Written by Guy Milhalter, and Austin Ochoa
Earlier this year, New York Governor Kathy Hochul announced the launch of New York’s $30 million Pre-seed and Seed Matching Fund Program which will be managed by NY Ventures, the state’s venture capital arm.
With global venture capital investments declining by 35% in 2022 compared to the amount invested in 2021 and venture lending drying up, the timing of this announcement could not have been better. This could certainly be a viable and interesting option for early-stage startups with an existing presence in New York or plans to relocate.
Overview of the Pre-seed and Seed Matching Fund Program
The Program offers early-stage startups a 1:1 match on equity investments raised from the private sector, from $50,000 to $250,000.
The Program is managed by New York (NY) Ventures, New York State’s venture capital arm, and it plans to invest in all technology sectors, with a focus on the following technologies:
- Advanced Manufacturing;
- Agricultural Tech;
- Climate Tech;
- Consumer Tech;
- Data/SaaS/AI;
- Fintech;
- Healthcare;
- Life Sciences and BioTech; and
- Medical Devices.
Program Eligibility
To qualify for funding, a company must meet the following criteria:
- Raised up to $2 million in dilutive funding prior to the current financing round;
- Establish its headquarters and have at least one C-suite employee in New York State for at least 12 months after investment; and
- Be registered to do business in New York State and be in good standing.
While eligible businesses can be incorporated in another state, they must be registered to do business in New York State.
Companies structured as a C-Corporation, with a demonstrated investment yield and growth potential objectives, will receive a preference for being funded.
Program Specifics
Any private funding raised within the same round as the Program investment may be counted toward the 1:1 financing ratio matched by NY Ventures. However, the private funding may not occur earlier than 90 days before the Program investment.
When applying, NY Ventures requires information about a company’s current financing round in order to verify the amount of private funds being raised, which includes: (i) the name and contact information of the lead investor (if applicable) and other committed investors; (ii) the type of round (equity financing, convertible debt, SAFE); (iii) term sheet; (iv) cap table; and (v) proof of private funds raised (photo of check, bank statement, or executed funding documents).
Confidentiality
While the application portal is only open to reviewers internal to Empire State Development (ESD), ESD is subject to the Freedom of Information Law (FOIL). Consequently, ESD cannot guarantee the confidentiality of records submitted to it since legally mandated disclosure obligations may arise pursuant to FOIL.
Importantly, there are exemptions under FOIL (See FOIL § 87(2)) that may be invoked to safeguard the confidentiality of trade secrets and other highly sensitive information which, if disclosed, would cause substantial injury to a company’s competitive position.
ESD maintains that it has procedures in place to provide for notice to companies whose records are impacted by FOIL requests, and to ensure legally appropriate application of relevant exemptions.
How to Apply for Funding
Applications to apply for funding are now available. As part of the application, companies are required to fill out a Sources and Uses analysis and upload an investment pitch deck or executive summary.
The Sources and Uses analysis will be used by reviewers to validate the financial assumptions made in a company’s application. As part of the analysis, companies are asked to provide information about its sources of capital, uses of capital, financial assumptions, and the timeline used for analysis.
In addition, applicants are asked to provide a general overview of their company, which includes information about the applicant’s business model, target customers, market share and size, and key factors to achieve profitability.
Applicants should also be prepared to clearly state the problem their business is solving and why their solution is unique.
Please feel free to contact Guy Milhalter (GMilhalter@PearlCohen.com) or Austin Ochoa (AOchoa@PearlCohen.com) with any questions.
