New York City Investment Fund Supports Biotech, Cleantech, and Now “Fintech” Startups

5/9/11Follow @arleneweintraub

On May 2, six startups that are developing new technology tools for the financial services industry started a 12-week program of mentorship, networking, and seed funding from New York City Investment Fund, a 15-year-old fund founded by Henry Kravis, founding partner of Kohlberg Kravis Roberts & Co.

The companies and their products will be in stealth mode until July, but NYC Investment Fund’s CEO, Maria Gotsch, is clearly elated that the program is off the ground. “These companies have interesting solutions to issues the financial sector has,” says Gotsch, who refers to the new market for financial technology tools as “fintech.”

The New York City Investment Fund is an affiliate of the nonprofit Partnership for New York City, and its mission is to create jobs by diversifying New York City’s economy. Initially, 67 private and corporate investors provided $1 million a piece to the fund as interest-free loans or charitable contributions. A second round of fundraising brought the total value of the fund to $115 million. “The deal was we will preserve the capital, make enough money to pay our expenses, and if we make any returns, they come back to the fund,” Gotsch explains. “It’s an evergreen fund.”

Lately, the NYC Investment Fund has been focusing on sectors that don’t get much attention—or much funding—from venture capitalists in New York City. Fintech, biotech, and cleantech top the list. The fund isn’t just doling out money to struggling startups in those industries, however. Its staff of 12 also arranges networking events and educational programs for entrepreneurs, and matches them up with mentors who can advise them throughout the process of launching their companies.

About two years ago, Gotsch and her staff doubled down their efforts to fill what they saw as a gaping hole in the New York venture capital scene: Startups in the digital media space were raking in the dough, while other technologies were still starving for capital. “We decided a year and a half ago to stop investing in digital media—it doesn’t need more money,” Gotsch says.

The first new program the fund launched to address an underfunded sector was Bioaccelerate, a competition in which scientists who have developments they want to commercialize compete for $250,000 each in seed money. “What we’re funding is proof-of-concept research,” Gotsch says. The money might be used, for example, to test new devices or drugs in large animals, such as pigs or monkeys. Such tests are vital for attracting the interest of venture capitalists, but funding from sources such as the National Institutes of Health is scarce.

The first Bioaccelerate prizes were handed out last May to six scientists, whose inventions ranged from a handheld device to test for infectious diseases to a cancer drug being repurposed as a treatment for cardiomyopathy. The winners were matched up with mentors, who are now helping them prepare to transform their inventions into companies.

The winners of the second Bioaccelerate contest will be announced by the end of this month. (Watch Xconomy New York for complete profiles of the winners.)

The new fintech program is based on many of the same principals that have made Bioaccelerate a success, Gotsch says. The idea is to recruit experts from the financial services industry to both identify opportunities for new technology and to find the inventors and entrepreneurs who can bring those products to market.

The startups that won NYC Investment Fund’s first fintech competition received $25,000 each—but in their case, the funding is less of a focus than the mentorship is. During their three months in the fund’s FinTech Innovation Lab, the entrepreneurs are working closely with chief technology officers from financial service firms. That will give them the chance to refine and beta test their technologies within those firms.

On July 22, the fund will host an investment day—not unlike the “demo days” that tech incubators frequently hold—so the fintech startups can present their technologies to financial services firms and venture capitalists.

Gotsch says the NYC Investment Fund is now thinking about establishing a program for the city’s other underserved sector: cleantech. Gotsch and her staff haven’t hit on the right strategy, so for now, they’re focusing on making individual investments in cleantech startups. The fund has invested in four NYC-based companies so far, including OwnEnergy, a portfolio of wind farms, and US Energy Group, which develops energy-management technology.

With just four holdings, NYC Investment Fund has more investments in New York-based cleantech companies than any fund in the world, Gotsch says. “That’s a sign of a market failure,” she says. “It shows that our companies haven’t attracted enough capital.”

In its ongoing effort to marry tech entrepreneurs with local venture capitalists, NYC Investment Fund launched a new networking organization called TechConnect in April. Its first mixer attracted 50 entrepreneurs and venture capitalists. “The feedback was very positive,” Gotsch says. “We have two more events already on the schedule.”

And NYC Investment Fund has identified a new industry that it thinks has the potential to further diversify the city’s economy: digital manufacturing. Companies in that space use technologies including 3D printing, which allow them to produce toys, jewelry, and other objects inexpensively, straight off of digital files send in by the objects’ designers.

New York is already home to a handful of digital manufacturers, including Shapeways and Quirky. Gotsch would like to see more startups follow in their footsteps. “You use software to design your object, you e-mail your file to them, and they make it. It has very interesting implications for whole design and fashion centers in New York,” she says. “We haven’t yet decided where to deploy the capital. But we want to figure out how to make New York City a leading center for digital manufacturing.”

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