Flatiron Moves In With Morgan Partners

In an effort to lower its overhead costs, New York-based venture capital firm Flatiron Partners is preparing to move into JP Morgan Partners’ Midtown Manhattan office space later this summer. The move is a bit of a homecoming for five-year-old Flatiron, which was originally housed at Chase Capital Partners’ former 380 Madison Avenue address.

“We originally moved out because we couldn’t squeeze more than four people into an office in the Chase space,” said Jerry Colonna, a managing partner with Flatiron. “Moving back in will save us on rent, and it will be much easier for us to coordinate our [co-investing] activities with [JP Morgan].”

The issue of co-investing with Morgan – which currently serves as Flatiron’s sole limited partner – is an interesting one, as rumors have been circulating over the past month that Flatiron was looking to seek funding from a diverse group of institutional sources. For his part, Colonna dismissed such speculation by saying that the idea had been considered but swiftly rejected. He added that the firm’s $500 million Flatiron Fund 2000 is only about 50% committed, and that there have yet to be discussions with JP Morgan Partners regarding future funding agreements.

Stephen Murray, a general partner with JP Morgan Partners, said that his firm has always maintained its willingness to provide capital to Flatiron, so long as certain risk-versus-return criteria were met. When asked if Flatiron – which has suffered through a number of Internet-specific casualties over the past year – currently measured up, Murray replied affirmatively.

As for why JP Morgan was interested in bringing Flatiron back within its walls, the driving force may have been that the I-banking investment arm can lower the management fee it pays Flatiron by deducting external rent expenses.

“Our economic arrangement has always [provided incentives] for Flatiron to manage their costs well, and this plays into that,” Murray said. He added that he understood some entrepreneurs might see the move as a sign of weakness on the part of Flatiron, but said the truth of the situation is that the firm is simply aligning itself more closely with its limited partner.

The actual transition is not expected to commence until June, and the entire process may not be finished until the end of the summer. Flatiron is not expected to cut any of its investment staff, although some redundant back-office positions may be eliminated.

Flatiron Partners was launched in 1996 as a joint venture between Chase Capital Partners and Softbank.