This post is the first in a three-part series exploring New York City's expanding venture capital scene.
Venture capital: It's not just for Silicon Valley anymore.
In recent years, Wall Street has been catching up to the Bay Area when it comes to the VC startup scene. It seems natural that the Big Apple should follow suit into a major financial space; it's the US city that the most ravenous of bankers call home. Though investment banks and hedge funds remain New York's bread and butter, significant upcoming VC-backed IPOs—which are slated to be the largest ever for startups based in the city—might solidify venture capital as its strawberry jam, so to speak. Its developing tech scene has even garnered the nickname Silicon Alley.
Trends in VC-backed exits help underline the industry's changing dynamics in the city that never sleeps. Though exit count in the New York metropolitan statistical area has remained relatively flat since 2012, the steady increase in exit value tells a clear growth story:
In 2018, there were 110 VC-backed exits in New York City worth a combined $9.4 billion. Compare that to 2013: also 110 exits, but a combined value of just $4.3 billion. In those six years alone, the exit value more than doubled. And with the sizable offerings in the works, 2019 is poised to surpass last year's record.
Look to Peloton for one example of an NYC startup success story. The company, which peddles $2,245+ stationary bikes affixed with screens and a subscription video service, was born (in 2012) and raised in Manhattan (where it remains headquartered). It reached a valuation of $4.4 billion last year. Peloton filed for its IPO in late August, showing rising revenue and losses, as well as uncertainty caused by litigation, but buzz surrounds the upcoming debut all the same. The company is even offering 30-day free trials of its bikes. If Peloton prices its IPO at the high end of its $26-to-$29 range, it would be valued at just over $8 billion. It seeks to raise up to $1.16 billion in the listing.
Datadog, which provides a data monitoring and analytics platform, has an IPO in the works that could rival that of Peloton. This VC-backed startup calls Midtown Manhattan its home and intends to raise as much as $528 million if it prices at the top of its range, which is $19 to $22 per share. A top-end pricing could give Datadog, which was valued at $640 million in 2015, a valuation of more than $6.3 billion.
Between them, Peloton and Datadog are poised to take the second and third slots on a list of the biggest VC-backed exits in New York City. Upcoming exits are highlighted in green:
Historically, M&A activity has accounted for the most value among New York's VC-backed exits.
Jet, the household e-commerce site, currently claims the title of the largest VC-backed exit to date. It sold to
Walmart in 2016, in a deal worth $3.3 billion. The next two biggest were also M&A transactions, both occurring in 2018:
Roche acquired oncology database company
Flatiron and advertising marketplace provider
AppNexus was bought by
AT&T, in transactions worth $2.1 billion and $2 billion, respectively.
Although the upcoming debuts may dwarf some of their predecessors, completed IPOs help tell the story, too.
Blue Apron, though
struggling as of late, went public at a $1.9 billion valuation in 2017.
Etsy, meanwhile, fetched a valuation of $1.8 billion at its IPO in 2015—though these days, it's not doing much better than Blue Apron. In August, the craft marketplace's stock slid over 20%.
And then, of course, there is the co-working elephant in the room.
WeWork, whose upcoming IPO is slated to become NYC's largest VC-backed exit of all time—even if it goes through with the massive reduction in its valuation that the company is said to be considering. The weeks leading up to the offering have been an ongoing saga, beginning with the criticism that started as soon as the IPO filing came out. Earlier this month, The Wall Street Journal reported the company was eyeing an IPO valuation of less than $20 billion, a huge reduction from January's valuation of $47 billion, and the news
SoftBank, its largest investor, has even reportedly called on the co-working giant to scrap the IPO altogether. That's not great energy for a company aiming to "elevate the world's consciousness." But despite the troubled waters, WeWork still represents an impressively large exit, especially in the context of New York City.
Overall, the growth in VC-backed exits in New York paints a portrait of a startup scene on the rise. This year's blockbuster IPOs reflect and fuel that reality. NYC might not rival the Bay Area just yet—lest anyone forget,
Facebook had initial market caps of $75.5 billion and $81.3 billion in their respective exits. Yet the city's role in the larger VC ecosystem can't be ignored. Exits, however, tell only part of the story. Data on VC deal flow and the investors behind it also underscore the growth.
Stay tuned for the next part in our series to learn more.