Crains New York - July 29, 2013 - (Page 4)

IN THE More VC money is flowing MARKETS into New York-based ventures E-commerce rocks, as investor spending totaled $704 million in second quarter BY MATTHEW FLAMM Venture-capital investment rose in the second quarter of 2013—both in New York and across the U.S. But it was in New York that the numbers really got impressive. Boosted by a $150 million infusion into Manhattan-based e-commerce company Fab.com, VC spending in New York totaled $704 million in the second quarter, a 22% spike over the first quarter. Compared with the same period a year earlier,spending was up 11%,according to the MoneyTree Report from PricewaterhouseCoopers and the National Venture Capital Association, which was released in late July. Key funding round Nationally, VC spending rose 12%, compared with the first quarter, to $6.7 billion. Compared with a year ago, the quarter was down 9%. Fab.com’s Series D funding round made all the difference. “New York City has emerged to be the hottest area behind Silicon Valley for e-commerce,” David Silverman, managing partner at PwC for its New York metro emergingcompany practice, said in a statement. Another e-commerce company, flash-sale site Ideeli, raised $12 million in the quarter. Other significant deals included $16 million for ad-tech company Collective Media—which went on to raise an additional $50 million in debt and venture capital in July, spurring speculation that it is headed for an initial public offering. For New York, the quarter was also significant for having robust spending in both early-stage investment and in more estab- ‘New York City has emerged to be the hottest area behind Silicon Valley’ lished companies, like Fab, that are expanding. Nearly $300 million went into companies in the expansion stage, and more than $275 million went to early-stage companies, like two-year-old soft- ware design firm Fifty Three, which raised $15 million. Nearly $130 million went to later-stage companies, and $1.5 million seeded startups. As good a quarter as it was for the New York metro area, Gotham still came in third in funding—as it almost always does—behind the Boston area, which had $823 million in VC investment, and the San Francisco area. Boston companies are typically in the life-sciences category, which require big-ticket investments. Silicon Valley was first, with $2.7 billion in investment. New York was also third in the number of deals, with 98 to Boston’s 100 and Silicon Valley’s 305. New York venture capitalists say the quarter-by-quarter numbers are less important than the overall environment for raising money from investors, which is vastly better than it was a decade ago. “People trust New York,” said Bob Greene,co-founder of Contour Venture Partners and a veteran of the prominent 1990s firm Flatiron Partners. “I don’t have to debate anymore, ‘Can New York be a market?’ ” The national outlook was also good. “There will be no tech bubble,” said Mark Heesen, president of the NVCA, in a statement. “IT investing will continue to be the bedrock of the venture industry— but at sustainable levels.” Ⅲ The Durst Organization Welcomes United Way of New York City to 205 East 42nd Street Our appreciation to Edward J. Weiss and David B. Glassman of Cushman & Wakeﬁeld for this 48,836 s.f. transaction. 205 E 42 Rental and Leasehold Condominium Opportunities Available Please contact Tom Bow tbow@durst.org 212-257-6610 Brandl Frey bfrey@durst.org 212-257-6590 4 | Crain’s New York Business | July 29, 2013 www.durst.org U.S. ATTORNEY Preet Bharara outlines the case against SAC. bloomberg news by Aaron Elstein SAC Capital’s perilous path A long time ago—in 2003, to be exact—I worked at a hedge fund. My three months there remains one of the most illuminating experiences of my career, because I got to see how some first-class money managers did their jobs. Back then, the firm managed only about $300 million, and its workforce consisted of a half-dozen people huddled in a tiny office in the MetLife Building. Today, the firm manages more than $3 billion and has dozens of employees who work in a fancy midtown tower. With good reason: Through last year, the fund had posted gains of nearly 350% since inception, compared with 55% for the S&P 500 during the same period. But a lot of the strongest performance took place before 2006, when the fund was smaller. In fact, from 2009 through 2011 it actually underperformed the market. Size is the enemy of nimbleness in any enterprise. I mention this because I think it offers some insight into why insider trading became “rampant” at SAC Capital Advisors, to quote a term used by U.S. Attorney Preet Bharara last week. As SAC morphed from a startup to a 1,000-employee outfit managing $15 billion, it got harder for the firm to beat the market, and at least a few people resorted to criminal activity to get an edge on everyone else. (The firm has denied the criminal charges.) SAC launched in 1992 with $25 million in capital from Chief Executive Steven Cohen. From the start, its strategy was to dart in and out of stocks, something it did so feverishly that in 2003 SAC reportedly accounted for 3% of all the transactions on the New York Stock Exchange. That’s a workable strategy for a small player that can move quickly without alerting the rest of the market. But it’s harder for a big fund 1.7% with lots of cash to deploy, and by 2003 SAC had $4 billion in assets, plus a group of investors clamoring for outsize returns.(Interesting fact: One-third of clients expect their hedge funds to return 10% or more this year,according to Deutsche Bank, even though less than 10% of funds achieved that last year.) Prosecutors said insider trading at SAC goes back to 1999, the year it hired an analyst who subsequently pleaded guilty to the crime. Four of the five others who have pleaded guilty started working in 2006 or later, a possible sign the activity became more prevalent over time. No one knows how much insider trading helped SAC’s performance, but what is clear is that the firm was able to keep beating the market even as its assets under management grew. In 2008 it posted a decline of less than 10%, according to Reuters, about a quarter of the fall in the S&P 500 in that dark year. In the succeeding three years, SAC beat the index, an extraordinary feat for a large fund. In contrast, with prosecutors circling last year, SAC rose by just 10% and underperformed the index. Even so, the firm’s stellar track record paid off. SAC was able to charge some of the highest fees in the business, enough to generate $790 million in the first 10 months of 2012, making it the most profitable hedge fund in the land. Ⅲ AVERAGE ANNUAL RETURN generated during the past five years by hedge funds that specialize in stock investing, according to Hedge Fund Research Inc. During the same period, the Standard & Poor’s 500 produced an average annual return of 6.4%. http://www.durst.org http://www.durst.org

Table of Contents for the Digital Edition of Crains New York - July 29, 2013

IN THE BOROUGHS
IN THE MARKETS
THE INSIDER
BUSINESS PEOPLE
OPINION
ALAIR TOWNSEND
GREG DAVID
REPORT: FOOD BUSINESS
FOR THE RECORD
REAL ESTATE DEALS
CLASSIFIEDS
NEW YORK, NEW YORK
SOURCE BREAKFAST
OUT AND ABOUT
SNAPS

Crains New York - July 29, 2013