Silicon Valley in the Heart of New York
BY suzanne mcgee
Their offices look like artists’ studios; they talk about the crucial role played by design and creativity in what they do. But they aren’t creating paintings to display in a trendy Chelsea gallery, designing one-of-a-kind hand-carved furniture, or even sketching the patterns for a hot new couture collection. They are the next generation of technology entrepreneurs, who have taken root in the loftlike buildings of the Flatiron district where those artisans once flourished, and who often see themselves as carrying on the neighborhood’s traditions in entirely new, digital ways.
“I’ve met a lot of these people who will describe themselves as makers of things, rather than as entrepreneurs,” explains venture investor Fred Destin of Atlas Venture. “They draw from architecture and crafts to create, to design computer code that solves a problem very elegantly.”
Destin is explaining his view of the Flatiron start-up scene in between bites of mushroom risotto at Trallucci E Vino, the 18th Street eatery that serves the same role for venture capitalists, angel investors, and start-up company executives that the famous Buck’s does for their Silicon Valley counterparts in California. While start-ups in the Bay Area, running from San Francisco through Palo Alto and on down to San Jose, historically have created developing technology platforms, such as personal computers, networking technologies, and Internet communications, the Silicon Alley/Flatiron scene, say the venture investors who have backed companies in both entrepreneurial hubs, is about fusing that technological backbone with the creativity that New York is famous for in media, fashion, retail, design, and other fields. The output of these ventures may not be as tangible as, say, the antique tin ceiling panels (some of them hand-painted with still lifes) that can be found at the two Flatiron-area outlets of Olde Good Things, the furniture carefully designed to look like the work of 19th-century artisans available from Restoration Hardware’s Flatiron branch, or the artisanal cheeses that can be snapped up at Beecher’s Handmade Cheese, a division of the Seattle company that has set up shop on Broadway, just across the street from where Lord & Taylor was based from 1870 until it moved to Fifth Avenue more than four decades later.
During the late 19th and early 20th century, says local historian Jack Taylor, the Flatiron area first acquired the reputation of being a neighborhood in which craftspeople of many kinds toiled. Most significant were those who served the fashion industry; during the 19th and early 20th century, the area roughly between Union Square and the Flatiron Building and along 23rd Street was known as the “Ladies’ Mile District,” and the surviving Gilded Age buildings that once housed department stores, embroidery workshops, corset makers, and myriad other businesses whose fortunes were tied to the fashion industry are now occupied by today’s digital startups. Taylor, one of the organizers of the effort that culminated in the area being officially landmarked as the Ladies’ Mile in 1989, points out that Tiffany & Co. once had a store on Union Square, just as the noted silversmith Gorham had its main retail outlet on the corner of Broadway and 19th Street. “Most of the buildings in the district were home to craftspeople, the majority of them associated with the fashion business, although there were some workshops selling architectural elements as well,” Taylor says.
Close to a century has passed since the heyday of the first crafts boom in the Flatiron district began to draw to a close, as the fashion industry and its related businesses drifted uptown. While nearly all area buildings now house newish restaurants, boutiques, or well-known retailers, a handful of other-era shops and businesses survive. There’s a small industrial model-making business on 22nd Street, and one or two diecutting operations still retain a toehold in the area, as well as the coffee shop Eisenberg’s on Fifth Avenue, where the vibe hasn’t changed much since the 1930s. It’s now a regular stop for area techies.
Some 21st-century start-ups are an uncanny echo of the neighborhood’s roots as the center of New York’s fashion scene. Moda Operandi, the year-old business launched by fashionistas Aslaug Magnusdottir (who has worked with retailing giant Marvin Traub and is a former Gilt Groupe exec) and Lauren Santo Domingo (a contributing editor at Vogue) started their new venture at 19th Street and Fifth Avenue, before moving toward the Flatiron’s outer fringes, at Madison and 28th Street, late last year. Their goal? To use the Internet to connect today’s fashionistas with their most coveted runway looks from established designers as well as newcomers. “Coming up with new and compelling ways to sell fashion has been a challenge, but this solves a real yearning on the part of fashion-conscious consumers who appreciate quality and having access to special pieces,” Magnusdottir explains. Moda Operandi’s 100,000-plus members can scrutinize new designer looks and order what strikes their fancy— including looks that boutique buyers might not stock for many months (in mid-January, garments on offer on the site belonged to pre-fall collections and were scheduled for delivery between May and September). It’s aimed squarely at shoppers who know their fashion and want to be the first to unveil a look before it becomes a hot new trend.
