New York startup funding on fire

March 16, 2011

— Connie Loizos is a contributor to pe HUB, a Thomson Reuters publication. This story originally appeared here. —

How hot is the New York tech scene? Maybe a little too hot, suggests Owen Davis, managing director of NYC Seed, a three-year old seed fund that provides up to $200,000 to New York startups via a partnership with the New York City Investment Fund, the New York City Economic Development Corp, and other local organizations.

Davis said seed rounds are up 50 percent from where they were a couple of years ago, and that valuations are up as much as 30 percent over the last year. “A startup says we want an X amount for our valuation, and all it needs is to get a few people to say yes to it. Then it can say to everyone else, ‘Look, this is what the market is supporting.’”

Davis said pricing is being driven in large part by West Coast and Boston-based firms now bathing the city’s fledgling startups in cash. “It’s no longer like one or two guys are qualified to be your seed investors. (Now) it’s like there are dozens of people (who are qualified), so the size of the cap tables is ridiculous.”

So is the quality of the deals, in some cases, suggests Davis. Because “there are a lot of large funds doing seed deals (to create options for themselves later), the bar for investing in seed deals has lowered in many ways,” he said.

Asked if he now rolls his eyes at the announcement of every new firm opening an office in New York, Davis suggests that everyone in New York is just playing the game on the field. They have to.

“Nobody should think, ‘This is our neighborhood. This is our market.’ It’s a free market, and you’ve got to compete. If deals and activity and momentum are in New York, obviously (investors from near and far) have to have a presence. You’re potentially missing a big market otherwise. But the market isn’t big enough to support all of the cash that’s coming in.”


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Posted by StartUpAndGoBiz | Report as abusive

[…] of funding in New York has been steadily rising too. Owen Davis, managing director of NYC Seed, says seed rounds are up “50 percent from where they were a couple of years ago, and that valuations are up as much as […]

Posted by "Silicon Alley" Is Dead « Pakman « | Report as abusive

As much interest and money as there is,cash is still king. If you believe in your product, stay away from going after financing too early. The key is to go to venture to grow and not to start. Start bringing in customers and then head to the funding table. It makes it much tougher to be taken advantage of.

Posted by dougthaler | Report as abusive