Ilya Marritz covers business for WNYC.
Pension Fund Chases Better Returns from NY’s Growing Startup Scene
Wednesday, May 09, 2012 - 03:56 PM
In the race for tech startups, New York City no longer lags far behind Silicon Valley and Boston, but is a growing powerhouse of well-funded technology companies. Tech startups may also be getting a boost from State Comptroller Tom DiNapoli. Seeking better returns than the bond or stock markets can offer, as trustee of the New York State Common Retirement Fund, DiNapoli has amped up investments in local startups.
On Wednesday, DiNapoli toured two of them: Truveris, a health information technology company, and Movable Ink, which offers email services to other businesses. The retirement fund has invested $1.7 million in Truveris, and participated in the $1.3 million funding round for Moveable Ink.
DiNapoli admitted early stage startups are riskier, but can be a good investment.
"We've seen a rate of return of about 30 percent, so we do very well," said DiNapoli, referring to the pension funds' In-State Private Equity program. This program includes both established companies such as Bausch & Lomb, the Rochester-based contact lens maker, as well as seed- and venture capital-stage businesses.
"There's always a risk involved, and not every investment turns out as well as you'd like, but we've had a very positive experience," DiNapoli said.
Since taking office in 2007, DiNapoli has more than doubled the amount committed to the In-State program, raising the total to nearly $1 billion. It represents a tiny slice of the nearly $140 billion fund, the nation's third largest public pension fund.
But for Truveris, which started just three years ago and has two dozen employees, the investment counts for a lot.
"It's everything," said Leon Greene, Truveris' executive vice president for Operations. "It was great to have instant believers and supporters that would really catapult this into something real."
New York's investment in Truveris was made through Tribeca Venture Partners, a venture capital firm.
DiNapoli said he's still on the lookout for new in-state investment opportunities.
"If you're an entrepreneur and you're looking for an equity partner, be in touch," he said. "The advantage of being in New York is that we have so many great opportunities given the intellectual capital that we have here in our city and our state."
The city has spawned well over 1,000 start-ups in the last five years, according to a report released Wednesday by the Center for an Urban Future, a New York City-based public policy organization. The number of venture capital deals in New York rose 32 percent from 2007 to 2011, while venture activity fell 11 percent nationally and dropped 10 percent in Silicon Valley during the same time. The online discount retailer Gilt Groupe raised the most money at $221 million, followed by micro-blogging site Tumblr’s $125 million.
The vast majority of startups — 88 percent — chose to call Manhattan home, with the Union Square neighborhood as the preferred location. Over 110 companies chose office space in the two zip codes north and south of the park. Just over tech 50 companies had office space in the Soho, Tribeca or Chinatown areas.
Only 5 percent of startups set up shop in Brooklyn.
While New York has enjoyed strong growth in the tech sector, startups here still face significant challenges, most notably a lack of engineering talent and a robust broadband infrastructure.