April 2019 Venture Capital - New York City Comptroller

Bureau of Budget

April 2019

Venture Capital

in New York City's Economy

1 Centre Street, New York, NY 10007 ? (212) 669-3500 ? ptroller. ? @NYCComptrolle1r

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Venture Capital in New York City's Economy

Contents

Executive Summary..........................................................................................................................4 Introduction ......................................................................................................................................5

Definitions and Scope ......................................................................................................................5 The Global Pursuit of Venture Capital...............................................................................................7

Headquarters Cities .........................................................................................................................8 Investor Proximity ..........................................................................................................................12 The Rise of "S upergiant" Venture Capital Rounds ............................................................................13 Funded Companies .......................................................................................................................14 Jobs .............................................................................................................................................16 Industry Clusters ...........................................................................................................................17 Spotlight on New York City .............................................................................................................20 Top Sectors ..................................................................................................................................20 Top Industries ...............................................................................................................................21 Jobs .............................................................................................................................................23 Conclusion .....................................................................................................................................26 Methodology & Limitations.............................................................................................................27

Office of New York City Comptroller Scott M. Stringer

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Executive Summary

Venture capital, a form of investment activity for privately-held business ventures with high growth potential, has long been an important source of financing for start-ups and other companies that face challenges getting financing through traditional means, such as banks or equity capital. New York City ? with many well-established industries, attracts a healthy share of global venture capital, even as the volume of venture capital investment has exploded over the last decade.

This report reveals several important facts and observations concerning the role of venture capital in New York City.

First, as venture capital has exploded globally, New York City has held its own. The number of venture capital deals, and the amounts invested, have grown commensurately with global venture capital growth, rising by 256 percent and 439 percent, respectively. New York City's share of the global total has also increased, growing from 4.58 percent in 2008 to 6.01 percent in 2017.

At the same time, the number of companies, and the range of industries they represent, continues to show a diversity of sectors that attract venture capital in New York City ? a sign of strength for the local economy. And venture capital has also played a significant role in job creation, providing backing to firms that employ some 355,000 workers.

It is significant that many of the sectors that have drawn venture capital in recent years are well-established City industries ? from advertising and publishing, to financial services and real estate. Unlike venture capital in Silicon Valley, in New York it is less about creating new technology, and more about applying new technology to the transformation of existing sectors for the knowledge age.

In addition, New York City technology firms are prominent recipients of venture capital investment , indicating the sector's growing role and strength in the City's economy. Also, numerous other new and niche businesses are benefitting from venture capital investment in order to gain a foothold and establish themselves as part of the City's economy.

In short, the story of recent venture capital investment in New York shows that the City has remained an attractive place for investment and growth, and continues to represent a promising bet on the future by investors.

The changing face of venture capital and other recent features of the capital markets ? such as the declining role of initial public offerings ? highlight questions that deserve further research and monitoring, to ensure that New York City continues to build on the success it has enjoyed to date.

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Venture Capital in New York City's Economy

Introduction

New York City has long been among the world's leaders in venture capital activity, supporting entrepreneurs and start-up ventures in a range of industries across the five boroughs. However, the market for venture capital backing, which had been limited to a handful of U.S. cities and Silicon Valley municipalities just a decade ago, has transformed into a cross-border race among business hubs and centers of innovation in Asia, North America and Europe. This changing dynamic prompts a number of pressing questions. Has New York City kept up with its competitors in terms of venture capital investment? What New York City industry sectors have attracted venture capital? What economic benefit does the City derive from venture capital investment?

This report examines New York City's standing in the global distribution of venture capital activity from 2008 through 2017 and identifies the emergence of industry clusters fueled by venture capital in New York and around the world. Our analysis is informed by data from Crunchbase, a comprehensive source for venture capital activity worldwide. 1

Using Crunchbase data, the Comptroller's Office sought to answer a number of research questions about venture capital activity in New York City:

1. How has the venture capital activity of companies headquartered in New York City compared to companies headquartered in other major cities? What share of global venture capital has the city received?

2. What are the leading sectors and industries for venture capital activity in New York City and its competitor cities? What industry clusters have dominated venture capital activity in New York? How does that compare with competitor cities?

3. How many companies and jobs have been supported by venture capital activity in New York City and in its competitor cities?

Although this report will go into some detail about venture capital activity in major cities and regions, the purpose and scope of this report is unabashedly New York City focused ? its place in the world's venture capital ecosystem, the industry clusters that have been facilitated by venture capital activity and the jobs at New York City-based enterprises that have emerged as a result.

Definitions and Scope

Briefly defined, venture capital is a form of investment activity often sought by developing, privately-held business ventures with high growth potential that may have limited prospects of obtaining traditional bank loans or other types of financing. In addition to the dollars and cents of a venture capital deal, venture capital backing can also involve an infusion of managerial expertise into a promising new venture, and investors obtain a stake in the developing company, allowing for future returns on original investments if those businesses grow and become successful. By its nature, venture capital is a volatile, long-term, highrisk, high-reward proposition.

1 Crunchbase describes itself as a: "free database of technology companies, people, and investors that anyone can edit. Our mission is to make information about the startup world available to everyone".

Office of New York City Comptroller Scott M. Stringer

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