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Steven Malanga
Venture Capitalists Still Like Gotham
. . . and are putting their money in its high-tech firms.
3 March 2002

With all the gloomy news about Gotham’s economy dominating headlines, a surprising bit of good news hasn’t gotten the attention it deserves. It turns out that neither September 11 nor the meltdown of many of Silicon Alley’s highfliers has been enough to scare away sophisticated investors. Instead, recent figures suggest, these savvy folks are starting to pump more venture capital into the region, making bets on software, biotechnology, and financial firms.

According to a new PriceWaterhouseCoopers and Venture Economics report, venture firms significantly increased their investments in New York area companies during the fourth quarter of 2001, pouring $707 million into 64 firms—enough to place the region third nationally, with only Silicon Valley and the New England area beating it in total investments, and making it the third best year for local investments on record.

The boost in investing, the first gain in six quarters, is a sign that the region, despite its economic woes, remains an important center of entrepreneurship, particularly in tech businesses. Though many of the glitzier companies from the mid-1990s—Internet startups like EarthWeb and theglobe.com--have crashed, the city is still nourishing tech companies that draw on New York’s strength as a center of business services and finance. The latest round of venture capital financing, for instance, includes hefty investments in Aleri, a Manhattan company that makes software for business uses, and Manhattan-based Cyota Inc., which produces software for financial transactions.

“The New York Metro region carries strong entrepreneurial spirit, innovative technologies, and solid management teams,” says PriceWaterhouseCoopers partner Murray Alter, commenting on the survey’s results.

Despite last year’s turmoil, the pace of investing in New York gallops far ahead of where it was just a few years ago and shows that investors now view the area in a much more positive light. For all of 2001, 359 local companies received $3.3 billion in venture capital. True, that sum is down substantially from the $10 billion invested during the bust-out year of 2000. But it is four times more investment than New York attracted back in 1995, when the area’s economic expansion was just getting under way and investors looked to other regions to place their bets. And it gives the lie to the idea that Gotham’s high-tech boom of the last few years was a mere bubble.

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More by Steven Malanga:
The Cost of New York
A Tale of Two Scandals
Borrowing Trouble
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