But if we measure success differently—by sustainable job creation, by meaningful innovation, by founder wellbeing, by actual value creation rather than valuation creation—then maybe Upstate NY is doing exactly what it should be doing.
The challenge isn't making Upstate NY more like the Bay Area. The challenge is making sure that Upstate NY's model— patient capital, university partnerships, practical innovation, sustainable growth—gets the recognition and support it deserves as a legitimate path to building the future.
Because when the AI bubble pops, when the mega-rounds dry up, when VCs can no longer raise Fund VI on the management fees from Fund IV, the economy will still need companies that make things, solve problems, employ people, and generate profits.
And Upstate NY will still be here, building them.
Buffalo hosts the summit next year in 2026. We'll be there. Not because we expect the capital disparities to change, but because we believe in what's being built here—even if the rest of the country isn't paying attention yet.
The fantasy pays better. But reality endures longer.
And that might be the most important lesson of all.
