NEW YORK – Silicon Alley Seed Investors (SAS) held a first close on $30 million at the end of January for its debut fund. “We picked about the worst time in the last 10 years to start fund-raising,” said George Abraham, partner of the newly-formed firm. Abraham and his partner Josh Grotstein began marketing their debut fund in late April 2000, he added.
“There were times when we had to rally to keep each other going,” Abraham said. The firm received equal investments from its three limited partners, Canaan Partners, Rho Management Co. and Sevin Rosen Funds, and Abraham said they would like to add another $5 million to $7 million to Silicon Alley Seed Investors LP for a final close around the beginning of the third quarter.
The two partners will be marketing the fund to strategic individuals, such as chief executive officers, thought-leaders and other “interesting people.” They would like the strategic LPs to be able to improve deal flow and to create opportunities for portfolio companies, and they are particularly looking for connections in the New York market.
The New York connection is important to the fund’s mandate: Invest in seed and early-stage technology companies located within a “rough radius” of a one-hour drive from New York City.
“We’re interested in technology that can have applicability or add value to the verticals indigenous to the New York region,” Abraham said. He explained that SAS would filter deals by the opportunity to marry their technologies into seemingly New York-based industries, such as financial services, media and telecommunications.
The firm is not targeting portfolio companies from any particular industries but is instead focusing on their applicability to New York businesses. However, the firm will avoid biotech deals and technically-advanced manufacturing companies.
The firm will invest at two levels. For the majority of its investments, the firm plans to lead series A rounds with investments in the range of $500,000 to $2 million, and the firm will also invest $100,000 in companies it is sponsoring for its entrepreneur-in-residence program.
The program will “help interesting people who have had success in a vertical work on their next idea,” he said. The program resembles the beleaguered incubator model.
“Historically, incubators were very successful,” Abraham said, adding that execution issues have recently tarnished the model. He said the firm will not be running any kind of equity-for-services program – just providing space to help their portfolio companies develop.
Abraham said the firm would not have to keep as much dry powder available for follow-on investments as some firms, because it plans to leave follow-on opportunities to its current LPs. The firm also said it will strictly adhere to its distance rule, noting that a Princeton, N.J. deal would qualify, but the firm will pass on deals in Boston or Washington, referring those also to its LPs.
Abraham has been a private equity investor for 10 years, making investments on his own account for the past year. Before that, he spent two and a half years at Zurich Payroll Solutions as the vice president of strategic alliances, mergers and acquisitions, preceded by six and a half years at Ajax Capital Corp.
From 1997 to 2000, Grotstein was divisional executive for global Internet and e-commerce programs at Citigroup Inc. Prior to Citigroup, he spent a year as a senior vice-president of content for Prodigy Communications LP, and for the four previous years he was with the NBC, where he helped launch NBC Online which has become NBC Internet Inc.
The two were introduced through mutual friend Ed Reitler, an attorney at Brock Silverstein LLC.
Abraham said the management fee and carried interest structure conformed to the industry standard, and he confirmed the general partners will be investing in the fund. However, he would not supply further details. Abraham added that he and his partner are in the process of hiring an associate.