NYC Sees Dramatic Rise in VC Funding

NEW YORK CITY—While Silicon Valley remains the number one location for venture capital funding, New York City—or “Silicon Alley,” as it is known in some circles—has seen a dramatic rise in that financial backing.

California's Silicon Valley saw over $15 million in venture capital financing in the first half of this year, according to a new report by JLL. New York City companies benefited from more than $2 billion in venture capital funding in the second quarter, bringing year-to-date venture capital financing in the city to nearly $4 billion, according to report authors Cynthia Wasserberger, managing director, Jonathan Schifrin, SVP and Hayley Shoener,associate. The New York metro region ranked number two on the venture capital list at $3.745 billion.

JLL predicts that New York City is on track to break the post 2000 record of $5.2 billion raised in 2014. While venture capital deals in the second quarter were distributed throughout the city, Midtown South received the most funding, including WeWork's more than $434 million raised and Warby Parker's $100 million in financing.

Nationally, JLL reports that in the first half of 2015, $39.5 billion was raised, breaking the post 2000 record of $35.7 billion. With Silicon Valley as number one and New York metro as number two, the rest of the JLL top 10 list included: LA/Orange County, $3.07 billion; New England, $2,883 billion; the Southeast, $991 million; the Northwest, $829 million; the Midwest, $803 million; the Southwest, $700 million; Texas, $665 million and DC/Metroplex, $575 million.

A major segment of the venture capital financing market is centered on mergers and acquisitions. In fact the third quarter was the best quarter this year for M&A exits with disclosed value this year. However, market volatility in the third quarter took its toll on venture capital initial public offering activity, according to an exit poll report released recently by Thomson Reuters and the National Venture Capital Association.

Ninety venture-backed M&A deals were reported in the third quarter, 20 of which had an aggregate deal value of $5.1 billion, an increase of 39% compared to the second quarter. Thirteen venture-backed IPOs raised $1.7 billion during the third quarter of 2015, a 55% decrease by number of offerings, from the second quarter of this year and a 54% drop in total amount of dollars raised during the previous three-month period.

“While the number of companies making a public offering during the third quarter was down as a result of market volatility, M&A activity was robust, marking the strongest quarter by disclosed deal value this year. Of the thirteen companies that did make an IPO, more than two-thirds are currently trading above their offering price in the middle of a choppy market, a strong indicator of the quality of venture-backed IPOs,” states Bobby Franklin, president and CEO of NVCA.

Franklin adds that another emerging trend that has impacted the venture-backed IPO market is the increased activity of both venture capitalists and non-traditional investors making late-stage investments into private companies that might otherwise file for an IPO. She says that while these “private IPOs” are weighing down the current IPO market, it also is a sign that the venture-backed IPO pipeline is deep and could result in an increase in future activity.

The information technology sector led the venture-backed M&A sector with 69 of the 90 deals of the quarter and had a disclosed total dollar value of $3.4 billion. Within the sector, computer software and services and Internet-related deals accounted for the bulk of the targets with 47 and 17 transactions, respectively.