A company like YouTube is “almost impossible for a responsible investor to invest in in the first few months of life,” said Owen Davis, the managing director of NYC Seed and veteran Internet entrepreneur. He was speaking on Oct. 2 at the Bootstrapper Summit, an all-day conference for start-up entrepreneurs and venture capitalists. With mussed, thick brown hair, dressed in his usual blazer over a casual, button-down shirt (no tie), he explained, “When they first started, it was a Web site, which was badly designed, where you upload video.” And most of us know how things turned out. Launched on Feb. 15, 2005, by three PayPal employees, the online video sharing company eventually garnered 70 million users, and was sold in November 2006 to the tune of $1.65 billion in Google stock. Sequoia Capital, the company that funded YouTube in its earlier stages, received about $442 million in stock at the time.
Mr. Davis is hoping to make similar bets by funding early-stage Internet companies with NYC Seed, the city’s first seed-funding venture that will help nurse start-ups in the newborn stages.
Mayor Michael Bloomberg announced NYC Seed’s launch at the start of the city’s Internet Week in June. (If you missed it, you weren’t alone.) “New York City has always been a place where aspiring actors, artists and musicians have come to live out their dreams and ambitions, and we want to make sure it is the place where aspiring technological entrepreneurs come as well,” the mayor said in front of a pool of journalists at Gracie Mansion. The fund is a partnership between the New York City Economic Development Corporation; the New York City Investment Fund; the economic development arm of the Partnership for New York City; Polytechnic University; the New York State Foundation for Science, Technology and Innovation; and the Industrial and Technology Assistance Corporation. The organizations have pooled $2 million for the program and will invest up to $200,000 per company to develop prototypes and new technologies. Along with NYC Seed’s investment committee—comprised of representatives from the partnering organizations, who will decide which projects to fund—there is also a venture advisory board, made up of notable entrepreneurs and venture capitalists including Fred Wilson of Union Square Ventures, James Robinson IV of RRE Venture Partners, Todd Pietri of Milestone Venture Partners, DFJ Gotham Ventures’ Daniel Schultz and Greycroft Venture Partners’ Drew Lipsher, among others. They will guide the budding start-ups into the next stages of funding and development.
Anyone can apply to receive funding from NYC Seed, from college students to well-established Internet entrepreneurs. The requirements? At least two people must be working on the project (Mr. Davis prefers that at least one of them is a developer or “tech savvy”), and they have to be based in one of the five boroughs. A brilliant idea helps, too, of course.
NYC Seed has received more than 200 applications since its Web site launched in June. The investment committee will meet at the end of the month to make their first decisions about which companies get funded. They have set no deadlines or specifications on how many companies they’ll fund; they’ll just check out applicants on a case-by-case basis and make decisions at their monthly meetings. Within the next two weeks, the organization will also relaunch online, ratcheting up its Web presence with a job board and real estate section to help start-ups find work and office space in the city. Eventually, NYC Seed would like to organize health benefits similar to the Freelancers Union’s program for small Internet companies and host a conference celebrating the city’s most promising start-ups.
“Lots of people think that the market is efficient and one hundred percent of the companies who deserve it will get funded and up and running,” Mr. Davis said, sitting in a student lounge at Polytechnic University, a floor above NYC Seed’s official offices in the basement of MetroTech. “But I believe the opposite, that the market is ineffective and not everybody gets a chance to do something special and make something great.” NYC Seed investors plan on giving them that chance.
In New York City, one of the tech community’s most common complaints about starting up is a lack of investment. There are several prominent early-stage venture capitalists (most of whom are on NYC Seed’s own advisory board), and most angel investors come from Wall Street. But the financial suits are going to be especially stingy while the Dow is in a tailspin, and venture capitalists are reluctant to fund anything but a sure bet during a fiscal crisis. That’s where NYC Seed comes in.