March 30, 2010 / 9:02 PM / in 7 years

NY's Silicon Alley humming despite slow economy

* Downturn hasn't stopped New York's high-tech scene

* Venture capitalists see opportunities

* Attention focusing on new social media sites

By Karina Ioffee

NEW YORK, March 30 (Reuters) - The recent recession may have cut venture capital available to young companies, but it hasn't prevented a blooming of high-tech startups in New York.

Many of the companies getting attention from venture capitalists and on tech blogs are social media sites, which rely on networks of friends to do everything from picking out gifts to sharing photos.

"New York is a hotbed of innovative startups and always has been," said Nate Westheimer, co-founder of AnyClip, a company that aggregates clips of movies.

Westheimer also runs NY Tech Meet Up, a networking group with 12,000 members where entrepreneurs pitch business ideas to each other and potential venture capitalists.

"There are a great deal of risk-takers here and a lot of smart money; as well as serial veteran entrepreneurs who are getting engaged with the young generation," Westheimer said.

Silicon Alley, as New York's high-tech scene is called, has also been given a boost from Wall Street professionals looking for new horizons after being laid off in the financial crisis.

"Before, it was about whether to take a $40,000 job at a startup or a $200,000 job at Morgan Stanley," said Caterina Fake, co-founder of the photo-sharing service Flickr, and most recently Hunch, a decision-making site based in New York.

"That option is not as readily available anymore. But it's a perfect recipe for people who are scrappy."

Mix that with a strong support network and a growing number of lawyers with experience on start-up deals and the Big Apple has become a great place to launch a new venture, experts say.

Among the young generation of Silicon Alley is 24-year-old Ben McKean, co-founder of Village Vines, a site that allows restaurants to offer discounts on slow nights.

McKean said he was working in investment banking, for Morgan Stanley and later Bank of America, when he became convinced of the vast and underutilized potential of the Web to help businesses market themselves.

"The opportunity is incredibly exciting," McKean said. "We believe we are solving a market inefficiency and we are thrilled to work with some of the top New York City restaurants."

FORCED TO BE LEANER

New York still attracts less venture money than California's Silicon Valley -- 247 deals netted a total of $1.4 billion in 2009, about $500 million less than the previous year, according to the National Venture Capital Association.

The reduced funding has forced startups to create leaner operations -- and in the process better-run companies -- instead of relying on venture backing to grow, according to industry insiders.

But a string of successes -- such as Delicious, an online bookmarking service, Tumblr, a microblogging site, and Etsy, an online market for crafts -- have caught the eye of venture capitalists, who are increasingly moving to New York.

Over the past year, a number of small funds have opened in the city, such as Founder Collective, which provides money to tech and media startups.

"New York has a very cohesive tech community," said Vinicius Vacanti, co-founder of Yipit, a site that shows discounts from local retailers, which started in February.

Vacanti left a job at a hedge fund in 2007 to realize his dream of being a high-tech entrepreneur. "On Wall Street ... everyone is competing with each other; here, everyone is trying to win too, but we also help each other."

Other recent social media startups include Foursquare and Hot Potato, where users track the whereabouts of friends, Venmo, which allows users to exchange payments by sending a text message, and Hunch, which aspires to build a social graph of tastes to help users make choices about what to buy.

The city is making efforts to keep high-tech startups in New York despite high rents. Last year, the city launched a program to offer affordable office space and grants for equipment. More recently it has established a fund to distribute $9 million to young companies.

The city, together with the New York City Economic Development Corporation, has also created a media lab, modeled on existing ones at the Massachusetts Institute of Technology and Stanford University, that will work with local universities and serve as an incubator for new media companies.

AnyClip's Westheimer said that despite the biggest financial crisis in decades, New York remains a petri-dish of ideas and innovation. "It's a place where people are not only experimenting, but making real value." (Editing by Mark Egan and Eric Beech)

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