When are traasdahl needed seed money for his mobile entertainment startup, Thumbplay, in 2004, out-of-state venture capitalists weren't interested in the Manhattan firm.

"They didn't have to go outside their region to find good companies," Mr. Traasdahl says.

That's no longer the case. Thumbplay completed a new round of financing in June with investors that included Meritech Capital Partners and New Enterprise Associates, both located in Menlo Park, Calif.

Once spurned, New York City is attracting more out-of-state venture capitalists, especially from California and Massachusetts. They are drawn to the Big Apple because of the recent boom in online advertising, a spike in mergers and acquisitions among startups here and a glut of venture money in their own markets.

Last year, Massachusetts firms were involved in 62 New York deals, twice as many as two years earlier, according to PricewaterhouseCoopers and the National Venture Capital Association. Separately, California venture capitalists got into 60 deals, almost 18% more than in 2005.

The increased activity is attributed primarily to the boom in online advertising, which is expected to generate revenues of $28 billion this year--more than twice the amount in 2005.

Manhattan, home to many large media companies and ad agencies, is a natural breeding ground for online ad firms, and venture capitalists are eager to tap into the lucrative industry.

"During the bubble period in the late 1990s, you didn't have large brands like Kraft and Procter & Gamble spending millions of dollars on digital advertising," says Sharon Weinbar, managing director at Scale Venture Partners in Foster City, Calif. "And companies that are good at online advertising are almost always in New York," she says.

Last year, Ms. Weinbar's firm led a $25 million round of funding for Waterfront Media, a Brooklyn-based operator of health Web sites--Scale's first investment in the region.

Manhattan-based tech firms have proved to be solid investments. Last year, more than a dozen were sold for large sums. In two of the biggest deals, Google acquired DoubleClick Inc. for $3.1 billion, and Yahoo bought the remaining stake that it didn't own of online ad firm Right Media for $680 million.

Greater potential

"There has been a flood of venture capital activity because of these mega-acquisitions," says Sita Vasan, senior investment manager at Intel Capital of Santa Clara, Calif., who works out of the New York office. Intel sold one of its Manhattan-based portfolio companies, Game Trust, for a reported $20 million last year.

California and Massachusetts have more venture capitalists than New York City does, and a pickup in venture fundraising and competition for high-quality deals in Silicon Valley and Boston have convinced them to steer more of their dollars to New York.

"There is an excess of venture capital in Boston relative to opportunity and a dearth of capital in New York City relative to potential deals," says Jeffrey Bussgang, general partner at Boston-based IDG Ventures. The firm is aggressively prospecting here and has had someone visit every other week for the past two years to scope out potential investments, he says.

Local venture capital firms like Greenhill SAVP are getting more calls from outsiders seeking leads, says Managing Director Steve Brotman.

The influx of money is forcing some locals to scout elsewhere.

"Although we historically invest in New York area firms, we've done two recent deals in Baltimore and Austin," Mr. Brotman says.

New players mostly welcomed

Area venture capitalists welcome the attention, though. Many, including Greenhill SAVP, co-invest with other firms, and most are not concerned about the region getting overly competitive.

"I don't expect every Boston or West Coast firm to open a New York office," says Daniel Schultz, a managing director at DFJ Gotham Ventures. Last year, his firm co-invested in ExpoTV, a video-based e-commerce site, with Prism Venture Partners of Westwood, Mass.

"The increase in activity hasn't overwhelmed everyone," Mr. Schultz says. "There is good enthusiasm."