Why I’m Bullish on the Rapidly Growing New York Startup Ecosystem

Parsa Saljoughian
Sep 5, 2018 · 9 min read
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New York City has quickly emerged as a prominent hub for innovation and entrepreneurship. The city has a strong foundation of tech talent and early-stage venture capital firms, and is becoming a real alternative to the Bay Area for founders looking to start a business. Over the last few years, investment activity has more than quadrupled ($12B in 2017), round sizes have increased substantially (3x in 4 years), and we’ve seen an improved exit environment for venture-backed companies. In this post, I dig into some of these recent investment trends and share why as a late-stage VC investor at IVP (not to be confused with Insight), I’m excited to continue to spend time in the city that never sleeps!

New York Startup Investment Activity Continues to Grow

According to the National Venture Capital Association (NVCA), over $12 billion was invested into venture-backed companies in the state of New York in 2017, up from only $3 billion just five years prior. 2018 is on pace to match last year’s record performance.

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While looking at absolute dollars is helpful, it’s important to put this into context relative to total dollars invested. In 2017, dollars invested in New York represented over 14% of all investment dollars in US venture-backed companies. This share has risen steadily over the last decade, up more than triple from 2009 and double from 2012. The pace also seems to be picking up.

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During this same time frame, as the percentage of investments in New York companies has grown, the percentage of investments in Bay Area companies has actually shrunk. As a result, in 1H 2018, the total number of investments in companies in the NYC-metro was almost half that of the Bay Area, up from only 10% in 2006.

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Since 2006, New York City has surpassed Boston, Los Angeles, and Seattle to become the second largest startup ecosystem. It’s not a zero-sum game, but it is interesting to see the trends. What will this distribution look like in 2020? 2025?

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Not only is the number of investments in New York increasing, so is the average size of each investment. The average check size has risen from under $4 million to over $12 million in just a few years.

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A separate way at showing this trend is by looking into round size itself. The number of investments each year in NYC greater than $20 / 50 / 100 million continues to climb according to data from Pitchbook. From 2010–2013 there was only a combined 91 deals greater than $20 million. This year alone, through August, there has already been 87 of these deals. Since 2015 there have been 122 rounds greater than $50 million in deal size, compared to only 38 during the five years prior. So far this year, there have been 33 of these rounds (companies highlighted below). The distribution is also split between enterprise and consumer. While part of this trend is due to increased capital in the broader tech ecosystem, it also highlights the higher share of quality companies being born and scaling in New York. Later-stage firms are taking notice.

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The New York Consumer and Enterprise Tech Startup Landscape (Market Map of 350+ companies)

The companies above are only a selection of the late-stage companies that have raised capital over the last year. Below I’ve highlighted the entire NYC consumer and enterprise landscape of companies that have raised at least $20 million. The market map is broken up into ranges based on amount of funding: $20–50 million, $50–100 million, $100–200 million, and $200 million+.

In the early 2000s, this landscape consisted largely of ad-tech companies (DoubleClick, TheStreet). By 2010, there was an emergence of commerce (Gilt, Etsy), social networks (Foursquare, Tumblr), and media (Vice). Now, there’s a much broader ecosystem consisting of enterprise SaaS, fin-tech, health-tech, marketplaces, brands, real estate, on-demand, food, bitcoin, cyber-security, and more.

The New York Consumer Tech Landscape

A high definition version of the consumer tech private company market map can be downloaded here.

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Note: Includes consumer tech startups that have raised at least $20M total and one round since 2014

A few interesting insights from the NYC consumer tech world:

  • 46 private companies have raised at least $100 million of funding
  • 163 private companies have raised at least $20 million. In total, these companies have raised $19.1 billion.
  • Popular sub-sectors within consumer include direct-to-consumer brands, marketplaces, and digital media

The New York Enterprise Tech Landscape

A high definition version of the enterprise tech private company market map can be downloaded here.

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Note: Includes enterprise tech startups that have raised at least $20M total and one round since 2014

A few interesting insights from the NYC enterprise tech world:

  • 40 private companies have raised at least $100 million of funding
  • 230 private companies have raised at least $20 million of funding. In total, these companies have raised $19.4 billion.
  • Popular sub-sectors within enterprise include SaaS, infrastructure, cyber-security, fin-tech, insurance tech, health tech, and co-working

According to the NYC Development Corporation’s GSER (Global Startup Ecosystem Report) report, New York is home to 7,000+ startups and has created $71 billion in ecosystem value. The city has created more than 326,000 jobs in its tech ecosystem, ranking it as the world’s second highest performing ecosystem.

Continued and Growing Support from Early Stage Investors

Having strong early-stage venture support is important in keeping any ecosystem alive. Local early-stage firms such as Union Square Ventures, Lerer Hippeau, Canaan, Greycroft, Contour Venture Partners, RRE, FirstMark, Primary.vc, BoxGroup, BBG Ventures, Lux Capital, ff Venture Capital, First Round, and Female Founders Fund continue to lead the way as the most active firms in the NY-metro area. Sector-specific funds such as Work-Bench, focused on the enterprise and Imaginary, focused on consumer brands have emerged as well. Multi-stage firms including Bessemer, General Catalyst, Thrive Capital, Spark Capital, and NEA also have invested heavily in the geography at the early-stage.