Before Moda Operandi came along, says Magnusdottir, investors were being pitched variants on the Gilt Groupe discounting model “almost daily, certainly weekly.” They reacted with enthusiasm to Magnusdottir and Santo Domingo’s new approach to fashion retailing. A second round of financing completed in summer 2011 saw Condé Nast and merchant bank Allen & Co. join early investors such as venture firm New Atlantic Ventures.
One aspect that appeals to those investors is that, unlike the retailers who once set up shop along Ladies’ Mile—or today’s traditionally run department stores—Magnusdottir’s business model doesn’t require her to maintain an inventory. Professional photographs of models in various looks are posted online in Moda Operandi’s virtual trunk shows. Customers then place their orders at the designer’s retail price while putting 50 percent down. They pay the remaining 50 percent when the order is shipped. “Of course, some customers still want to go into stores and touch and feel a garment before buying,” says Magnusdottir. “But for a cash-strapped young designer, this is a great way to use technology to get access to a group of enthusiastic customers; to showcase brands that are doing something distinctive.”
Many of the Flatiron district’s modern-day start-ups see themselves as creating a service or product that has a customized feel—one of the key hallmarks of an artisan. That’s certainly how Mike Horn views his latest entrepreneurial venture, which provides coffee addicts with an experience that is almost like wine tasting. Every month Craft Coffee subscribers across the United States and as far afield as Japan get a box containing three sealed and carefully packaged packets, each providing them with a small sample of gourmet coffee beans from different regions of the world and from different roasters. Each packet—which contains enough roasted beans to make about a half dozen cups of coffee—is labeled with the coffee’s origin, the name of the roaster, the variety of beans, how high above sea level it’s grown and by whom, whether or not it’s sun dried, and what it tastes like. (One Kenyan coffee that went out in the December batch boasts “a heavy, syrupy body and flavors of brown sugar and crème brûlée” that “gives way to nectarine acidity and a clean, dry grapefruit finish.”)
“Entrepreneurship today is product-driven,” Horn, a former Wall Street lawyer, argues. He taught himself to code—a skill he describes as a 21stcentury craft—because he realized that in order to start a technology-based business he needed to learn how to build websites. “What is happening in Silicon Alley today is a flowering of a ‘maker’ culture; like a lot of other New York entrepreneurs, I have had to transform myself from a business guy to a maker.” All that distinguishes him from some of the former occupants of the Flatiron district, he says, is that what he happens to be “making” is a digital product. Even then, he points out, the raison d’être of Craft Coffee is to link the artisans who create or process the coffee and the customer who consumes it. “I’ve always been a foodie, and fascinated by people who are artisans when it comes to creating produce from the land, who have the kind of focus and dedication it requires to do this.”
Horn’s “office” is located in a few dozen square feet of space within the precincts of General Assembly, a business incubator of sorts founded one year ago by a group of young entrepreneurs whose goal is to provide a community for the next generation of start-ups. Their Broadway headquarters is a stone’s throw from the old Lord & Taylor building and other landmarked structures, but the vibe indoors couldn’t be more 21st century. Apple computers, iPads, and smartphones abound; Web designers put their heads together in a corner to try to solve a thorny technical challenge common to each of their businesses; on another table, a woman is using a sketch pad and pencil to refine the design of a new product.
“What is special about GA is that it provides for the combination of formal and informal collaboration—serendipitous encounters between people who then decide to start a company together, or who attend a hack-a-thon event that we sponsor and decide to build an app together,” says GA cofounder Adam Pritzker. The products they devise may not be as tangible as, say, a lace blouse would have been more than a century ago, but the process that leads to these ephemeral products is equally creative, and these modern-day artisans are creating something of value, Pritzker argues.
