"Funding is alive and well in New York City. Not on every corner, but there are opportunities to get funded if you have a great idea, a great plan, and a great team." These are the words of NYCSeed's Managing Director, Owen Davis, a serial entrepreneur with a track record of success in internet start ups and other technology businesses. NYCSeed makes money and mentoring available for entrepreneurs who have a software or web-oriented technology plan. NYCSeed has now funded four start-up companies: PlaceVine, Path 101, Domdex and VAlign Software, and is close to funding investments in several more.
NYCSeed is the city's first seed-funding venture that will help to nurture technology start-ups at a very early, pre-revenue stage of their development. This new fund was announced by Mayor Bloomberg in a press conference at the beginning of the city's Internet Week in June, 2008. Like the city's latest new business incubator at 160 Varick Street, the fund reflects a partnership among a number of government, not-for-profit and academic organizations. Three organizations played a particularly critical role: the NYC Investment Fund (NYCIF), the NY State Foundation for Science, Technology and Innovation (NYSTAR) and NYU Polytechnic Institute.
NYSTAR is working to establish and help capitalize seed funds throughout New York State with regional partners such as venture capital funds, universities, angels and other investors. "Very early stage capital sources are scarce and investments at the early seed stage are considered riskier than those at later stages of a company's development. Start ups often need more operational and technical assistance than traditional funding sources are prepared or able to provide. So this mix of government and private resources makes an enormous difference to start ups" according to information provided by spokesperson for NYSTAR Jannette Rondo.
Another catalyst for the fund is the NYC Investment Fund which has the mission of supporting entrepreneurs in emerging growth sectors in NYC. SVP Jalak Jobanputra explained that NYCIF had begun investigating the start of this fund before the financial meltdown but its mission is more critical than ever. "Our goal is to build an ecosystem to support early stage entrepreneurs beyond just funding. This includes access to mentors and ventures capitalists as well as plugging these entrepreneurs into the vibrant business community that exists here. It's through this support that we can create the next generation of great tech and digital media companies."
New York University Polytechnic Institute plays a special role in supporting new technology businesses. Among other activities, it operates two business incubation centers in NY: BEST, the Brooklyn Institute on Science and Technology and a new center at 160 Varick Street in Manhattan. Director Bruce Niswander oversees both programs and provides affordable space as well as a variety of support services for start up businesses.
NYCSeed has an initial pool of $2 million for the program and companies are eligible for up to $200,000. According to Davis "this amount of money gives a start up clear space to work, focus and move the company forward. Our goal is to give them enough runway to test their hypothesis in the market and to get traction."
There's an investment committee comprised of representatives from the partner organizations and a venture advisory board made up of entrepreneurs, technologists and venture capitalists with a track record of success in technology start ups. "We want to create a great community here with a variety of resources coming together under one roof to make a difference."
Several stars of the venture capital world are on the advisory board, including Fred Wilson of Union Square Ventures, Todd Pietri of Milestone Venture Partners, Daniel Schultz of DFJ Gotham Ventures and Drew Lipsher of Greycroft.
Many people with a good idea have struggled to find money for start-up, the earliest stage of business development, so NYCSeed fills an important gap. A proven idea or technology can go on to get angel investors or early-stage venture capital, but this fund provides a way for businesses to move from concept to prototype and actually get off the ground. The mentoring and guidance available through the advisory board and network of the fund will help people to raise more money from other sources at the next stage of their growth.
Application criteria are simple: at least two people must be working on the project and one of them must be "tech savvy" and they have to be based in one of the five boroughs. Beyond that, Owen Davis evaluates each idea and related business plan, looking for factors such as a scalable business model, the potential for dealing with a large market and a team that has both technology and business savvy. "There are certain elements of the profile that make a start-up venture fundable versus non-venture fundable. There's no one thing...there are many shades of grey...and you can see that in the diverse backgrounds of the three companies we've funded to date." People who lead the start ups funded to date come from a variety of backgrounds and include IT professionals, people with business degrees, former senior people at large technology companies and entrepreneurs.
Another thing the successful companies have in common is a beta version of code that works. "There is so much open-source software available for product prototypes...if they can't successfully create working code, they shouldn't be running a software company." Start ups that make it through his screening process are evaluated by the investment committee.
Successful applicants get up to $200,000 in convertible debt that converts to a fixed equity percentage in the next round of financing. Some companies may not make it to the next round, but the business mentoring and technical support provided by the team should make a tremendous difference in their success and ability to move to the next stage.
The four ventures currently funded by NYCSeed include:
PlaceVine, Inc., a web-based service connecting brands and agencies to top product placement and sponsorship opportunities in film, television, and new media
Path 101, a novel approach to job placement. Rather than simply listing available openings, Path 101 helps job seekers find employment that better suits their interests through novel algorithms and a more personalized approach.
Domdex, a next-generation ad network that collects keyword information from "parked domains." This information is used by websites to better target advertising when users visit.
VAlign Software provides tools for virtualized computing environments, allowing for detailed chargeback and capacity planning of the next generation of corporate computing.
Davis is an ideal midwife for these ventures in view of his wide experience in the online world and success in developing profitable software and web-based businesses. In addition to working with early versions of AOL and MSN, he founded Thinking Media, an online marketing firm which pioneered client-side tracking of pages and advertisements and co-founded Sonata, a wireless company that provided location-based services and marketing to cell phones.
"There really is money available and I would be encouraged if I were a start up because there will be even more available in the next twelve to eighteen months."