CHASE FOR INTERNET VENTURES HEIGHTENS: FLATIRON PARTNERS’ 2D POOL GETS $300M, ALL FROM THE N.Y. BANK

Signaling a likely boon to “Silicon Alley” start-ups, Flatiron Partners is launching a $300 million venture capital fund aimed primarily at Internet companies on the East Coast.

The new fund is double the size of the investment firm’s initial funding pool, which was started two years ago with $150 million in financing from Chase Capital Partners and Softbank Technology Ventures.

This time, however, Chase Capital, the venture arm of Chase Manhattan Corp., is putting up the entire $300 million for the Flatiron Fund. Softbank has bowed out as a Flatiron limited partner to focus on its own new Internet fund.

The move underscores the enormous resources of Chase Capital, which has already invested more than $1 billion in venture capital this year and has about $6 billion in assets under management.

‘It’s an affirmation’

“We look at Flatiron as a key part of our Internet efforts,” says I. Robert Greene, a principal at Chase Capital who works closely with Flatiron principals Jerry Colonna and Fred Wilson.

For his part, Mr. Colonna says the whopping financial commitment will allow Flatiron to continue backing the city’s most promising new media businesses. “It’s an affirmation that New York-based companies remain extremely attractive investment targets,” he says.

Of the 11 companies Flatiron has funded so far, five are based in the metro area, four are in other East Coast cities and two are on the West Coast. Its Silicon Alley investments include StarMedia Network Inc., Multex Systems Inc. and The-Street.com.

Mr. Colonna says the venture firm will invest about 60% of the $300 million in local Internet companies. But with a bigger bankroll, Flatiron will be able to take larger stakes in individual businesses it finds especially attractive. Typically, the firm puts in about $5 million per investment.

“We can do the small deals and the larger, mature deals,” says Mr. Greene. Overall, Flatiron plans to dole out $25 million to $50 million annually to about a half-dozen companies.

While focusing on the East Coast, the firm’s most successful play so far has been Santa Monica, Calif.-based GeoCities. The company, which allows people to build personal Web sites, went public last month in an $80 million initial public offering and late in the month boasted a market capitalization of about $800 million. Flatiron expects to reap a return of more than 20 times its $4 million stake in GeoCities.

Another of Flatiron’s portfolio companies that has filed to go public is Manhattan-based Multex Systems, which provides investment research over the Internet and via wire services.

Meanwhile, Flatiron hasn’t yet had to write off any of its companies.

“Nothing has died, and nothing has been smushed together in some lousy merger,” says Rolf Selvig, director of business development at VentureOne Corp., a San Francisco-based venture capital research firm, of the Flatiron-backed companies. While Flatiron hasn’t yet established a long track record, it “has made some prudent investments,” says Mr. Selvig.

Still, the competition to find the next Yahoo! has only intensified since Flatiron was launched in 1996. Firms that have stepped up investment in Internet companies include leading venture capital firms such as Kleiner Perkins Caulfield & Byers, Accel Partners and New Enterprise Associates as well as traditional Wall Street firms.

“It’s a much more competitive environment than it was a few years ago,” acknowledges Mr. Colonna. But he adds that the $300 million commitment from Chase will give Flatiron added financial clout in competing for top Internet deals. “We become more attractive as an investor because we can stay with a company over the long haul,” he says.

Ironically, one of the players Flatiron could end up vying with is San Jose, Calif.-based Softbank Technology Ventures, which is mainly backed by Softbank Corp. of Japan.

Softbank and Chase each put $75 million into the first Flatiron fund. But Softbank opted not to participate in the new deal in order to concentrate on investing a $320 million Internet fund it raised earlier this year. In the last few years, Softbank Technology has become one of the country’s biggest new-media investors, with stakes in approximately 60 Internet companies, according to principal Charles Lax.

Rather than competing, however, he says Softbank will likely continue to co-invest with Flatiron.

Crain News Service