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.