January 27, 2023

DealBook: Never Mind Facebook; Winklevoss Twins Rule in Digital Money

The Winklevoss twins, Cameron and Tyler — Olympic rowers, nemeses of Mark Zuckerberg — are laying claim to a new title: bitcoin moguls.

The Winklevii, as they are known, have amassed since last summer what appears to be one of the single largest portfolios of the digital money, whose wild gyrations have Silicon Valley and Wall Street talking. The twins, the first prominent figures in the largely anonymous bitcoin world to publicly disclose a big stake, say they own nearly $11 million worth.

Or at least $11 million as of Thursday morning — when trading was temporarily suspended after the latest and largest flash crash left a single bitcoin worth about $120 and the whole market worth $1.3 billion. At one point, the price had plummeted 60 percent.

To skeptics, the frenzy over the bitcoin network created by anonymous programmers in 2009 looks more like the mania for Dutch tulip bulbs in the 1600s than the beginnings of an actual currency.

“To say highly speculative would be the understatement of the century,” said Steve Hanke, a professor specializing in alternative currencies at Johns Hopkins University.

Whatever else it is, bitcoin has become the financial phenomenon of the moment.

In addition to the identical twins, Silicon Valley investment firms, while not holding bitcoins, are starting to show interest in the technology.

On Thursday, a group of venture capitalists, including Andreessen Horowitz, announced that they were financing a bitcoin-related company, OpenCoin.

The Winklevosses say this week’s tumult is just growing pains for a digital currency that they believe will become a sort of gold for the technorati.

“People say it’s a Ponzi scheme, it’s a bubble,” said Cameron Winklevoss. “People really don’t want to take it seriously. At some point that narrative will shift to ‘virtual currencies are here to stay.’ We’re in the early days.”

While little is known about the creator of bitcoin, or if it even was a single person, the work involved serious programming chops, building a system that could live on borrowed computer space around the world. It was determined that only a finite number of bitcoins could be created — the count is currently around 11 million. New coins are “mined” by programmers who solve mathematic riddles and can sell their coins on upstart exchanges.

For now, there are few places where bitcoins can be used. One marketplace is an online bazaar, Silk Road, where narcotics are reportedly the main wares for sale. But bitcoin believers imagine a future where the e-cash can be used at their local Starbucks. The Winklevosses have paid in bitcoin for the services of a Ukrainian computer programmer who has worked on their Web site.

“We have elected to put our money and faith in a mathematical framework that is free of politics and human error,” Tyler Winklevoss said.

This is not the brothers’ first gamble on an unproved technology. As students at Harvard, the twins founded a social networking site, ConnectU, and enlisted their schoolmate, Mark Zuckerberg, to help them build the company. After Mr. Zuckerberg went off to start Facebook, the brothers sued him, accusing him of stealing their idea — a story that was dramatized in the movie “The Social Network.” The case was settled with the brothers being given $20 million in cash and Facebook shares that are now worth more than $200 million.

They have parlayed that fortune into Winklevoss Capital. Their first two investments were in Hukkster, a start-up shopping Web site and SumZero, an online community for professional money managers.

The brothers began dabbling in bitcoin last summer when the dollar value of a single coin was still in the single digits. To keep their holdings secure from hackers, they have taken the complex codes that represent their holdings off networked computers and saved them on small flash drives, putting the drives, in turn, in safe deposit boxes at banks in three different cities.

It’s hard to verify how the Winklevoss holdings compare with other bitcoin players, given the anonymity of accounts, and the twins say they believe that some early users of the system probably have holdings that are at least as large.

A Maltese company, Exante, started a hedge fund that the company says has bought up about 82,000 bitcoins — or about $10 million as of Thursday — with money from wealthy investors. A founder of the fund, Anatoli Knyazev, said his main concern was hackers and government regulators, who have so far mostly left the currency alone.

These investments were all in an uncertain state on Thursday after the big price swings and the shutdown of trading on Mt. Gox, a Japanese-based company that claims to handle 80 percent of all bitcoin trades. Mt. Gox said in a statement that the problems were a result of the currency’s popularity, making it impossible to process all the incoming orders. It added that it was not the victim of hackers but “instead victim of our own success!”

The 6-foot-5 Winklevoss brothers were unfazed. The brothers said they took advantage of the low prices to buy more.

“It has been four years and it has yet to be discredited as a viable alternative to fiat currency,” Tyler Winklevoss said. “We could be totally wrong, but we are curious to see this play out a lot more.”

Article source: http://dealbook.nytimes.com/2013/04/11/as-big-investors-emerge-bitcoin-gets-ready-for-its-close-up/?partner=rss&emc=rss

Fashioning Change: Our Vision: Make Sales to End Sweatshops

Courtesy of Fashioning Change

Fashioning Change

A social entrepreneur tries to change the way people shop.

There have been a lot of grim stories lately involving the manufacture of clothing.

Over the last few months, there have been factory fires in Bangledesh that have taken the lives of hundreds of men and women who endured depressing sweatshop environments in order to feed their families. These factories were producing products for global brands like Wal-Mart, Disney, and Enyce. And a recent study by Greenpeace International concluded that Calvin Klein, GAP, Zara, Diesel, and other top apparel brands produce clothes that contain high levels of dangerous chemicals.

Does it make sense that these and other brands are allowed to make products that expose people throughout their supply chains — cotton farmers to garment workers to consumers — to cancer-causing and endocrine-disrupting agents that can cause birth defects, learning disorders, and even death? If clothing were food, wouldn’t there be a recall?

In most cases, these brands have little to fear in the way of regulation. What they do fear is a loss of sales – and that is where my start-up, Fashioning Change, hopes to play a role. We have built a marketplace that offers stylish, money-saving, safe, sustainable, and sweatshop-free alternatives. Our goal is to support manufacturers that are doing things right – and to leave the big brands no option but to adopt authentic practices that protect health, the Earth, and human rights. That’s our plan, any way.

When we share that plan with venture capitalists, we are often told, “but shoppers won’t pay more for products that are green or socially responsible.” And we don’t think they should have to. That’s why, in addition to showcasing socially responsible brands, we are using our marketplace to demonstrate that shopping “green” doesn’t have to mean spending more or compromising on style and quality.

To prove our point, we built a feature on our Web site that we call Wear This, Not That (see photo above). Here’s how it works: We look for styles that are trending within mainstream brands, and then we review the Fashioning Change catalog for items that are comparable in price and style. When we find a match, we feature a side-by-side comparison of the Fashioning Change alternative to the mainstream product. Every comparison presents the fashion aesthetics and the price and also highlights the brand’s manufacturing process. Here’s an example, Wear This, Not That: Reuse Jeans vs Guess.

We did an analysis comparing more than 100 products from 27 mainstream brands to the Fashioning Change equivalent, and the data showed that shoppers can save an average of 27 percent with our alternatives. From Black Friday through Cyber Monday, we calculated that shoppers buying through Fashioning Change saved $25,509.84 — the difference between our retail price and what these shoppers would have spent on the mainstream option.

All of this may sound simple but making it happen isn’t easy, especially when you don’t have a huge budget to spend on marketing. To help us connect with each member of our growing audience, we built a targeted e-mail system that reviews shared preferences and site behavior to help us understand what e-mail content is relevant for each person. We use that data to share relevant information with each person who signs up for Fashioning Change. Every day, we work to increase our relevancy to each person so that we can make more sales while reducing pollution and the use of sweatshops.

So far, all of the money we make goes back into building Fashioning Change. My co-founder Kevin and I have forgone salaries until we can get Fashioning Change to profitability (something we look forward to in the near future). In order to live without a salary, I gave up my two-bedroom apartment, sold all of my furniture, and moved into my parent’s guest room. I lived there for more than a year on savings while getting the company started. Now I split time between the Fashioning Change house in Santa Monica and my parent’s house in San Diego. (I also gave up health insurance, which I will discuss in my next post.)

We see fashion as just the beginning for us. We have built a Web platform that will eventually allow us to provide access to authentic, great-looking, money-saving, sustainable, and sweatshop-free alternatives to almost everything that goes on (or in) our bodies, in our homes, or into our communities: clothes, food, detergents, cars, bedding, toothpaste, etc. While we could start adding all different types of products, I believe our success will lie in attacking one vertical at a time. We will see how quickly our vision gains momentum.

Some of the older investors we meet seem skeptical that we can create this mix of business and ethics. We’re looking forward to proving them wrong.

Questions? Thoughts? Lets connect, talk shop, and build some original and meaningful start-ups in the process. You can leave a comment below, or e-mail me at adriana@fashioningchange.com. You can also find me on Twitter at @adriana_herrera.

Article source: http://boss.blogs.nytimes.com/2013/02/05/our-vision-make-sales-to-end-sweatshops/?partner=rss&emc=rss

DealBook: Moving From Wall Street to the Tech Sector Proves Tricky

Olga Vidisheva, left, chief of Shoptiques, and Chelsea Sun, the company's director.Hiroko Masuike/The New York TimesOlga Vidisheva, left, chief of Shoptiques, and Chelsea Sun, the company’s director.

When Vinicius Vacanti set out to make a pitch for a local deals start-up to investors, he figured he understood the process given his four years on Wall Street.

But minutes into his first meeting with a venture capitalist, Mr. Vacanti realized he would be rejected. The investor quickly pointed out the flaws, including the site’s lack of users. As Mr. Vacanti rode the bus back to New York from Boston, he considered scrapping the project and starting over.

“The skills you build on Wall Street don’t correlate to a start-up,” said Mr. Vacanti, 31, a founder of the daily deal aggregator Yipit, who previously worked at the private equity firms Blackstone Group and the Quadrangle Group. While some of those skills are useful, he said, “a couple of those are actually bad.”

As more financiers jump to the technology sector, some are finding that their background, typically considered an asset in the corporate world, can be a liability. Some do not know how to write computer code. Others are ill-prepared for the penny-pinching and frustration of start-up life. In short, they have trouble persuading the Silicon Valley establishment that they have what it takes to nurture a young company.

“We start a little skeptical of someone from a finance background,” said Eric Paley of Founder Collective, the investor who declined to back Mr. Vacanti’s original idea. “It’s the lack of having to create something for a customer, find the market opportunity and persevere through it with very, very low economics.”

The challenge has become particularly acute as big investors become more discerning with their money. While the technology scene has boomed in recent years, venture capitalists are showing signs of pulling back, especially after the struggles of Facebook, Groupon, Zynga and other former Internet darlings.

Last year, venture capitalists invested $1.78 billion in 302 deals in New York City. That compares with $2.27 billion in 317 deals in 2011, according to PricewaterhouseCoopers and the National Venture Capital Association, which use Thomson Reuters data.

“There’s definitely fewer dollars available” for young companies that need an additional round of financing, said David Pakman, a New York-based partner at the venture capital firm Venrock. “Capital is tight and getting tighter.”

For young Wall Street professionals contemplating a bleak job market, the lure of working at a start-up — with its cachet and prospects for riches — can be powerful. But many financiers are finding it difficult to make the switch.

When Evan Rose left his job at the hedge fund Dynamic Capital Management to start an online night life service, he did not know how to write code. At first, he tried to outsource the programming for the site to Web developers in India. But he had to throw out the final product. “It was pretty much gobbledygook,” said Mr. Rose, 25.

After that, he started from scratch, learning to write code using Google and online forums. It took him a year to create the finished product.

When he eventually took the project to investors, he was excited about the idea, which he called an “OpenTable for night life.” But the site, NiteFly, had a chilly reception. “Although to him it was a novel concept, we’d heard it before,” said Kyle Widrick, a venture capitalist at Burch Creative Capital who heard the pitch.

To be taken seriously, Mr. Rose realized that he would need a deeper knowledge of the intended industry. So he abandoned NiteFly to work on a different start-up, eCruit, which aims to connect corporate recruiters to college students through online video conferences.

He worked with a human resources employee at a big bank, who used his contacts to attract recruiters to the service. With a seed investment from Ted Dintersmith, a partner emeritus at Charles River Ventures, eCruit is now planning its inaugural recruiting sessions for this year.

Some first-time entrepreneurs turn to mentorship programs like Y Combinator and TechStars to gain experience and tap into sources of financing.

Olga Vidisheva, the founder of the online fashion company Shoptiques, had a classic Wall Street background when she entered Y Combinator, having spent two years at Goldman Sachs before going to Harvard Business School. Two of her earliest investors were friends from Goldman, and her first employee came from the buyout firm Providence Equity Partners.

With no technical background, Ms. Vidisheva, 27, used the opportunity at Y Combinator to find a programmer. After the three-month-long program, she also ended up raising $2 million from prominent venture capital firms like Andreessen Horowitz, Greylock Partners and Benchmark Capital.

Only a handful of “Wall Street refugees” have gone through Y Combinator, said Paul Graham, a founder of the incubator, adding that the number of applicants from finance has been growing in the last couple of years. “What we like about them is they tend to be pretty fierce,” Mr. Graham said. “You can point them at any problem, and if they don’t know how to solve it, they’ll figure out how to solve it and then solve it.”

Others are trying to bring their Wall Street experience to the Web, rather than entering a completely new field.

Nick Sedlet, a former quantitative strategist at Goldman Sachs, and Elli Sharef, a former management consultant at McKinsey Company, started HireArt, a site that connects qualified job seekers with employers. They modeled the program on the in-depth interview process at Goldman and McKinsey, which require applicants to tackle math and logic problems. Prospective employees might be asked to design a marketing campaign for a fitness start-up, or calculate the amount of capital that a chief executive should invest in new property.

“McKinsey and Goldman are two institutions that have really thought about how to assess people,” said Mr. Sedlet, 27. “We saw a very easy way to make that methodology available online.”

Keenly aware of the challenges of start-up life, Mr. Vacanti, of Yipit, now writes a blog chronicling his experiences and sometimes speaks at gatherings for young professionals considering a similar path. After the disappointing meeting in 2010, Mr. Vacanti took the investor’s advice to heart and decided to “pivot,” in tech parlance, moving from offering local discounts to aggregating daily deals from sites like Groupon. In 2010, Yipit raised $1.3 million from investors; in 2011, it raised $6 million.

Last March, in response to one of Mr. Vacanti’s blog posts, Mr. Paley commented on their meeting. “Glad I could help,” Mr. Paley wrote on Twitter. “Should have invested in the pivot!”

Article source: http://dealbook.nytimes.com/2013/01/24/moving-from-wall-street-to-the-tech-sector-proves-tricky/?partner=rss&emc=rss

DealBook: Multinationals Stake a Claim in Venture Capital

Harshul Sanghi inside American Express's venture capital office in Facebook’s old headquarters in downtown Palo Alto, Calif.Peter DaSilva for The New York TimesHarshul Sanghi inside American Express’s venture capital office in Facebook’s old headquarters in downtown Palo Alto, Calif.

MENLO PARK, Calif. — New York, London and Hong Kong are common addresses for blue-chip multinationals. Now Silicon Valley is, too.

From downtown San Francisco to Palo Alto, companies like American Express and Ford are opening offices and investing millions of dollars in local start-ups. This year, American Express opened a venture capital office in Facebook’s old headquarters in downtown Palo Alto. Less than three miles away, General Motors’ research lab houses full-time investment professionals, recent transplants from Detroit.

“American Express is a 162-year-old company, and this is a moment of transformation,” said Harshul Sanghi, a managing partner at American Express Ventures, the venture capital arm of the financial company. “We’re here to be a part of the fabric of innovation.”

The companies are raising their profiles in Silicon Valley at a shaky time for the broader venture capital industry. While top players like Andreessen Horowitz and Accel Partners have grown bigger, most venture capital firms are struggling with anemic returns.

The market for start-ups has also dimmed, in the wake of the sharp stock declines of Facebook, Zynga and Groupon, the once high-flying threesome that was supposed to lead the next Internet boom.

But unlike traditional venture capitalists, multinationals are less interested in profits. They are here to buy innovation — or at least get a peek at the next wave of emerging technologies.

In August, Starbucks invested $25 million in Square, the mobile payments company based in San Francisco, which will be used in the coffee chain’s stores. This year, Citi Ventures, a unit of Citigroup, invested in Plastic Jungle, an online exchange for gift cards, and Jumio, an online credit card scanner.

Banco Bilbao Vizcaya Argentaria, the large Spanish banking group, opened an office in San Francisco last year. The team, which has about $100 million to fund local start-ups, is looking for consumer applications that will help the bank create new businesses and better understand its customers.

“We are in one of the most regulated and risk-averse industries in the world, so innovation doesn’t come naturally to us,” said Jay Reinemann, the head of the BBVA office. “We want to avoid the video-rental model. We want to evolve alongside our consumers.”

The companies are hoping to tap into the entrepreneurial mind-set. Multinationals, with their huge payrolls and sprawling operations, are not as nimble as the younger upstarts. While they are rich in resources, big companies tend to be more gun-shy and usually require more time to bring a product to market.

“Companies cannot innovate as fast as start-ups; increasingly they realize they have to look outside,” said Gerald Brady, a managing director at Silicon Valley Bank, who previously led the early-stage venture arm of Siemens. “We think it’s happening a lot more than people recognize or acknowledge.”

Of the 750 corporate venture units, roughly 200 were established in the last two years, according to Global Corporate Venturing, a publication that tracks the market. In the last year, corporations participated in more than $20 billion of start-up investments.

Big business has played the role of venture capitalist before, with limited success. During the waning days of the dot-com boom, financial, media and telecommunications companies sank billions of dollars into start-ups.

The collapse was devastating. Although some managed to make money, far more burned through their cash. In 2002, Accenture, the consulting firm, scrapped its venture capital unit after taking more than $200 million in write-downs. The previous year, Wells Fargo reported $1.6 billion in losses on its venture capital investments. Dell, the computer maker, closed its venture arm in 2004 and sold its portfolio to an investment firm. (It resurrected the unit last year).

Companies say they are taking a different approach this time. Rather than making big bets across the Internet sector, investments are smaller and more selective.

“We invest with the idea that we’re a potential customer for a company,” Jon Lauckner, G.M.’s chief technology officer said. “We’re not looking to make several $5 million investments and make $10 million on each. That would be nice, but it’s not important.”

As they try to find the right start-ups, some are forging tight bonds with local firms. BBVA, for example, is an investor in 500 Startups, a venture firm that specializes in early-stage start-ups and is run by Dave McClure, a former PayPal executive.

Unilever and PepsiCo are limited partners in Physic Ventures, a venture capital firm designed to help corporate investors build commercial partnerships with portfolio companies. Both Unilever and PepsiCo have installed full-time employees in Physic’s downtown San Francisco offices.

American Express has stacked its investment team with technology veterans. Mr. Sanghi, the head of the office, has spent roughly three decades in Silicon Valley and formerly led Motorola Mobility’s venture arm. Through its network of relationships, the office has met with roughly 300 start-ups in the last six months.

The connections have started to pay off. Vinod Khosla, the head of Khosla Ventures and a co-founder of Sun Microsystems, introduced the American Express team to the executives at Ness Computing, a mobile start-up. In August, American Express partnered with Singtel, the Singapore wireless company, to invest $15 million in Ness.

Mr. Sanghi says Ness is a logical investment and a potential partner. The start-up’s application connects users to local businesses through customized search results.

“It’s trying to bring consumers and merchants together in meaningful ways,” he said. “And we’re always trying to find new ways to build value for our merchant and consumer network.”

For start-ups, a big corporate benefactor can bring resources and an established platform to promote and distribute products. Envia Systems, an electric car battery maker, picked General Motors to lead its last financing round because it wanted to have a close relationship with a major automaker, its “absolute end customer,” said Atul Kapadia, Envia’s chief executive.

Although the company received higher offers from other potential corporate investors, Envia wanted G.M.’s advice on how to build the battery so that one day it could be a standard in the company’s electric cars. After the investment, G.M. offered the start-up access to its experts and facilities in Detroit, which Envia is using.

“You want to listen to your end customer because they will help you figure out what specifications you need to get into the final product,” said Mr. Kapadia.

A marriage with corporate investors can be complicated. Besides G.M., Asahi Kasei and Asahi Glass, the Japanese auto-part makers, are also investors in Envia. They both build rival battery products for Japanese car companies.

Mr. Kapadia, who prizes their insights into Japan’s market, says his company is careful about what intellectual property information it shares with its investors. At board meetings, confidential data about Envia’s customers is discussed only at the end, so that conflicted corporate investors can easily excuse themselves.

“In our marriage, there has not been a single ethics concern, because all the expectations were hashed out in the beginning,” Mr. Kapadia said. “But I can see how this could be a land mine.”

For the big corporations, start-up investing is fraught with the same risk as traditional venture investing. Their bets might be modest, but blowups can be embarrassing and can rankle shareholders, who may see venture investing as a distraction from the core business.

OnLive, an online gaming service, offers a recent reminder.

The company was once a darling of corporate investors, with financing from the likes of Time Warner, AutoDesk, HTC and ATT. At one point, it was valued north of $1 billion.

Despite its early promise, the start-up crashed in August, taking many in Silicon Valley by surprise. The company laid off its employees, announced a reorganization and in the process slashed the value of the shares to zero.

“It can be painful when a deal goes sour,” James Mawson, the founder of Global Corporate Venturing, said.

Article source: http://dealbook.nytimes.com/2012/09/03/multinationals-stake-a-claim-in-venture-capital/?partner=rss&emc=rss

Dropbox Aims to Solidify Its Place With Businesses

SAN FRANCISCO — Perhaps it should not have surprised corporate information technology departments that employees would use Dropbox, a service for easily sharing files among different devices by storing them in “the cloud.” But that did not mean they loved the idea of confidential files on a service they could not control.

Now Dropbox is trying to appease them by selling a service for businesses, Dropbox for Teams, introduced Thursday.

Add Dropbox to the list of consumer technologies that have infiltrated the workplace, like iPhones, Gmail and Skype.

“With the ability of people to get what they want to get done with stuff they pay for themselves, the whole role of I.T. changes,” said Ted Schadler, a workplace analyst at Forrester Research. “Dropbox is just the latest example.”

Still, the service has a ways to go before large companies adopt it, Mr. Schadler said, “because it doesn’t have as much security and administration as they want.”

For Dropbox, one of the darlings of Silicon Valley with a reported $4 billion valuation from venture capitalists, its new service is a bid to buy paying customers and solidify its foothold in the burgeoning file-sharing business..

It is competing with big companies like Google, Apple and Amazon.com, which offer increasingly sophisticated ways to store, share and sync files, and smaller ones like Box.net, YouSendIt and SugarSync. This month, Citrix Systems bought ShareFile and Research in Motion bought NewBay, both cloud storage services.

Dropbox allows people access files, like documents, photos and music, on any device wherever they are, without pesky zip files or hulking e-mail attachments. As people edit files, Dropbox updates them so a single file is available on all devices. Most people use it for free and can pay for additional storage.

Dropbox, which started in 2007, has 45 million users who save more than 2 billion files each week. But it has scared some people, too. In June, a security breach left Dropbox accounts accessible for several hours, and a complaint filed with the Federal Trade Commission says Dropbox misled users about privacy.

Dropbox says it uses the same security measures as banks. Files are encrypted and Dropbox restricts its employees’ access to files. But security is only as good as a user’s password. Dropbox said it is working on two-step authentication, so people would enter a second password sent to their phone, for instance.

“These are all things we take very, very seriously because our reputation and the confidence and trust people have in Dropbox is what we’ll succeed by,” said ChenLi Wang, team leader for business and sales.

Millions already sign up with their work e-mail addresses and the company estimates that at least a million businesses use the service.

Dropbox for Teams, which starts at $795 annually for five users, has 1,000 gigabytes of storage, phone customer support and gives I.T. departments control to add or remove users.

SusieCakes, a California bakery chain, has been testing Dropbox for Teams to share petty cash reports in real time and exchange documents with outside lawyers. The service is easier to use than options like Microsoft’s file-sharing service, called Windows Live SkyDrive, said Houston Striggow, SusieCakes’ co-founder.

“It’s really proven for us to be a powerful business tool that’s made us a lot more efficient and productive,” he said.

But Mr. Schadler, the analyst, said that before it has widespread business adoption, Dropbox needed features like security controls to automatically stop people from sharing confidential documents or to put files on home computers on legal hold. Dropbox says it is working on new features, including extra security measures and collaboration tools.

Of Dropbox’s competitors, Box.net has made the most headway in businesses, Mr. Schadler said.

Google is also going after businesses with tools like Google Docs, which lets employees collaborate on the same version of a document, and Chromebooks, laptops that store everything online so people can access it from any computer. The company is rumored to be introducing a file-sharing service.

Sujay Jaswa, Dropbox’s vice president of business development and sales, said its service has an advantage over big companies because it enabled iPads, Android phones and P.C.s to work together.

“You need a company like us that doesn’t have a horse in the race to be there for consumers,” he said.

Article source: http://feeds.nytimes.com/click.phdo?i=c27857dc5b74c64a469154f4f711a2c1

Square Feet: Manhattan’s Tech Start-Ups Settle in the Flatiron District and Chelsea

“When people talk about Silicon Alley, it’s always been just a concept,” said Michael Kirven, the principal of Bluewolf Inc., a technical consulting company that has moved three times within the Flatiron district in the last decade. “Within five years, you’re going to have a true Silicon Alley. Every company that’s a tech start-up will be here.”

The older, small office buildings in the Flatiron district have attracted start-ups, while large companies like Google and IAC/InterActiveCorp have found homes in Chelsea.

It is no accident, for example, that General Assembly, a new educational institute, meeting place and co-working environment devoted to technology entrepreneurs, was established at 902 Broadway, at East 20th Street, in the middle of the Flatiron district.

“There were a lot of young companies, a lot of designers and artists, and a lot of venture capitalists working in that neighborhood,” said Adam Pritzker, a co-founder of General Assembly. “There were a lot of these pieces that we wanted to put together.”

Craig Nevill-Manning, the engineering director at Google who is largely responsible for the company’s New York presence, said, “New York has not traditionally been known as a center of technological innovation, but it is true now.” He added, “There’s a pretty exciting start-up scene now that there wasn’t in 2003, when I arrived.”

Much of what attracts those start-ups is the loftlike space that the Flatiron district offers, in relatively small footprints. Adams Company, a property management and leasing company that has almost two million square feet in the Flatiron district under management, oversees spaces as small as 1,500 square feet.

“You have a lot of buildings with high ceilings and natural light, overlooking Madison Square Park,” said James Buslik, principal of Adams Company, who leased space recently to several tech companies, including Mashable, Demand Media, Tremor Media and Bluewolf. “Creative people find creative space.”

After an exhaustive search through much of Manhattan, David Mojica, the facilities director of Demand Media, said he was drawn to the exposed ventilation system and ceilings at 121 East 24th Street.

“It definitely has that upbeat technology vibe when you walk in,” Mr. Mojica said. “As soon as we saw it, we fell in love with it.”

Bluewolf has been in the neighborhood a bit longer, nearly a decade. The company recently signed a 12-year lease for 12,000 square feet at 11 East 26th Street, the same building that houses Yelp, the online city guide based in San Francisco. Bluewolf chose the building for its central location, the character of the space and its proximity to many of the company’s customers, Mr. Kirven of Bluewolf said. The private roof deck did not hurt, either.

“You get the amenities of a Midtown building but the flexibility of a loft in Brooklyn,” Mr. Kirven said. “Obviously without the Midtown rents, either.”

Prices are substantially lower than in Midtown and other prime office neighborhoods. Along Fifth, Madison and Park Avenues, rents can range from $50 to $75 per square foot, said Grant Greenspan, a principal of the Kaufman Organization. On the side streets, prices can fall to $26 or $27.

The Kaufman Organization has been getting more involved with the Flatiron district. In December the company bought 100-104 Fifth Avenue, a building with 275,000 square feet of space. Apple snapped up a short-term lease of 10,000 square feet on the sixth floor for its mobile advertising network, iAd.

The Kaufman Organization has also helped Paperless Post, Break Media and Zemoga find space in the neighborhood.

“You’ve got everyone from someone who’s selling a phone app to online retail,” Mr. Greenspan said. “Anything in terms of taking advantage of the Internet.”

Another appealing characteristic of the Flatiron district is that the landlords seem to be flexible about the lengths of leases. A short lease is a major advantage for start-ups, because they often grow at an exponential rate, or disappear, in the blink of an eye.

Bonobos, an online men’s apparel store, is only three and a half years old and has already outgrown two offices (three if the apartment of the founder and chief executive, Andy Dunn, is included). After looking at 70 possibilities throughout downtown Manhattan, the company signed a three-year lease at 45 West 25th Street, about 10,000 square feet of space.

“A lot of landlords are looking at 10-year leases,” Mr. Dunn said. “As a start-up, there’s no way to do that. Even a three-year lease was a scary thought.”

One more perk of the Flatiron district is its proximity to venture capital, which provides the rocket fuel for start-ups. A number of venture capital businesses, including Union Square Ventures, First Round Capital and IA Ventures, have offices nearby.

If start-ups look to Flatiron for its small spaces, larger tech companies are choosing Chelsea for its sprawling floors. IAC, for example, opened its Frank Gehry-designed world headquarters at 555 West 18th Street in 2007. And Google moved to the hulking 111 Eighth Avenue in 2006 partly so all employees could be on the same floor, which was 200,000 square feet — or about five acres. In December, the company bought the entire building, 2.9 million square feet.

“There’s a psychological barrier to going to a different floor to talk to somebody,” Mr. Nevill-Manning said. “Having 800 people on a single floor means we’re much more productive and much more creative as a result.”

Google also has leased space in nearby Chelsea Market, which spans 9th and 10th Avenues between 15th and 16th Streets. Of that building’s 1.2 million square feet of commercial space, 780,000 square feet is leased to technology and media companies like Scripps Networks (which owns the Food Network) and Yext, an Internet marketing company, said Michael Phillips, a managing director of Jamestown Properties, which owns the building.

“I don’t think Midtown has inventory that’s interesting the way this is interesting,” Mr. Phillips said. “And I think the public amenities are almost incomparable,” he added, referring to Hudson River Park, the High Line, Chelsea Piers and the concourse of Chelsea Market.

Many companies have chosen Silicon Alley to be close to similar companies, which might be their clients, their suppliers, their competitors or a source of new hires. Mr. Dunn of Bonobos, for example, hired his vice president of merchandising from J. Crew, which is at 770 Broadway at East Ninth Street, and his vice president of marketing from the Gilt Groupe, at 2 Park Avenue, between 32nd and 33rd Streets, both nearby.

For Google, on the other hand, the proximity has not been that important.

“From a recruiting point of view, a lot of those connections get made virtually,” Mr. Nevill-Manning said. “They know where to find us online.”

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Silicon Valley Hiring Perks: Meals, iPads and a Cubicle for Spot

The company, a service to turn cellphones into credit card readers, lured Mr. Firestone from Apple partly with an unusual pitch: it promised to give him weekly lessons about starting his own business someday, including how to find venture capitalists to finance it.

Mr. Firestone, a 28-year-old software engineer, said he could try to get financing for a start-up from venture capital firms now, “but I feel like I’d be having a hard time. Here you get to learn.”

Computer whiz kids have long been prize hires in Silicon Valley. But these days tech companies are dreaming up new perks and incentives as the industry wages its fiercest war for talent in more than a decade.

Free meals, shuttle buses and stock options are de rigueur. So the game maker Zynga dangles free haircuts and iPads to recruits, who are also told that they can bring their dogs to work. Path, a photo-sharing site, moved its offices so it could offer sweeping views of the San Francisco Bay. At Instagram, another photo-sharing start-up, workers take personal food and drink orders from employees, fill them at Costco and keep the supplies on hand for lunches and snacks.

Then there are salaries. Google is paying computer science majors just out of college $90,000 to $105,000, as much as $20,000 more than it was paying a few months ago. That is so far above the industry average of $80,000 that start-ups cannot match Google salaries. Google declined to comment.

Two executives at a small start-up who spoke on the condition of anonymity said it recently lost an intern when one of the biggest start-ups offered the candidate a 40 percent bump in stock options, potentially worth hundreds of thousands of dollars — but only if the candidate accepted the job before hanging up the phone.

“The atmosphere is brutally competitive,” said Keith Rabois, a Silicon Valley veteran and chief operating officer at Square, where Mr. Firestone works. “Recruiting in Silicon Valley is more competitive and intense and furious than college football recruiting of high school athletes.”

As the rest of the country fights stubbornly high unemployment, the shortage of qualified engineers has grown acute in the last six months, tech executives and recruiters say, as the flow of personal or venture capital investing has picked up. In Silicon Valley, along the southern portion of the San Francisco Bay in California, and other tech hubs like New York, Seattle and Austin, Tex., start-ups are sprouting by the dozen, competing with well-established companies for the best engineers, programmers and designers. At the same time, all the companies are seeking ever more specialized skills.

And there has been a psychological shift; many of the most talented engineers want to be the next Mark Zuckerberg, not work for him.

Shannon Callahan, who recruits engineers for the venture capital firm Andreessen Horowitz’s portfolio of companies, said a third of the engineers she called ask for financing to start their own companies instead.

“They have that entrepreneurial spirit and you want to talk to them because you know they’d do great in a small environment working a million hours a week, but those folks are saying, ‘Actually, I think I want to do my own thing,’ ” she said.

In an only-in-Silicon-Valley twist, start-ups are acknowledging this phenomenon by recruiting ambitious engineers with promises to help them to leave someday to start their own, potentially competitive companies.

“It’s less about us competing against start-ups and more against the person who wants to start their own thing,” said Dave Morin, co-founder and chief executive of Path. Mr. Morin, an early Facebook employee, knows the type because he was one of them. He tells recruits that he will help them start their own companies down the road, by advising or investing in them.

Redfin, an online real estate brokerage in Seattle, sets up one-on-one meetings between recruits and venture capitalists on its board to talk about starting their own companies, and runs twice-monthly classes on entrepreneurship — a perk that Redfin says has helped attract and retain recruits.

“It helps people stay but also helps them to go,” said Glenn Kelman, Redfin’s chief executive.

At Square, the co-founder and chief executive, Jack Dorsey, who also co-founded Twitter, gives employees 20-minute lessons on topics like how to raise venture capital. Every employee can view Square’s product plans and financials to learn about building a business.

Nationwide unemployment among computer scientists and programmers is higher than in other white-collar professions — around 5 percent — in part because many jobs have vanished overseas. But even with a glut of engineers on the job market, few have the skills that tech companies look for, said Cadir Lee, chief technology officer at Zynga.

Colleges rarely teach the newer programming languages like PHP, Ruby and Python, which have become more popular at young Web companies than older ones like Java, he said. Other skills, like working with large amounts of data and analytics, can be acquired only at a few companies.

“There are few programs that actually teach those things, and yet that’s the primary people we hire,” Mr. Lee said.

Tech recruiters have also expanded their searches. They still scout college campuses, particularly Stanford’s computer science department, where this year it was common for seniors to receive half a dozen offers by the end of first semester. But since college degrees are not mandatory, recruiters are also going to computer coding competitions and parties, in search of talent that is reminiscent of the dot-com mania.

The push to impress recruits was fully evident at the dozens of parties hosted by tech companies at the South by Southwest festival in Austin, Tex., this month, where start-ups tried to one-up each other with free beer, sushi, cocktails, ice sculptures, costumed acrobats and big-name bands and D.J.’s.

SimpleGeo, which makes tools for smartphones, was co-host at a dance party at the festival. Jay Adelson, chief executive of the company, explained that the festival was an ideal place to find talented engineers.

“The message being sent is that this is a cool, cool place to work,” Mr. Adelson said. “That matters when you are a young, hipster developer.”

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