NYC Seed Looks to Next Fund, Despite Talk of Bubbles

Early stage investing may feel bubbly to some in New York. That’s not true of the folks backing NYC Seed, a seed stage fund intended to help cultivate nascent Web startups within New York’s five boroughs.

Owen Davis, managing director, says that NYC Seed is likely to “soon put together the next phase of the fund,” and even expand its capital base.

The 2-year-old program 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 Corp.

The organizations pooled together $2 million to invest up to $200,000 in startups, nine of which have since received funding from NYC Seed.

“NYC Seed was started at a time, 2-and-a-half years ago, when there was this huge funding gap for early stage companies in New York,” Davis says. “So a bunch of people with a vested interest in making New York a great place for entrepreneurs came together and said, ‘Let’s do this.’”

Those same investors remain “very supportive” says Davis, who has seemingly done a lot with little. In July, for example, Davis organized a highly successful, Y Combinator-like “demo day,” in which five startups that had given NYC Seed 5% of their companies for $20,000 and eight weeks’ worth of workspace and mentoring, presented to more than 100 of New York’s early stage investors.

Davis says that some of those investors liked what they saw, including Introspectr, a service that helps users aggregate and index their messages across email, Twitter and Facebook; and Reducify, which helps people understand their electricity bills.

Other companies in NYC Seed’s portfolio include SeatGeek, which forecasts the price fluctuations of sports and concert tickets so users know when to buy them; the search re-targeting startup Magnetic; and Howaboutwe.com, whose users begin the dating process by first proposing a specific activity.

Magnetic has already raised a $5.25 million Series A round from Charles River Ventures, IA Capital Partners, Founder Collective and Ron Conway and, according to Davis, a “couple” of NYC Seed’s other portfolio companies are in the “term sheet stage right now,” though Davis declines to discuss which.

Still, with so much talk of oversize A rounds and spiraling valuations, I asked Davis if he worried that New York is getting overheated. He says he’s not.

“Clearly people are interested in New York [startups], from the West Coast and the Northeast region, and the level of [investment] activity has really increased,” says Davis, who founded the wireless marketing company Sonata in 1999 and co-founded software developer Petal Computing in 2001.

“In fact, I’d say the amount of capital available has risen dramatically over the last 18 months,” Davis says. “But it’s highly qualified investors who are looking at these deals. It’s real, professional, early stage capital, and it just wasn’t like that a few years ago.”

Of course, professional investors can and often do get ahead of themselves during bubbles, but Davis insists that’s simply not the case in New York–at least, not yet.

“The stupid factor isn’t here right now. Will it be here in the future? Who knows? But right now, the companies getting funded are really solid and working on different things and have highly engaged user bases. All of those things are real metrics. Those classic cases of stupid dot-coms? That’s just not happening.”