"We've actually had people sit at the table in our conference room and say that the motivation for starting their company is that guys they went to college with who started Internet companies are now rich, and they know they're smarter, so they figure, 'Why him? Why not me?' " says founding Flatiron partner Jerry Colonna. "That's a lousy motivation for starting a company where you're going to have to work seven days a week, twenty hours a day for two or three years." A Flatiron endorsement is a precious thing -- something like the Good Housekeeping seal of approval -- and Wall Street tends to show its respect. Last year, the firm had a stake in one out of every fourteen IPOs in the New York area: StarMedia, TheStreet.com, iXL, ITXC, VitaminShoppe.com, and multex.com all hopped on Flatiron's gravy train in 1999.
Founded in 1996 by Colonna and Fred Wilson, Flatiron was the first New York venture-capital firm dedicated exclusively to the Internet. With $350 million in backing from sole investor Chase Capital Partners, Flatiron currently owns sizable slices of 35 Internet companies, including delivery service Kozmo.com and content provider Powerful Media. Flatiron-backed companies have a sophisticated media-and-Madison Avenue flavor that's distinctive to Manhattan. That said, Flatiron has started to spread its wings: Recent investments include Beijing-based Internet portal Sina.com and the Internet Appliance Network, a maker of cordless appliances for Web-surfing and shopping. Flatiron isn't trying to out-tech the tech investors in Silicon Valley. "But we want the best of the Internet," new principal Seth Goldstein says, "all the time and everywhere we can find it."
Living Dangerously Though Flatiron's partners have looked like geniuses with investments like StarMedia, up 167 percent since its launch in May, retailer VitaminShoppe.com and financial-news service TheStreet.com have fared poorly. Beloved at first, TheStreet.com quickly got the bum's rush: On its first day of trading last May, the stock vroomed all the way to $70 from its IPO price of $19. But by September, the gravity of realistic expectations was pulling the stock price down to the high teens; it closed the year at $19 and change. "I suppose when the stock hit $70, the smart thing would have been to use our billion and a half dollars of stock-equity capital and go buy a business that was worth a billion dollars," Fred Wilson says ruefully. (Wilson actually became chairman of TheStreet.com when the CEO resigned in November.) "But we didn't do that. Instead, we said, 'We've got a business to run,' and we put our heads down and ran the business."
Moneymaking Mantra "You look for a great leader and a visionary," says Bob Greene, who joined as managing partner last year. "You look for a big market opportunity, and being first."
"There's so much 'me too' investing going on," adds Wilson. "We won't do it. We are the people that the 'me too' investors copy." He points to Kozmo.com, recipients of a $23 million Flatiron purse: "The next thing we know, here comes Urbanfetch, copying our every move." Kozmo sued Urbanfetch, and Urbanfetch countersued, alleging Kozmo was trying to hamper Urbanfetch's fund-raising efforts; they settled out of court last December.
Where Flatiron's Headed In 2000 "The markets are going to go gaga over international Net companies and pervasive computing," Wilson says, explaining that pervasive computing "could be a flat panel on your refrigerator door that maintains an interactive grocery list."
And who's afraid of a market correction? Companies that want to go public and suddenly can't would be desperate for more cash, Greene predicts. To get it, they'd be more willing to fork over a bigger, juicier stake. "Cycles in our business," he says, "are a great thing."