Silicon Valley Goes Deal-Hunting in NYC
By Spencer E. Ante
A couple of years ago, seed venture capital investor Jeff Clavier would only invest in start-up firms based near his Silicon Valley offices. Like a lot of Valley denizens, he thought there weren’t enough talented software engineers outside the San Francisco Bay Area capable of building a viable company.
But in the last year or so, Clavier has been making quarterly schleps to New York to hunt for deals. The founder of a small but influential venture firm called SoftTechVC, Clavier has so far invested in six New York-based start-ups, including URL shortener bitly, online marketing tool FanBridge, and Web video maker Animoto Productions.
“New York is completely credible now,” said Clavier. “Ever since the financial implosion you had labor available.”
New York-based start-ups have long attracted money from local venture firms, but the last year has seen an influx of investment capital from larger regional firms and Silicon Valley giants who are setting up offices in the Big Apple for the first time. Clavier and other investors say the local entrepreneurial market has reached critical mass and they see particular opportunity in financing the digital start-ups seeking to reinvent key New York-based industries such as fashion, finance, retail, and media.
“There is something fundamentally enduring going on here,” said Daniel Schultz, managing director of New York venture firm DFJ Gotham Ventures, long-time area investors.
Venture capitalists plowed $2.2 billion into the New York metro area last year, up 30% from 2009, according to data from Dow Jones VentureSource. Silicon Valley still attracts the most venture capital by a large measure, with $11.2 billion invested in 2010.
Yet New York is gaining, for the first time surpassing Boston as the biggest deal generator outside Silicon Valley, with 347 deals funded, compared with 271 for the Boston area. And in retail and financial technology, New York last year actually saw more venture deals than Silicon Valley for the first time.
“New York is already competing with Silicon Valley in many areas and will continue to do so,” said Bijan Sabet, a general partner at Spark Capital, a Boston venture firm that is now more active in New York than in New England. Over the last three years, Spark has invested in 17 New York start-ups, including Tumblr, Inc., digital TV provider Boxee, Inc. and online question-and-answer network Stack Exchange, Inc.
Silicon Valley investors are also shifting greater attention to New York, an idea that was considered heretical only a few years ago. In January, Accel Partners, the prominent Silicon Valley firm that was an early investor in Facebook, opened its first New York City office to pursue opportunities here.
This week, many top California firms such as Accel, Sequoia Capital and SV Angel were in town for the TechCrunch Disrupt conference, scouting for investment opportunities with area start-ups.
Some local investors believe that despite New York’s growing profile it has a lot more to prove, and note that locals have yet to produce a Facebook or Google-caliber blockbuster.
“You need a few big exits here,” said Chris Dixon, co-founder of Founder Collective, a seed-stage venture firm with a New York office established in 2009, using a term to describe the sale or IPO of a company. “Then you get a snowball effect.”