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From...

The new boys network

June 16, 1998
Web posted at: 4:00 p.m. EDT

by Jason Chervokas

(IDG) -- Just 20 miles north of Manhattan, in suburban Tarrytown, N.Y., there's a par-three hole on the back nine at Sleepy Hollow Country Club. Standing on the 16th tee, taking in the sweeping view of the rocky bluffs of the Hudson River, it's easy to imagine you're the master of all you survey.

It's the kind of place where, after 15 holes of schmoozing, you can shake hands on a business deal. It's here that Gerry Roche, chairman of the giant international recruitment firm Heidrick & Struggles, entertains top executives. The clientele is exclusive, macho, very white, predominantly middle-age and dripping with money and power.

These are the stomping grounds of New York's old boys network, an empire of feudal hierarchies, pregnant gestures, rigid caste lines and unspoken rules where who you went to school with and where you spend your weekends still counts for a lot.

The scene is a little different at Coffee Shop, the trendy downtown eatery. Forget sweeping panoramas; the view from the glorified diner banquettes is of dog walkers scooping poop in Union Square Park. And while the scene inside can be glamorous - a row of fashion models at the bar - you are likely to find new-media types like Lara Stein, the former Microsoft staffer who now runs IXL New York, and Steve Baum, of Micro Interactive, enjoying afternoon risotto.

Just as the rise of the Internet has forced people like Advance Publications founder S.I. Newhouse and Time Warner chairman Gerald Levin to learn how to pronounce "URL," the rise of the Silicon Alley new-media community has resulted in the creation of an entirely new New York business structure - a new boys network through which companies form, contacts meet, investments fiow and deals happen.

Like everything else in the Internet age, this network came together through a mixture of happy accidents and canny planning by organizations like the New York New Media Association.

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"A couple of years ago it was much more of a challenge to get to people," says Seth Goldstein, who last year sold his first interactive marketing start-up, SiteSpecific, to CKS for $6 million. This year, at the tender age of 27, Goldstein left CKS to found a new start-up. "I'm now in a position where I can get phone calls returned and e-mails returned," he says.

Underpinning it all was a belief that this new boys network would be different from the old one - race and gender-neutral, open, agile. And that has happened - to a degree.

But in many ways this new network remains as cliquish, as male, as white and as Ivy League as the old boys network its members seek to replace.

There are young guns like Goldstein, the money circle dominated by venture firm Flatiron Partners, and the old cable honchos like Scott Kurnit, seeking the next big thing.

"It's like hitting your head against the wall trying to break into this clique," says Don Rojas, a veteran journalist who publishes the Black World Today, an ambitious Internet Web venture devoted to reporting news from the African diaspora. "We were part of the NYNMA Angels screening process [to get funding from angel investors ], and we did our little dog-and-pony show," says Rojas. "The first question to us was, 'Why don't you go to black celebrities who have money?' We didn't get into a polemic with them, but we were a little put off."

At the heart of the network is the entrepreneur. Because new-media companies in New York live and die so quickly, you're judged not so much by the success of your last venture, but by how much notoriety you get before you flame out, sell out or just plain move on.

Take the case of Seth Goldstein. When he made it official last month that he was leaving CKS to launch a new start-up, it had been one of the worst-kept secrets in Silicon Alley. For several weeks, Goldstein had been out making the rounds with a PowerPoint slideshow, looking for money and support, pumping up his new idea for a kind of digital information concierge service for wired professionals. In the small world of New York's new boys network, everyone knew what he was up to.

A short, quiet young man who speaks in broad concepts, Goldstein became the talk of the town two years ago, when The Wall Street Journal profiled his first company, SiteSpecific. The story detailed the clash of cultures between Goldstein's crew of twenty-something Web heads and the honchos at Harte-Hanks Communications, the direct marketing company that had invested a little less than $1 million in the company in 1996 after SiteSpecific won a contract to create a Web site for Duracell.

In those days, Goldstein was cocky. He included a note in his pitch documents to potential investors saying he had been fired from his previous job, at Conde Nast's Internet division, for using the CondeNet offices after hours to work on his Duracell pitch with a bunch of freelancers. After getting funding, he spent Harte-Hanks' money on expensive, ergonomically correct office chairs, even though SiteSpecific lost $300,000 on less than $2 million in revenue.

Such breaches of decorum, security and corporate duty could have meant the end of a career in the old boys network. But not in the new boys network. For Goldstein, Conde Nast and SiteSpecific were just two stepping stones in a rapid advance from freelance schlub to infiuential player - a chain that also included stints with Agency.com and Wolff New Media.

Last year Goldstein sold SiteSpecific to CKS Group in a stock swap then valued at $6 million. While laboring at CKS New York, he began laying the groundwork for Root, his new start-up, in much the same way he planned out SiteSpecific's Duracell site while working at CondeNet.

"That was to me like sorting mail at William Morris," Goldstein says of his dizzying spiral of contacts, but it's a typical Silicon Alley story. "Once you were just interacting with your freelance job," he says. "Three years later you're tapping into this network."

In fact, the regular chain of New York launch parties, discussion salons and networking cocktail events are the primary ways contacts are made and nurtured in the new boys network. Previously, only higher-ups did deals, but the new network has created a diverse mix of power. "Our industry parties brought together people who [then] did their own business deals," says Goldstein.

In fact, it was at one beery SiteSpecific office party that the deal with Harte-Hanks got started. An investment banker from Goldman Sachs came to the event and went home with a tip for Harte-Hanks. A little more than a year later, Goldstein sold to CKS, which is now a minority investor in Goldstein's new venture.

Today, as Goldstein hunts for other partners, the contacts he made seem perfect. And their shared history means Goldstein can trust his old friends, he says.

The second-biggest factor hastening the growth of the new boys network is the rise of professional new-media investors in New York, venture capitalists who trade on "synergy" - promoting a network of relationships across companies in their investment portfolio. Among Silicon Alley's investors, all roads run through Fred Wilson and Jerry Colonna.

The duo founded Flatiron Partners, a venture fund financed by Chase Capital Partners, Softbank and private investors. It focuses on pumping money into early-stage Internet companies, particularly those on the East Coast and especially those in New York.

"Among the investors, there definitely is a new boys network," says Colonna, who left a job at high-tech publisher CMP Media to become a VC first at CMG@ventures and now at Flatiron. "Every boom creates its own investors."

The idea of building an Internet-centric, geographically targeted investment fund in New York was more than a little screwy back in 1996, when Colonna and Wilson opened their doors. "In Silicon Valley, there's this culture that exists that companies beget companies, management teams beget management teams," says Wilson, a former partner at Euclid Partners. Not in New York, where money flows like water through timeworn channels in the city's economic crust. "The venture funds that existed in New York in the 1970s and 1980s were not the right firms to service Silicon Alley," says Wilson. "They were basically buyout shops."

Wilson and Colonna have worked hard to insinuate themselves into the middle of Silicon Alley, fielding calls and answering questions for entrepreneurs they don't intend to fund, essentially making their office seem like a casting agency on the day of an open call.

Of course, it helps to have $50 million from Softbank and access to its keiretsu of companies. One Flatiron investment, StarMedia, cut a deal with Softbank's Ziff-Davis to create a Latin American computer news Web site.

Although Flatiron's biggest portfolio success thus far is GeoCities - a West Coast company readying an IPO - the firm has spawned a spate of competitors in New York's money establishment.

Last year, investment bank Bear Stearns launched Constellation Ventures, headed by Cliff Friedman, a former Universal Studios and NBC executive. Robert Lessin, former vice chairman of Salomon Smith Barney, announced that he's planning to launch the Dawntreader fund. Both funds are focused on Internet start-ups in the New York area.

