The Tech and VC ecosystem has been dominated by the U.S. since the birth of the industry. The country is home to a considerable number of tech hubs; New York is a primary one and has been growing particularly fast this past decade. The New York Tech ecosystem is extremely dynamic and over the past years, goldmines such as Shutterstock, Tumblr, AppNexus, Etsy and Kickstarter have emerged. The VC ecosystem is a major factor in this growth as they fund startups that grow fast but often lack revenue.
The NY Venture Capitalists in numbers:
The NY VC scene ranks 2nd in the U.S. (and in the world) by all major metrics. Just between 2013 and 2014, VC funding went through the roof with a 53% growth. To give you a clearer picture, investments went from a total of $2.9B to $4.5B. By comparison, Silicon Valley’s VCs invested $26.8B in 2014 and Massachusetts (the 3rd largest VC ecosystem in the U.S.) $4.2B. It’s important to notice that the number of deals has not increased proportionally, going from 485 deals in 2013 to 503 in 2014 which represents a 7% growth YoY.
Year to date in 2015, the trend seems to be increasing with projected total investments surpassing $7B but a decrease in the number of deals.
What type of funding?
The particularity of NY’s VC funding is that it comes mostly in early stages. The barriers for series A and beyond are getting higher. With more than 40% of investments taking the form of seed funding, NY VCs tend to invest in smaller deals. Other stages still hold more than 50% of investments but they are all on a decreasing trend except for the series E+ that have been growing steadily. The size of NY VCs can explain these numbers. There are many Micro-VCs in NY who simply don’t have enough money to invest in bigger deals. In comparison, seed stages in Silicon Valley only represent 28% of total VC investments.
What are the areas of investment?
New York is particularly known to focus on two areas: internet and mobile & telecommunications. These two represent more than 80% of VC investments.
One thing you should be aware of, it’s that the names of these sectors don’t paint the whole picture. Within internet and mobility are many different industries. Logically, the most represented are the historically known NY industries such as finance, publishing, advertising, entertainment and marketing services. As the graph below shows, there are other existing classic NY industries such as Fashion, but they represent a minor proportion.
New York being a hub of different cultures and known to be one of the most creative places on earth, media content is naturally a major part of the tech industry.
In comparison, mobile and internet represent less than 65% of investments in Silicon Valley. The Valley spectrum is much wider with a strong presence of software, health related tech and hardware.
Who are NY’s biggest players?
As previously mentioned, NY is home to many small sized VCs. However, some larger structures exist and are able to invest in multiple advanced staged investments. Lerer Hippeau Ventures is regularly ranked as one of the most active investors in New York tech companies since 2009 with over 100 investments, including notable successes such as BuzzFeed and Warby Parker. BoxGroup, SV Angel, FF Ventures, First Round Capital, and Bessemer Capital are also major player.
The NY ecosystem has had major exits in the past such as Etsy and Tumblr for more than one billion dollars each, and multi-million dollar ones like Kickstarter and Quirky. Big growth opportunities are there since the digitalization of the information-centric industry, and it’s only the beginning. Adtech & Fintech are also young sectors that are enjoying a rather strong traction. As Tech will take full advantage of those opportunities, additional VC funds will be available. The lack of universities with strong engineering programs and the high costs of living are handicaps but NY is working on these issues with the new Cornell Campus in NY and a political drive for affordable housing. There are without a doubt many new internet giants backed up by NY VCs who will one day become major players in the industry.