Mar 25

Mo’ Money, Mo’ Problems? Why Predicting An NYC Tech Bubble is Just a Juicy Headline

Over the past few months, a small group of InSITE Fellows (past and present) has had the pleasure of working with David Aronoff at Flybridge Capital Partners to examine the health of the New York venture and startup ecosystem. It is no secret that New York’s startup scene has been on a tear in recent years. The press has been rife with New York tech funding stories, favorable and unfavorable comparisons to Silicon Valley, more than a little hometown boosterism, and occasional warnings of bubbles and crunches. We wanted to dive deeper and see what the data had to say about the health and sustainability of New York’s tech sector. Our team examined the trends in and current state of New York’s tech startup capital funnel—from seed-stage financing, to later-stage venture/growth funding, through M&A and IPO activity. The study went through several iterations of refinement and internal discussions. David then wrote an excellent piece summarizing our findings and what they mean for the current state and future of New York’s startup community. We would encourage you to follow the link and read it.

In brief, we found a startup ecosystem that is growing in remarkably healthy balance. Funding growth is well-distributed between early- and later/growth-stage financings and across sectors. M&A activity is keeping pace nicely (although naturally lagging slightly as companies incubate), and many of the City’s leading companies appear to be nearing major liquidity events. A few representative stats from David’s piece underscore these trends:

  • $13.5B+ in venture financings across 2,700+ transactions (NY VC Almanac, p. 7).
  • 800+ M&A transactions, including substantial exits between $50M and $1B in the past two years. Notable companies include Admeld, Buddy Media, indeed, MakerBot, tumblr, and many others (PWC / NVCA Moneytree Report Feb 2014; data from Thomson Reuters)
  • Critically, we’re seeing a number of very strong companies (such as AppNexus, mongdoDB and ZocDoc) approaching “unicorn” status as they surge toward IPO candidacy in the $B+ range.
  • NYC accounted for 7 (9.3%) of the US VC-backed IPOs in 2013 (Wilmer Hale Research, Feb 2014). Additionally, Shutterstock (the most the successful of 2013 NYC tech IPOs) was not VC-backed, and stands with a market cap of nearly $2.7B.

As David details in his piece, the health of New York’s startup ecosystem extends beyond fundraising and exit statistics. As the City’s company formation and capitalization activity has expanded, so too has its tech talent pool, its tech-oriented education infrastructure, the vibrancy of its tech event community, and the investment of global tech firms—including Facebook, Twitter, Google, Microsoft, and Yahoo!—in the City.Anyone who follows tech knows that it has been an exciting few years in New York. As with any bull run, it can be difficult during these heady time to gauge how healthy the market is underneath all the hype. That may be particularly true for those of us who were not yet of age during the first tech boom (and bust) of the early aughts, and for whom the status quo has been ever up and ever to the right. While there is doubtless some degree of of hype surrounding today’s New York tech scene, it is reassuring to see that the fundamentals of our growing sector nonetheless appear strong.

For the three of us on the InSITE team, this project has been an educational and rewarding experience that leaves us feeling even more optimistic about the ecosystem in which we have chosen to invest our careers. We’d like to thank David for leading this charge, and we encourage everyone to check out his piece for a more robust analysis on the state of New York’s venture and tech ecosystem.

This post was written by Zak Schwarzman (CBS ’13), David Lerman (CBS ’13), Patrick Chang (CBS ’14)

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