New York is playing hard to catch up with Silicon Valley. But even though it has been dubbed Silicon Alley, it still has some way to go.

"Everyone wants to get a piece of the Silicon Valley action but is New York really a tech town?" asked Mr Steven Levy, a senior editor of Newsweek magazine at a recent panel discussion.

"In Silicon Valley there's a mind-set and bubble of technology innovation. New York is the media capital of the world so it is obvious that it will be a force in new media," he said.

These days, new companies in New York are building the tools for an industry that is just getting under way. People are investing in what they believe the future will be and many are buying into the Internet because in the long term it may save them time and money.

Last year saw some Silicon Alley companies experience explosive growth in their revenues, capital and initial public offerings (IPOs). There has been a six-fold increase in IPO valuations over the past five years and most of these are for companies associated with the Internet.

New York has one serious Internet venture capital firm called Flatiron Partners. It has financed six Internet IPOs in the city in the past three years and will fund a total of 15 by June. By contrast, Boston has had one Internet IPO - Lycos - which has just been sold to USA Networks.

The New York New Media Association held the panel discussion two weeks ago at the Fashion Institute of Technology to consider the state of New York's new media. The panel of Internet veterans recognised new media was now the only significant growth industry in the greater New York area, employing 100,000 people.

"What's fuelling the growth is the entrepreneurial spirit and the opportunity to work in an invigorating environment," said Mr Fred Wilson, a managing partner at Flatiron Partners. "The opportunity to make a lot of money is also part of it," he said.

Flatiron Partners has recruited five chief executive officers over the last two-and-a-half years and even though some took a drop in salary to between $150,000-$200,000 (€133,156-€177,541), they were also offered stock options. "The combination of salary and stock creates the magic," said Mr Wilson.

He believes New York has created a new media community that has a lot of capital invested, a lot of interest and a lot of potential customers.

So, for the foreseeable future, he said, the money is there to fuel an industry that is still in its adolescence.

A San Francisco-based venture capital firm, Hummer Winblad Venture Partners, is also looking to the east for opportunity. Recently it made three investments in New York. Mr John Hummer, a partner in that firm, told the 300 or so in the audience at the panel discussion that the "speed, scope and scale of this environment has never been seen before by investors.

"In terms of the venture capital community, some of the newest companies can thrive in this environment," he said. For this reason, talent and investment dollars are being drawn to the Internet. < xo New York will "get an influx of us West Coast folks and an increase in funds", said Mr Hummer. "The capital in this country is very fluid. If there are returns to be made, money will flow in."

But some of the challenges facing the new media start-ups are the mounting rent, supply and utility costs in this city.

Agency.com - considered the most successful new media company in New York - started here but has expanded to 10 other locations. "We have some real choices to make," said Mr Chan Suh, chairman and CEO of Agency.com.

"We have to sustain our business in New York against mounting costs. New York is a wonderful place to start a business but most of us are now saying how much more can we afford to grow at this rate?"

He said one reason for staying in New York is the huge concentration of creative media talent. "It is easy to get, but difficult to retain people," said Mr Suh. "The pace of recruiting is frenetic in this city. It is difficult to fend off the poachers," he said. Chided by the discussion chairman for being known to run a tight ship, Mr Suh retorted: "Just because we are a dot.com company doesn't mean we can throw money at people like it's Microsoft." He said he was trying to recruit people where the environment was to their liking, and not just the pay. "There is no average in the new media salary game. Our business - the services industry - is people-intensive and part of the package is the enjoyment of sharing and growing knowledge with their peers."

Mr Dean Daniels, chief operating officer of another start-up, theglobe.com, said: "You have to hire the right people and `incent' them the right way. It's a vision and should be something they want to grow with. This is a fun industry where you work hard".

Theglobe.com started in Ithaca, in upstate New York, but moved to the city because that's where the talent and clients were. "Our business is about aggregating an audience and so we wanted to be in the media capital," he said.

"This is where we want to be and stay," he added. But, he admitted, the infrastructure costs made it very difficult. The companies that secured their initial funding three years ago are rolling up or blowing up. So for those new media companies that have succeeded, the consolidation phase is beginning and money is the driving force behind the mergers that are taking place.

NBC, one of the big four television networks, bought a portal company called Snap and invested in iVillage, a company that provides content for women.

Mr Tom Rogers, an executive vice-president of NBC and president of NBC Cable, said at the discussion that NBC wanted to become a new media player.

"To be successful as a traditional media company getting into new media, we need to tie back to our traditional operations," he said. "We have to balance the two without killing the entrepreneurial spirit."

Realising that New York isn't Silicon Valley, the panellists believed the West Coast would build the tools for use on the Internet, while the creativity that is abundant in New York would wind up on the Net and the tools would bring it out.

"For people interested in technology, New York is not the place for them - Silicon Valley is," said Mr Wilson. "The whole world there revolves around venture capital and start-ups. People here tend to be more implementers than inventors."

So, the panellists agreed, New York's next move will be to build the services on top of applications that are invented in Silicon Valley.