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Apr 21

Are venture capitalists in the Big Apple stealing Silicon Valley's thunder?

Posted by annearf in venture capitalsilicon valleyPricewaterhouseCoopersnyc seedNew York Citydeal talk


Silicon Valley is still central headquarters for venture capital activity in the US.  But it looks like the New York City area is trying to play catch up.

A new report shows an increase in the region both in the amount of startup funding and the number of deals for two consecutive quarters, while activity in Silicon Valley dropped. 

The report, from PricewaterhouseCoopers and the National Venture Capital Association , found that financing for companies in and around the Big Apple increased to $566 million in the first quarter. That was an 18.9 percent rise from the previous quarter, also a 34 percent year-over-year increase.  A total of 75 firms received money in the first quarter,  up 13.6 percent.

In Silicon Valley the story was very different.  Investment dollars and numbers still won out over New York, of course. But the trend was down. Total funding of $1.5 billion in the first quarter represented a  21.4 percent drop from the fourth quarter 2009, while the number of deals fell 24.6 percent over the same period.

Overall share of VC money also rose in New York and fell in Silicon Valley.  In New York, it reached 12 percent, up from 9.2 percent in the fourth quarter 2009, compared to 32.3 percent for Silicon Valley, down from 37.5 percent.

This New York- area investment growth reflects recent efforts by venture capitalists and the New York City government to rev up funding.  A few examples: Last spring, New York law firm Lowenstein Sandler started First Growth Venture Network, which provides mentoring for newbie CEOs from venture capital firms, angels and more-seasoned executives.  Last fall, they announced the first 15 CEO mentees.  Late last year, seven successful entrepreneurs launched the Founder Collective to make $50,000 to $1 million investments in very early-stage ventures in New York, as well as the Boston area. And, in early 2009, NYC  Seed , a partnership of venture capital, non-profits and universities, made its first investments in several seed-stage ventures.

Last week, I wrote about trends in angel investing and noted that such financing provides more money for startups than venture capital. Still, although VCs invest in a small percentage of all new companies, they do support enterprises with potential to become real powerhouses.  So, the New York area economy clearly benefits both in the short and long-term from this financing activity.  

Although it's doubtful these firms will ever match the contribution in tax dollars and jobs provided by Wall Street.

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