July 6th, 2009

Want Seed Financing? Try DC or NYC.

Stephen Marcus had an interesting piece on the New Atlantic Ventures blog (disclosure: I am currently a summer intern at NAV) about seed financing. After drilling down into institutional seed financing between January 2006 and June 2009 by region (New England, NYC, San Francisco, and DC – the four regions with the most VC money floating around) his data showed that while seed financing – which he defines as less than $1m – is down an insane 80.2% in Silicon Valley in the first six months of 2009 versus the same period in 2008, it’s up in both DC and NYC. See the graph for a better picture – it seems that the Valley and New England have put more capital toward larger rounds and have cut back on seed-stage deals.

Why the shift toward larger rounds? Safety. If a company is getting a $5m+ round of VC financing, chances are they are fairly established and therefore less of a risk (or rather, a different *type* of risk) for the investor. I see it as a knee-jerk reaction to the economic crisis – VCs were more inclined to put money toward more “proven” investments.

As a new admirer of the NYC startup scene, I’m happy to see New York (and DC as well) embracing seed financing – it only adds to the argument that Silicon Alley is booming once again.

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(Image Credit:  Stephen Marcus)