Alley Trumps Valley in VC Funding

In the perennial horse race between Silicon Alley and Silicon Valley, New York-area companies have pulled ahead by a nose.

While Northern California's tech community still receives the lion's share of venture funding, Big Apple startups raised $566 million in the first quarter, up 18.9 percent from the fourth quarter of 2009 and 32 percent over Q1 of last year, according to a report released last week by PricewaterhouseCoopers and the National Venture Capital Association. Seventy-five New York City companies got funded in the first quarter, up 13.6 percent from the fourth quarter of 2009 and 11.9 percent year-over-year.

Although Silicon Valley still dwarfs New York in terms of dollars and deals--202 California companies raised $1.5 billion in venture funding in Q1, VC funding in The Valley dropped 21.4 percent from the fourth quarter of 2009, and deal volume declined by 24.6 percent. More than half of the venture dollars raised by New York-area companies went to software, financial services and biotech, with a resurgent stock market sparking renewed interest in the financial services sector. Five financial services companies raised $98.5 million in funding while 10 biotech firms received a total of $81.9 million.

"It may not be an especially robust market, but I think it's going to be improved," Bill Wiberg, a general partner at Advanced Technology Ventures, told Crain's New York Business. "With that comes optimism, and optimism is a key ingredient of new investment activity.

Among the winners: Pierpont Securities, a Stamford, Conn.-based financial services company ($85 million); 1010data Inc., a Manhattan-based software company ($35 million); Yodle, an online marketing company ($10 million); and social networking service FourSquare Labs Inc. ($10 million).

While expansion-stage companies raised more money than startups, the uptick in VC funding in New York is good news for clients like ours at Axxess that are out there shopping business plans to friends, relatives and angel investors. If even a handful of these VC-backed ventures hits pay dirt this year, there will be plenty more capital in the pipeline to turn today's wannabes into tomorrow's superstars.