Peter Fogel October 09, 2013
Venture capital is not necessarily the first, or even the fifth industry to come to mind when thinking of the Big Apple. Yet hidden under the renown of financial services, publishing, entertainment and major corporate headquarters is the second largest venture scene in the country, after the Bay Area. Much of New York’s allure for venture capitalists is that many of the city’s startups play to the region’s traditional strengths listed above, in addition to it being a consumer core and a home for large corporate offices. As such, many of the city’s companies that have received financing in recent years are aimed at improving these industries with enhanced shopping experiences, consumer entertainment and targeted-marketing campaigns.
While software has, unsurprisingly, led the venture capital industry in the number of financings in 2013—nationally, software has expanded its control of VC financings from 32% of deals in 2009 to almost 40% of deals through 3Q 2013—New York has seen an opposite trend, PitchBook’s venture capital data show. After peaking at 45% of New York deals in 2009, software has comprised 36% of VC rounds in 2013. The city’s software startups are about evenly split between consumer- and enterprise-focused companies, with many blurring the line between the two. Companies like Relationship Science, Honest Building and Work Market all attempt to redefine professional networking or to act as an outsourced human-resources department. Other key New York companies in the space work on business productivity and financial software.
Venture capitalists are constantly seeking to invest in companies that will act as disruptors to traditional industries. And this can be seen in financings in retail, commercial services and media companies, all three of which make up 42% of VC deals in New York. These three industries are intimately linked to New York’s historical strengths in consumerism, advertising and publishing. For example, the vast majority of VC funding in commercial services has been for companies specializing in targeted ad campaigns, such as Yodle, HookLogic and Collective, which work to make the city’s famous publishing and advertising industries’ online ad efforts much easier.
The city’s consumer-focused VC-backed media companies are also following in the footsteps of the great publishing industry. New York’s highest-valued VC-backed media company, Buzzfeed—which raised $19.4 million in January, valuing the company at $184.7 million—has, for the last seven years, successfully been taking over the internet and reimagining the world as a series of ridiculous lists.
And there is no foreseeable decline for New York’s venture capital industry. The Big Apple held the No. 2 spot as the most active metro area in the country for venture capital deals and capital invested through the first three quarters of the year, and leads the next closest metro area (Boston) in number of financings by nearly 50%, according to PitchBook Data. In addition, New York has doubled its share of venture capital deals from 5% in 2007 to 10% so far this year, with much of this recent growth attributable to more investments at the seed stage from local firms like Lerer Ventures andGreat Oaks Venture Capital.
It’s clear that New York has immense buying power and is filled with firms willing to make riskier investments now in the hopes of great returns down the line. And with traditional industries searching for ways to augment and improve old ways with new technology, there should be no shortage of new innovative ways to reach consumers on behalf of publishers, advertisers and commercial services companies.