State of New York Seed Investment - and where to find it
Seed capital allocated to startups in New York has been on the rise for the last decade when the financial crisis depressed real estate prices, attracting tech giants and entrepreneurs alike to Silicon Alley in droves. Simultaneously, investment bankers and hedge fund alumni set their sights [and bank accounts] on startups, looking to back the next Facebook or Snapchat. Now, there is more capital than ever in the system from a broader variety of sources than we have traditionally seen. In addition to VC firms, the system is now ripe with angel investors, accelerators, family offices, corporates, and ‘advisors.’ Yet today, seemingly more than ever, founders are frustrated with the opaque fundraising process and the, ever-increasing, barriers for securing seed funding. It is a contradiction worthy of further exploration.
Below is a quantitative breakdown of the NY seed investing ecosystem based on actual investments since 2009; not just self-reporting and marketing by VCs. In the spirit of more transparency, I am also opening up access to our database of investors who have deployed capital into New York-based seed stage companies over the last two years. Fundraising is painfully opaque so my hope is this can be used to identify target investors and filter based on the needs of your particular company. It’s not going to be perfect but should be valuable in understanding who has actually put capital to work vs. those who advertise themselves as seed investors.
A couple of things to note:
I use the term ‘seed’ to cover all stages of seed investment because it’s too long and cumbersome to type pre-seed, seed, late-seed, mango seed, and the myriad of terms that get thrown around now.
The research encompasses angel investments, incubators/accelerators, and institutional capital such as VC firms. I have included angel groups in the database but not individual angel investors.
There is not enough reliable data to report on whether these investors will invest pre-revenue or not. I assume most will/have but you will have to verify independently.
Keep reading for a glimpse into my super exciting weekend.
Seed Investments and Capital Deployed
During 2019, $1.358 billion was invested into 1,069 seed rounds. The number of deals completed is the lowest since 2013 but the amount of capital invested is second only to 2018 [$1.365 billion]. This could be due to a lag in reporting data so I assume the actual number is flat or slightly up from 2018. At a minimum, that equates to 8.6x the number of funding rounds and 13x the amount of capital deployed in NY a decade ago.
As you will see in the database, over 1,700 investors have deployed capital into 1,741 NY-based startups and 2,248 seed rounds over the last two years alone. Compare that to 2009 - 2010 when 296 investors participated in 342 seed deals across 319 companies.
This means that there is now an average of 1.29 pre-series A rounds raised per company compared to 1.15 in 2009 which ties back to an earlier post about how ‘seed is a journey.’ I’m going to cut to the punchline here and point out that there is a lot more capital available but also many more startups competing for that capital.
Deal Sizes and Valuation
The median seed round reached $1 million which is up 47% from 2018 and at least 2x every other year since 2009 when the New York startup ecosystem started to balloon. That’s quite a leap. Accordingly, the median post money valuation reached $8.96 million; also about 2x the numbers from a decade ago.
Investment by Type of Investor
Interestingly, Incubator and Accelerator deals dropped sharply during 2019; 393 investments, compared to 559 in 2018, while angel and seed rounds expanded in count. Seed round capital deployed by VCs also increased to record levels while angel capital decreased 22% despite the uptick in the number of deals funded by angels. I can’t be sure but my best guess is that founders are turning more to value adding angel investors and seed-stage VC funds who can add value to startups without the added economics, usually consisting of additional equity and/or a fee to participate, required by accelerators.
What is clear is that seed capital is out there but so is the competition. How capital is raised has changed over the last 15 years with the drastic reduction in costs to start a technology company and the broad characteristics of investors that will deploy capital in private markets. Clearly, gone are the days of putting together a pitch deck and sending it out to the handful of VC firms in NY for funding.
What other things are you doing to fund your business?
And if you want to send us your pitch deck you can use the button below!
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