With the venture capitalists watching closely, Silicon Alley may be inching its way toward a first for New York's new-media industry: an IPO. While its Silicon Valley counterpart has witnessed the explosive (and occasionally, implosive) rise of Netscape, Yahoo, and Sun, New York new-media firms have yet to see one of their own make it from the Flatiron building into the fire.
But at Thursday's Venture Capital New York conference, sponsored in part by the New York City Economic Development Corp., there were strong suggestions that the climate of the Alley may be changing, as both the city and venture capitalists themselves move to make a landmark public offering possible. From real estate breaks instituted by Mayor Rudolph Guiliani to the city's US$75 million Discovery Fund earmarked specifically for new-media firms, venture capital in Manhattan is becoming more bullish about the future of the Alley, where content is king.
"Over the next 12 to 18 months, you're going to see a New York company go public in a big way," said Francine Sommer of VC firm Gabelli Partners. "You haven't had this kind of entrepreneurial spirit in New York since the broadcasting companies in the 1940s."
Recent signs have pointed to a rapid sea-change in venture capital's own approach to New York. In June, two Alley companies with no tech component rounded up unprecedented amounts of VC. iVillage, a content company that produces ParentSoup and AboutWork, garnered $21.5 million, and advertising network DoubleClick secured a stunning $40 million, perhaps one of the highest VC investments acquired by a privately-held company.
But dollar for dollar, the Alley makes a weak showing against Menlo Park's more established technology enclave. According to investment newspaper Crain's, Manhattan software firms received just $264 million in 1996 - paltry compared to the $1.429 billion poured into Silicon Valley. On the state level, New York companies receive one-fourth the funding of California-based firms. A report released by Coopers & Lybrand pegs the reduced rate to the sheer number of deals - 734 in California, compared to 157 in New York.
The money itself, however, is for the most part coming from New York, said Coopers & Lybrand partner Bob Fish, but the city has had trouble keeping it there. "There are more funds with higher dollar amounts in New York than on the West Coast," Fish said, "but most of the money has been going out to Boston, Texas, or Silicon Valley because traditional venture investment is in proprietary technology ... not content."
New York's biggest missing elements, from a venture capital perspective, are experienced management and mentors, said Ellen Corenswet from VC firm Brobeck, Phleger & Harrison. The recent creation of an "angel" investor program, however, by the New York New Media Association hopes to bring together start-ups and single investors to help "nurture the entrepreneurial spirit," said NYNMA director Lori Schwab.
The program hosts monthly breakfasts for a network of some 50 investors where two Alley companies present their business plans. Each "angel" investor (the term comes from theater patrons) commits to give $25,000 in seed capital yearly. The program introduces a role that Silicon Valley "angels" have played for years, says Schwab.
Mayor Giuliani, who keynoted the conference on Thursday, stressed that New York was in synch with the libertarian ethos of venture capital. Emphasizing that "government planning stinks and can't figure out what small companies will do," he touted his administration's efforts to undo New York's historically anti-business reputation in favor of wily start-ups.
The real estate rental tax, which strangled young businesses, has been reduced 30 percent in Manhattan (eliminated in the rest of the city), and the low-cost "wired" offices offered through the Plug 'N' Go Program have attracted many new-media companies. The Discovery Fund, created two years ago, has also doled out $4.5 million to six new-media companies and continues to scout for others.
Sommer said New York's own small geographic size and inexperience may actually help the city to avoid some of the pitfalls of Silicon Valley, like personnel poaching. "In Silicon Valley, there is enormous competition to pirate employees from each other," said Sommer, "but you don't have as much high-management authority in New York. You have to go outside for top management. You just can't pirate."
From the Wired News New York Bureau at FEED magazine.