Just in 2018, several of these NY-dedicated early-stage firms have raised new funds, doubling down on the region.

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As highlighted in the investment trends above, the pace of companies that have matured from the early-stage to the late-stage in New York has grown rapidly over the last few years, thanks to the support from these firms. This has created more attractive investment opportunities for firms like ours.

What About The Exit Environment?

One of the biggest criticisms of the New York tech ecosystem has always been the lack of exits. Large exits generate wealth for employees and investors which is necessary to keep the ecosystem alive. However, just in the last couple years, New York has seen some encouraging activity:

IPO: Encouraging performances from MongoDB, Yext, and Etsy in 2017/2018

  • MongoDB ($MDB): Went public in October 2017 and has seen its stock price triple in the first year since IPO. Currently, the company has a market capitalization of $3.6 billion.
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  • Yext ($YEXT): Priced its IPO in April 2017 at north of a $1 billion valuation. Since then, the company has over doubled its valuation to $2.4 billion.
  • Etsy ($ETSY): Has seen its market cap quadruple since the beginning of 2017 to $5.8 billion. This expansion was courtesy of new monetization strategies which have helped drive the company’s profitability.
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Note: Market Cap based on current stock price as of 8/31/2018

There’s more work to do here, but the recent activity is encouraging. There’s a long list of pre-IPO companies ready to enter the public markets in the coming years. CB Insights publishes a good tech IPO report each year, highlighting the most promising IPO candidates, many of which are NY headquartered.

M&A: 4 M&A deals north of $1.5 billion since 2016 in NY metro area

  • Since 2016, there have been 4 acquisitions of NY-based (incl. broader metro) companies larger than $1.5B. Most recently, AppNexus was acquired by AT&T for $1.6B and Flatiron Health was acquired by Roche for $2.1B.
  • There have been over 20 more M&A exits greater than $200M since 2010. While these exits are smaller, many of them still help generate wealth for early-stage investors, founders, and employees.
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M&A deals exceeding $500M. Excludes WebMD (6/17, $2.5B), Dealertrack (10/15, $4.0B)

The key to a successful startup ecosystem is a strong cycle of talent and capital. There must be several waves of startups that go through discovery, funding, scaling, and an exit. As employees join startups, they learn more experienced founders, gain domain expertise, and eventually leave to start their own businesses (or join other ones in executive roles). The more successful the exits, the more expertise and capital that can be poured back into the ecosystem for the next generation. One of the Bay Area’s biggest advantages has been its cycle of capital and talent which dates back many years: Hewlett Packard and Fairchild Semiconductor (A report claims that 70% of Silicon Valley’s public companies are in some way linked to Fairchild) in the 1950s → Apple in the 1970s → Google in the 2000s and more. The most famous recent “mafia” in the Bay Area is from PayPal, which included Peter Thiel, Elon Musk, Roelof Botha, Reid Hoffman, and Keith Rabois, among others shown below.

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Source: Fleximize

New York’s most notable “mafia” is from Gilt Groupe, which has helped spring up companies such as Flow, GroupMe, Security Scorecard, Transfix, Moda Operandi, and Zola. This even can happen at a smaller scale… Former executives at Voxel, which was acquired for up $35 million in 2012 have helped start Grafana, Packet, and NS1. These cycles take years and New York is still in the middle innings. As the exit environment and talent pipeline continues to ripen in New York, there’s no doubt this list of companies will expand.

IVP is Bullish on the Ecosystem

At IVP, we have spent a lot of time in New York and continue to be bullish on the geography. We are fortunate to be investors in a number of awesome NY-based companies including:

  • Casper: direct-to-consumer global sleep company
  • Compass: real-estate technology company
  • Datadog: monitoring service for cloud-scale apps
  • Dataminr: real-time information discovery company
  • GIPHY: GIF platform
  • Glossier: digitally-native beauty brand
  • GroundTruth: location-based marketing platform
  • OnDeck: provider of financing for SMBs
  • The Players’ Tribune: multi-media digital platform for athletes
  • Thrive Global: behavior change media and technology company
  • Yext: global location data management platform
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We’ve also been fortunate to see a few liquidity events including Yext (IPO in 2017), On Deck (IPO in 2014), Buddy Media (sold to Salesforce in 2012), General Assembly (sold to Adecco in 2018), Business Insider (sold to Axel Springer in 2015) and DoubleVerify (sold to Providence Equity in 2017).

We’re excited to continue to spend time in New York to find the next generation of great companies!

IVP is a later-stage venture capital and growth equity firm based in the United States. The partnership is currently investing IVP XVI, a $1.5 billion later-stage fund focused on investments in rapidly-growing technology and media companies. Founded in 1980, IVP has invested in over 400 companies, 108 of which have gone public. IVP is one of the top-performing firms in the industry and has a 37-year IRR of 43.1%.

Sources: NVCA.org, Pitchbook, Capital IQ, CB Insights


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Investor at late-stage VC firm, IVP.

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