Bloomberg News

New York Tops Massachusetts in U.S. Venture Deals for First Time

October 13, 2011

Oct. 13 (Bloomberg) -- New York passed Massachusetts in U.S. venture-capital deals for the first time since at least 1999, ranking second in the latest quarter behind California, as investors seek growth in consumer Internet startups.

New York companies took in $831 million in 86 venture- capital deals in the third quarter, compared with $710 million for 83 investments in Massachusetts, according to a report released today by CB Insights, a venture-capital database. A total of 790 U.S. firms received $7.9 billion in the fourth straight quarter of venture investment growth.

“A lot of people have worked hard at building a startup ecosystem in New York City for more than a decade, and in the past few years you’ve seen it take hold,” said Jerry Neumann, who has invested in technology companies in the city for about 15 years. “They’re coming here out of necessity.”

“Incubators” for entrepreneurs have opened in New York City, and venture investors from Silicon Valley and Boston have shown interest in the area, attracted by startups like FourSquare Labs Inc. and Gilt Groupe Inc. Support for entrepreneurs from investors and from city government is growing, making the trend likely to stick, said Neumann, whose firm is NeuVC.

Internet startups accounted for almost two-thirds of the deals and venture financing invested in New York companies, the data show. The biggest rounds went to Tumblr Inc., a blog site; ZocDoc Inc., which allows people to book medical appointments online; and Buddy Media Inc., which provides social-media marketing software.

Consumer Internet

“There was never a ton of consumer Internet in Boston, and a lot of that is happening in New York,” said Ian Sigalow, a partner at New York-based Greycroft Partners LLC, an investor in Buddy Media.

The market has matured enough that former entrepreneurs are advising new ones, said Maria Gotsch, president of New York City Investment Fund, who previously ran the incubator FinTech Innovation Lab. This summer, there were at least eight incubators for new companies in the city, compared with one last year, she said.

“Everywhere I look, there’s a new incubator,” said Jay Bhattacharya, a New York entrepreneur who formerly worked for Citigroup Inc.

He spent time at FinTech Innovation Lab and the Founder Institute before cofounding Zipmark Inc., which developed an application that lets people exchange money through their smartphones. Zipmark will close a $2 million funding round next week, he said.

California to New York

In recent years, Silicon Valley firms including Accel Partners and Canaan Partners have opened offices in New York. Greycroft has raised $205 million in two funds and has invested in 57 startups, 18 of them in New York, Sigalow said.

“If you were on the Delta shuttle six years ago, it used to be New York-based bankers going to Boston to do private placement for clients,” Sigalow said. “Now it is Boston venture capitalists coming down to meet New York-based startups.”

California companies still dominate in venture capital, with $3.83 billion in 315 deals in the latest quarter. That’s 40 percent of total U.S. venture investments, the data show.

Venture firms are increasing their funding to companies even as they struggle to raise money themselves. The firms raised $1.72 billion in the third quarter, down 53 percent from the same period a year earlier and the lowest amount since the third quarter of 2003, the National Venture Capital Association said this week in a statement.

--With assistance from Xu Wang in New York. Editors: Stephen West, Donna Alvarado

To contact the reporter on this story: Sarah Frier in New York at sfrier1@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net


Cash Is for Losers
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus