Photo: The Fresh Express
Good news New York City startups: It’s never been easier to raise money to get your company off the ground.One plugged in digital media exec told us, “If you can’t get money for your startup right now, then there’s something wrong with you.” Other people in the scene basically confirmed this, but added a few caveats.
Chiefly, getting quality capital is as challenging as ever. And big brand name VCs aren’t changing their pace of funding.
However, New York City is awash in capital for early stage startups looking for smallish (under $1 million) sized rounds. There’s a lot of “hedge fund guys” looking to invest in tech startups in New York right now, says one New York investor.
“If you’re a hedge fund guy you’re used to billions. And when you see valuations in the millions, it seems like nothing to invest,” says this investor. But he adds, the hedge fund guys don’t get the technology business. Taking their money, therefore, he argues is less valuable.
Of course, he’s talking his book, but he says he walked away from investing in a startup after some hedge fund guys made the valuation out of whack. The terms were more favourable for the startup, but it would have scared off later round investment, he says.
A VC we spoke with touched upon the idea of later round investment. He’s seeing a lot of angel funding cash out there, but he thinks some startups are getting funding before they’re ready for it, or deserve it. And when the startups go looking for a series A or B round, they might find that getting that later round is much more challenging.
One person we know who has a startup trying to raise money was floored at how easy it was to get a small slug of cash. It was basically a short phone call with a potential investor who said, “I’ve heard good things about you from people I trust. When you’re ready for me to invest, just call me back.”
The growth in early stage funds in New York is being driven by a few factors say the people we spoke with.
1. The New York tech scene is flourishing. And coverage of it is too, thus investors are interested.
2. Some of the people that had successful New York based startups in the early part of the decade are investing in New York startups now.
3. Wall Street types are willing to spend money on startups.
4. It’s easier than ever to do a lightweight startup. You don’t need much money for many web based companies. If you need less money, it’s easier to get funding.
5. Companies are acquisitive again. Google has purchased 25 companies in 12 months. Facebook is acquiring at a decent clip. Even Apple is buying some companies. And there’s many other companies stepping up their M&A.
Add it all together, and the city is looking quite “frothy,” according to our digital media exec friend.