Idealab, which has funded firms such as eToys, NetZero and Petsmart.com, announced today that it is opening an office in New York.
In February, Draper Fisher Jurvetson, a blue chip Silicon Valley firm, opened an office in New York. Bessemer Venture Partners, which has funded PSINet, Mindspring and Hotjobs.com, among others, said it is planning to open a New York office, expanding its presence from Silicon Valley and Boston.
The bursting energy in Silicon Alley has been contagious, with Internet start-ups and new media firms sprouting at a breakneck pace. In the past year, several Web firms hatched in New York have hit the big time on the capital markets or have plans to go public.
Some examples include women's site iVillage and consulting firm Scient, which soared in their high-flying initial public offerings last year. Others include digital content aggregator ScreamingMedia, which just registered for an initial share sale with the Securities and Exchange Commission, and online advertising firm DoubleClick, which burst onto the scene with its IPO in 1998.
Internet start-ups in New York are trying to leverage the region's existing strengths in finance, advertising, news and content. Venture capitalists hope that by being in the heart of the city, they can discover the next generation of firms that are likely to go public or be acquired.
The growth is also fueled by a high concentration of talent unwilling to leave the glamour of the big city to head to Silicon Valley's industrial parks.
Last year, U.S. companies received $35.6 billion in venture capital, with Silicon Valley grabbing the lion's share at $13.4 billion--a 195 percent increase over 1998, according to a PricewaterhouseCoopers Money Tree Survey released last month. The New York region pulled in $2.5 billion, behind New England's $4.1 billion, but it showed the greatest growth with a 250 percent increase.
"It's hotter than a pistol in New York," said Kirk Walden, national director of the Money Tree Survey; the survey compiles information on venture capital funding.
"(But) Silicon Valley is in no way about to lose its leadership position; the world would have to come to an end" for that to happen anytime soon, he added.
High-tech executives believe Silicon Alley offers greater opportunities for growth.
"New York is the center of a lot of industries that are being affected by the Internet," Sandeep Thakrar of Katalyst, a Radnor, Pa.-based venture firm that is preparing to open a New York office. "You also have to go where the talent is because it is so scarce."
"Silicon Alley's amazing talent and ideas, along with its proximity to the new media and financial industries, present an incredible opportunity for Idealab to expand its network," Bill Gross, Idealab's chairman, said in a statement.
But West Coast firms looking to relocate will have to face a long list of native New York venture firms vying for deals, including Flatiron Partners, named after the historic New York district, and Wit Capital, founded in 1996 as an online investment banking firm.
"There is increased competition for deals, particularly in the very early-stage deals," Walden said. "There's no substitute in terms of deal flow than having your feet on the street."
While venture capital partners could conceivably fly into New York from Silicon Valley once a week, industry experts say that firms in the early stages of development require more hand-holding.
"It's a lot better to have someone smart on the ground," Walden said.
Seth Goldstein, a principal at Flatiron Partners, says that while the best technology is coming out of Silicon Valley, his company has the local contacts and resources.
"The Internet is no longer a niche market...This is about mass culture, and New York has always been an arbiter," Goldstein said.
"This is not West Coast vs. East (Coast). It's about gathering the best possible partners to cut the best possible deals," he added.