Scott Levine, a GCV Rising Star in 2018 who heads up the east coast office for the Samsung Catalyst Fund, an evergreen investment vehicle for the consumer electronics manufacturer, said: “Corporate venture capital in New York is growing: There were approximately three times the number of deals completed in 2018 than were being done 10 years earlier.
“That trend places the New York Metro Area second to the top-ranked San Francisco Bay Area. Will New York City catch up to the Valley? It is hard to say. But the Bay Area deal rate today is almost twice what it was a decade ago, and about twice that of New York now.
“A decade ago, the Boston area’s deal rate was slightly above New York’s. But around 2010, that changed, and Boston has dropped significantly given the number of deals it closes annually is now about half that of the New York area.”
Regarding New York State overall, Levine said: “The deal rate is on the way up, tracking the metro area. Like the metro area, its deal rate has increased to three times the number of deals it closed 10 years ago.” The New York metro area includes northern New Jersey and Philadelphia, so not all its deals contribute to the state statistics.
The global financial crisis which hit a little over a decade ago changed New York’s startup scene. The city consolidated its urban ecosystem, in contrast to Silicon Valley’s largely suburban character, allowing industries to interact more intimately with the local economy.
Bo Ren, ecosystem director at Samsung Next, Samsung’s early-stage investment fund, said: “New York is a more culturally diverse melting pot of talent and startups. The type of tech that gets developed in Silicon Valley would not be possible in New York.
“New York companies are more driven by the intersection of industries like fashion, marketing and finance. There are more tech-enabled companies here than pure tech companies like in the Valley. Boston is naturally more MIT-Harvard adjacent so is more science and deep tech-driven.”
The city’s emerging tech companies received over $13bn worth of venture funding from VCs at the beginning of the year, according to the MoneyTree Report from PricewaterhouseCoopers and CB Insights. PitchBook data revealed $4.4bn was contributed by corporate venturers.
Ren continued: “There are more emerging seed funds which have made the landscape more competitive. It used to be that Union Square Ventures saw 90% of the dealflow out there. Now angels are starting to make pre-seed and seed investments. New York also has a new emerging model of venture studios like Prehype, New Lab, Redesign Health, Expa, Human Ventures, Recurse Center and AlleyCorp.”
Corporates are quite active in the region – most recently telecommunications and internet group SoftBank injected $2bn in January 2019 into co-working space provider The We Company, formerly known as WeWork, while media group Comcast NBCUniversal participated in a $550m deal in August 2018 for home fitness service Peloton Interactive, following media and e-commerce group Naspers providing $500m to e-commerce app developer Letgo earlier in the month.
The We Company later revealed that it had filed confidentially for initial public offering (IPO) in December 2018. Peloton Interactive also filed for an IPO in August 2019, intending to raise up to $500m on the Nasdaq Global Select Market.
The exits from corporate-backed emerging companies based in New York have grown considerably from three deals sized at $200m in 2011 to 21 IPOs just shy of $4bn in 2018. Although this year is barely halfway through, it has already had 26 exits – the largest number yet – with $1.4bn realised as of August, already surpassing that of 2016.
Levine said: “Over the past 10 years, we have seen the development of a vibrant ecosystem of entrepreneurs, growth-equity investors and Columbia University, New York University and Cornell Tech academics – all allowing for enormous growth in the venture business. There have also been some sizdable exits, in which founders have gone on to form new companies or have invested in other startups. Flatiron Health is just one that comes to mind.
“The Samsung Catalyst Fund joins other VC funds to invest in startups that are located in the United States, Europe and Israel. We also work with academics who help us better understanding cutting-edge technologies, such as quantum computing, while we, in turn, help them evaluate the business potential of their research.”
Ren added: “Elderly care is a huge space as the baby boomer generation starts to live longer and gerontology is not really a healthcare intervention hospitals think about. I love what Umbrella is building in this space.
“Humane interfaces and products that are moving away from the time spent and data harvesting models, companies like Siempo and Privacy.com.
He added: “Social media companies that help Gen Z and millennials be their full selves instead of fractured performative identities online: Eternal, Muze and Are.na.
“Samsung is a strategic investor which means that we only follow-on investments. We co-invest with other institutional investors. We forge interdisciplinary partnerships with the city to help develop our thought leadership around smart cities, IoT, edge computing, vertical farming and AI.”
SoftBank has been the most prolific corporate investor in New York with 98 deals through its now-defunct SoftBank Capital, while GV, the early-stage corporate venturing subsidiary of internet and technology group Alphabet, has closed 82 deals. Comcast Ventures, mass media group Comcast’s corporate venturing unit, has made 70 investments, and semiconductor and data technology producer Intel’s corporate venturing unit, Intel Capital, has conducted 45 deals.
As for fundraising, The We Company’s financing rounds from January this year, August 2017 and October 2016 constitute the top three corporate-backed deals in New York, while robotics software provider UiPath’s $568m series D round closed in April 2019, with participation from CapitalG, the investment arm of Alphabet, came fourth.
Online real estate transaction platform Compass raised $550m series E round, with $100m coming from investors including financial services group Fidelity Investments and $450m from SoftBank, respectively in November 2017 and the month after.
Challenges
A report published by The World Bank in 2016 identified New York’s urban nature that leads to challenges including lack of technical talents, limited seed funding, limited physical workspace and a decentralised community.
One of the key issues addressed by the tech sector in New York, as with other regions, is the lack of diversity and inclusion (D&I) initiatives. Paul Daugherty, chief technology and information officer for professional services firm Accenture, who is also a board member of nonprofit Girls Who Code, told CNET News: “If you have an inclusive, diverse workforce, [what you make] is going to reflect the needs of the people in the communities that we are developing solutions for.”
This year’s GCV Powerlist member Jessica Peltz-Zatulove, who oversees MDC Ventures, marketing firm MDC Partners’ corporate venturing unit formerly KBS plus Ventures, co-founded and manages the Global Women in VC directory.
The directory includes more than 1,000 women across 590 funds in a score of countries, and shows 29% of the female investors identified are based in Silicon Valley, most of whom are partners, while 27% are based in New York, generally serving in junior capacities.
Peltz-Zatulove discovered more than two-thirds of female VC and CVC investors participate in early-stage deals and few invest in growth-stage companies because funds initiated by women tend to be in the seed stage.
Natalie Hwang, another prominent female corporate venturer based in New York on the GCV Powerlist this year, manages Simon Ventures, a multi-stage corporate venturing unit oriented towards innovation on behalf of real estate developer Simon Property Group.
Hwang has also contributed to D&I initiatives by supporting the latest financing round of female-focused online publisher Bustle Digital Group, scaling its monthly readership to more than 80 million women.
Having backed companies such as lifestyle membership company FabFitFun Hwang told Glossy about the trend of luxury goods producers and retailers including Amazon and retail chain Target and razor seller Dollar Shave Club building in-house media subsidiaries to engage with consumers further through digital content.
Levine also noted: “There are few VCs investing in traditional media anymore, but they are certainly interested in new media opportunities, like e-sports and sports betting. Similarly, the traditional retail experience is giving way to direct-to-consumer retailing startups like Dollar Shave, Casper and Warby Parker. And finance is seeing inroads in their traditional territories from tech providers who pull the friction out of older ways of investing and insuring.”