The New York New Media Association's Angel Investors Program, meanwhile, puts entrepreneurs in front of investors assembled by NYNMA cofounder Brian Horey, Lessin, Ed Horowitz of Citibank and Esther Dyson. Several companies, including Site Bridge and a company called Sunshine Interactive Media that publishes a cheesy Web site called Bikini.com, have been funded through the program.

Flatiron may be new, but its investors aren't necessarily the nouveau riche. The company recently cut a deal bridging New York's new boys and old boys networks. Flatiron will offer The New York City Investment Fund a chance to buy a small piece of its investments in Internet companies.

NYCIF, a fund headed by leveraged buyout specialist Henry Kravis and created under the auspices of the New York City Partnership and Chamber of Commerce, has put aside a small percentage of its total capitalization for these early-stage Internet investments.

"David Rockefeller is 82 years old," says Wilson of one of the NYCIF's key investors, who recently took a stake in StarMedia through Flatiron. "There's no way he could find that."

Ask who's got the best network of contacts in Silicon Alley, and many people point to cable TV veteran and Mining Company honcho Scott Kurnit. "We haven't invested in the Mining Company, but I want to be friends with Scott because he knows a lot of people," says Flatiron's Fred Wilson.

Kurnit, a tall and balding man with a walrus mustache, is a ubiquitous presence in Silicon Alley. In a scene dominated by twenty-somethings with limited work experience, Kurnit stands out as being particularly well-seasoned. He's an Emmy award-winning television producer who spent 14 years shepherding the cable television explosion at Warner Communications and Viacom, and decided he wanted to try something new.

"The best lesson I learned at Viacom was the value we had in I Love Lucy," says Kurnit. "The residual benefit of intellectual property is something media companies understand. What they don't understand is there's no distribution lock on the Internet."

Kurnit's general belief is that the new boys network isn't really very different from the old boys network. In fact, he thinks the two groups are drawing closer together. And he consistently plays his contacts from both worlds to his advantage.

Kurnit took his well-cultivated television executive patois to Prodigy, dragging a list of big-media contacts into New York's then-nascent new-media industry - contacts like Ed Horowitz, onetime chairman and CEO of Viacom Interactive Media, now the head of Citibank's online initiatives.

In fact, if Kurnit is the most connected new media executive in New York, then former Prodigy CEO Ed Bennett may be second. Another Viacom veteran, he's now touting his own start-up, My-CD.

Kurnit jumped ship from Prodigy in 1996 to run MCI and News Corp.'s Internet joint venture, IGuide. Despite the less than-stellar track record of both Prodigy and IGuide, he built heavily on his experiences at the companies in making plans to launch The Mining Company.

It should come as no surprise that most of the deals he's cut for the venture have come through Kurnit's connections with cable TV cronies.

For example, when The Mining Company cut its biggest deal to date, providing Web content and community sites to Citibank's customer service Web sites, the deal bowed along Viacom-Prodigy lines.

Citibank's two online chiefs are Horowitz and Josh Grotstein, who had worked at CNBC's America's Talking while Kurnit was at Prodigy putting CNBC online. After Kurnit left, Grotstein came aboard Prodigy before moving on to Citibank.

"Having worked with somebody means you can talk shorthand," says Kurnit. And the small size of the new-media industry - it's really only a fraction of New York's enormous media machinery - means people get to know one another quickly.

"You do definitely get introduced to people," Kurnit says. "I hadn't met Bob Lessin until a few months ago. He said, 'Oh, I don't need to see your business plan. I know what you do.'"

Clearly, cultural differences exist between the brash new-media upstarts and their executive counterparts. While the new boys network may act younger and hipper than its predecessor, the players do share striking similarities.

At the same New York New Media Association angel investor presentation that Don Rojas pitched the Black World Today, Bikini.com made its request for funding. Rojas didn't get any money. Bikini.com did.

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