This isn’t the first time that the Flatiron district has been a hub of technological innovation, although when the first generation of start-ups launched (remember kozmo.com?), Pritzker and many of those who call General Assembly home today were still in high school. In the late 1990s, a handful of early East Coast venture investors, including Fred Wilson (then of Flatiron Partners, today a partner at Union Square Ventures), set up shop in the neighborhood, attracted by the non- Wall Street vibe, the (relatively) affordable rents, and the proximity to garage start-ups in Lower Manhattan and Brooklyn. Many of those firstgeneration companies didn’t survive the dot-com shakeout, however, and it’s the second generation of start-ups, with their overwhelming focus on design, that may well consolidate the area’s reputation for innovation. “It’s the start-up ghetto of New York, and what distinguishes these start-ups from those anywhere else is that their creators really feel like creators or even artists,” says Rick Heitzmann, founder and managing director of FirstMark Capital, who has been investing in New York-area start-ups since 1999. “They might not be into woodworking, but there is a real spirit of design, which is important because users are demanding more than just a utilitarian look for the websites they visit and the products they buy.” Perhaps it’s not a coincidence that, as Heitzmann points out, the New Yorkbased Apple designers have chosen to base themselves in the Flatiron district, in offices on Fifth Avenue. “After all, it was Apple that first proved the crucial role of design.”
Few start-ups that take up residence in the Flatiron district know about the area’s past. “I wasn’t all that familiar with the history,” says Vinicius Vacanti, cofounder of Yipit, a company that compiles personalized lists of “daily deals” for its subscribers in more than more than 100 cities across the country. But some of the elements that made this a hub of artisan activity more than a century ago were the same ones that drove Vacanti’s decision to remain in the area when Yipit moved out of General Assembly’s building and into its own office space at Fifth Avenue and 18th Street, right above City Bakery. “We wanted a big open space, with tall ceilings and lots of windows,” Vacanti says—the same working conditions sought after by craftspeople are those appreciated by programmers and web designers. Above all, Vacanti says, he wanted to stay close to the Flatiron district rather than drift toward Midtown, which he sees as the stultifying home to Big Business. That neighborhood is fine for an investment banker catching a train from Westchester or Connecticut and walking to work from Grand Central; Vacanti points out that the Flatiron district is ideal for the younger crowd who work for the next-generation start-ups and who commute from across Manhattan and various parts of Brooklyn. “Also, there’s a whole group of other companies that are trying to be creative in a digital sense, by using creativity to solve problems that users have,” he adds. What sets New York apart from other hubs of start-up activity, Vacanti says, is the sheer variety of problems these digital artisans can tackle. “In Silicon Valley the problems are technology problems; here, the problems are retailing problems, designer problems, media problems.”
While Silicon Alley may never come close to displacing Silicon Valley as the leading destination for start-up funding, it’s nipping at the heels of archrival Boston. According to data released in late January by the National Venture Capital Association and PricewaterhouseCoopers, the rate of growth in New York’s Silicon Alley was significantly higher than that seen in either of its rivals. Its start-ups pulled in $2.7 billion of venture financing in 2011, up from $2 billion in 2010.
Indeed, the range of Flatiron-based start-ups making presentations to the crowd at New York University’s Skirball Center for the monthly, standing-room-only New York Tech “Meetup” is eclectic. “Only in New York…” says Nate Westheimer, introducing ObscuraCam, a venture backed by the human rights organization Witness and Flatiron-based The Guardian Project, a mobile phone privacy advocacy group. The venture is still in its infancy, and the sponsors hope to perfect an application enabling anyone from human rights activists in Syria and “Occupy” protestors in the US to drunken revelers at college fraternity parties to obscure the identities of bystanders and even remove any evidence that a particular camera took a picture.
“This is a quintessential New York project, that happens because of the kind of city it is, where a human rights organization can talk to hundreds of technology experts at once, and get dozens of offers of programming help the next day to help get it to the next stage,” says Witness project lead Bryan Nunez. “That’s what creativity and artistry means in this generation—the ability to reach across disciplines to craft something truly distinctive.”
PHOTOGRAPHY BY sari goodfriend; Frank Whitney/Getty Images (opener)
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