The purse strings may keep tightening in an industry that has defined the city’s growth in recent years

All eyes on early-stage funding

The dip in number and size of venture capital deals is likely to persist in the new year, as the markets continue to rightsize the valuation of public companies, a correction that will reverberate through the ecosystem.

Early-stage companies will be the last to feel the weight of the outside pressures, said Tobias Citron, who focuses on new companies as a principal at Primary Venture Partners. As the purse strings tighten and the average company valuation falls, a sharper divide could emerge between top-tier founders able to raise at competitive valuations and the rest of the field.

If growth-stage firms are unable to raise enough to support their payroll, their downsizings could push top talent to try their own entrepreneurial ventures. "It would be a silver lining to have them throw their hats in the ring," Citron said. — Cara Eisenpress

Diversity is a focus

Underrepresented founders saw a boost in visibility and fundraising in 2020 and 2021, but momentum stalled in 2022.

A handful of diversity initiatives in the city may begin to bear fruit in 2023, said Kelly Ifill, founder and CEO of fintech startup Guava. That includes BIPOC-focused incubators such as Clara Wu Tsai's BK-XL and an expansion of a city program called the Venture Access NYC Founder Fellowship.

Systemic change, however, is still slow-moving, Ifill said. "I don't need a fund to say it'll invest in Black women," she said of what's on the horizon. "Just do it." In a similar vein, Marco DeMeireles, co-founder of venture capital firm Ansa, said he and his partner, both first-generation immigrants, have built a network with a majority of women and people of color whom he believes will occupy board seats or high-level tech jobs beginning in the year ahead.

"They are the best rising operators in a given function," he said, "and they are dying for their first C-level job.” — C.E.

Corporations will stick to deals

The city's large companies won't stop signing contracts with the local tech startups that serve the thriving finance and insurance sectors nearby, placing New York's fintech ecosystem of 1,000 companies into second place worldwide, based on a combination of metrics, including funding, talent and startup experience, advisory firm Startup Genome said.

For growing fintech firms, the trick will be to prove they can help clients make money, reduce costs or stay in compliance with regulation, said Maria Gotsch, co-founder of the FinTech Innovation Lab New York and president and CEO of the Partnership Fund for New York City.

That startups tend to land smaller contracts can also be protective. "If [the startup's product] is filling a need, and it won't move the needle to cut it, then you don't," Gotsch said. Startups pitching automation or predictive data tools are even more likely to sign contacts with financial companies, she added.

Although technology research firm Gartner predicts a 5.1% increase in spending in the $4.5 trillion worldwide information technology industry — the same as in 2022 — new and midstage city firms could still face some headwinds in pitches to potential clients. — C.E.

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Published on Jan. 9, 2023