Report: Area venture capitalists invest 90 percent of money outside New York City
The region’s venture capitalists are big spenders, but they’re not spending so big in the city.
Venture capital firms in the tri-state area shower only 10 percent of their money on city startups, according to a new report that tracked the flow of investment dollars from January to July.
The report, released by ChubbyBrain, a startup research company, analyzed the investments of 47 area firms and found they doled out more than $2 billion in the first half of the year, which represented 20 percent of all venture funding. Still, only $200 million went to city startups.
“New York is trying very actively to build up its entrepreneurial sector,” said Maria Gotsch, CEO of the civic-minded New York City Investment Fund. “So it shows we have a lot of work to do.”
The city has traditionally lagged behind Silicon Valley and Boston in startup activity, where the ecosystems are more fully developed. ChubbyBrain’s research is just another example of the disparity, but investors and entrepreneurs here said they detect a shift for the better.
Gotsch points to the creation of the East River Science Park, which should help jumpstart the city’s bio-tech sector. Bio-tech demands heavy investment dollars: “When you start a biotech company you can’t do it at a Starbucks,” she said.
FirstMark Capital is one of the larger investment funds in the city and about half of its deals are done close to home, said Rick Heitzman, a partner at the firm. It’s not the amount of money you give locally, but the amount of deals you foster, he said. For example, a firm could invest $60 million in China to one company and spread a fraction of that money to a handful of companies locally.
Still, the number of local deals that area firms are funding is low. Only 18.5 percent of the deals were in the city, according to ChubbyBrain.
Heitzman said he expects that number to change as the city’s entrepreneurial sector booms with startups breeding more startups.
“I’m seeing a lot of great seed type investments,” he said.
One statistic ChubbyBrain’s report didn’t track was the amount of outside venture capital coming to the city. There are signs that New York City is more attractive than Boston in some areas, said Charlie O’Donnel, founder of the startup Path101.com.
He pointed to First Growth Venture Network: It’s a “bunch of Boston VCs doing a program for NYC,” he said. “Why are they coming down here? It’s because it’s where the opportunity is.”