Accidental VC, Hiring & Talent

Accidental VC: When, Exactly, Should Seed-Stage Startups Look for Office Space?

Accidental VC is a series of short posts written by me, Jay Acunzo. Though I never planned it, I somehow wound up working in VC as NextView’s VP of platform. As an operator, not an investor, I’m amazed at how many casual, throwaway comments that happen inside a VC’s office would be genuinely useful to entrepreneurs building their businesses. So this series is my attempt to share that knowledge beyond our walls … one overheard lesson at a time.

Let me rip the bandaid right away: I know this isn’t exactly a sexy topic to discuss. But since almost every founder goes through this, I feel it’s a necessary one.

So, when should a seed-stage founder — who, let’s face it, isn’t launching a business because they’re pumped to find corporate real estate — actually start looking for a legitimate office?

Answer: Much sooner than you’d think.

This was the subject of a recent conversation had at NextView HQ, so I wanted to share our conclusions publicly. (The water-cooler discussion included both VCs and entrepreneurs.)

For context, the reason a startup would look for an official office runs the gamut, from expanding headcount to serving enterprise clients and thus needing a decent space to wearing out your welcome at a shared spot and more. And while today’s world offers workers all kinds of tools and tech and services to work either remotely or as part of a larger co-working space, the fact remains that most startup teams still commute to the same location every day — a location for which their employer pays.

In keeping with the theme of Accidental VC columns, let’s keep this short and sweet:

1. You should start the process of lightly gathering data points about 6-10 months earlier than you actually need the office. Which firms or individuals can help you? Who has a good reputation? Which neighborhoods and/or buildings might make sense? What will your team growth look like if things go according to plan? Conversely, what would it look like if things go better or worse?

(A quick aside on working with brokers based on what we see at NextView: Most of our startups wind up working with the large, popular firms in town, though many start by trying to find space that’s being vacated by another startup, either due to their acquisition, closing up shop, or a move of their own. Lastly, some companies do have close ties to individuals they trust that help them search, which was the experience I had at a Series A startup a few years ago. In that situation, it was based on very strong personal relationships.)

2. You should start actively searching for space 3-4 months out. The lead time to landing your office can be surprisingly high, particularly in denser startup ecosystems like ours in Boston.

To use a concrete example, NextView moved to a new space in August of 2013. To do so, the partners started their search in earnest in March and finalized paperwork in June.

nextview-office
The entrance to NextView HQ – custom beer labels/bottles for each startup.

 

3. Know that there’s a very real impact on the company culture. This is something that some founders underestimate, so it’s worth noting here: Moving can convey a sense of the future and instill pride in a team. There’s momentum. You’re growing. You’re creating a new space (hopefully, as a team) that embodies the values and culture of the company today, while promising to house new, exciting moments in the future.

4. Keep a close eye on your financials. Obviously, an office adds to your burn, but if you can afford it, then do it. Otherwise, explore some of the alternatives mentioned above (or establish that your team will be largely distributed and bake that into how you operate and how you craft a culture).

Bottom line: Looking for office space is never the job of an entrepreneur, so the goal of this post was to help you avoid potential pain by framing the process appropriately. Start sooner than you think, and keep your financials and culture in mind.

Now then, back to your regularly scheduled programming about building meaningful businesses and talented teams to actually fill those offices.

Jay Acunzo

Jay Acunzo is an award-winning podcaster and dynamic keynote speaker. The former digital media strategist at Google and head of content marketing at HubSpot, Jay helped build NextView's platform of resources from the ground up. He now serves as the firm's Creative In Residence. His work has been cited in places ranging from Harvard Business School to the Washington Post, Fast Company, and Forbes.

  • Geoff Mamlet

    Jay, I’m glad to hear NextView thinks about how to help founders with these kinds of nuts-and-bolts issues, but I’m a little surprised at the conventional conclusion your group comes to. I fully admit to having a biased perspective but it’s one that a lot of Boston startup CEOs have seen the value of. Dealing with office space is fundamentally a value-subtracting part of building a startup and where the market offers alternatives, CEOs should consider their options carefully.

    If your startup just closed a round valuing the company at $10m (let’s keep the math easy), your investors are expecting you to turn that into a 10X within 5 years. That’s $90m of additional value creation you need to make happen in 5 years, or $18m/yr. Now, how much time is it going to take you to find office space, negotiate a lease, deal with the issues that arise, hire and supervise someone to operate the office for you, etc? From our interviews with CEOs, that’s several weeks a year of CEO time. What’s that worth? According to your investors, at 2 weeks, it’s about $700k/yr. At 4 weeks, it’s $1.4m. Seems like a pretty steep penalty! Of course, if your valuation goes up, the penalty increases too.

    The market does offer alternatives, and especially now that CIC Boston is around the corner from you, I hope more NextView CEOs consider their options.

    Geoff Mamlet
    CIC
    Impact Hub Boston
    New Atlantic Ventures

    • Thanks for the thoughtful comment, Geoff! I think those are all good points and founders should absolutely use good judgment when deciding their next step. I’d point you to the caveat I tried to use (perhaps not loudly enough) that this is painting in broad strokes — the thinking is, at SOME point, most (though not all) founders eventually do go through this, so we wanted to address questions we receive often internally.

      The reality is that most startups eventually seek out their own office space when you look across the ecosystem. That’s not to say a solution like the CIC isn’t excellent, because it is, depending of course on a company’s team size/trajectory and growth stage now and in the near future. Hope that helps address some of your concerns!

      • Geoff Mamlet

        Some of us think about these issues a lot, Jay! Glad to have others weigh in, thanks for doing that.
        So when is the right time to move out of a shared space setup into dedicated space that you manage yourself? For a fast growing company, there’s a different answer than for a slow growing company. If you’re a slow growing company, you can bite the bullet on the time/energy/expense to set up and manage your own dedicated space, and since you probably don’t have the same high “opportunity cost” as a fast growing company, you can just look at relative cost. In my experience, that’s somewhere in the 25-40 employee range when you factor in all the costs involved in running your own office (that covers much more than $/sf, BTW).
        If you’re a fast growing company, it’s a whole different ballgame. Your “opportunity cost” — what you lose out on by focusing on something that doesn’t build your business — dwarfs your other costs. You probably shouldn’t even think about this until you have an operations manager who can take this on so you don’t have to think about it. And then you still have to deal with the uncertainty that comes from your future headcount growth being unknown. At CIC, some companies have grown into the 200 person range before it’s made sense for them.
        And then there are global companies that tell us that their cost-per-employee at CIC is lower than anywhere else in the world they operate. So they’ll probably never leave. YMMV!

  • TyDanco

    Let me pile on, and agree with Geoff, but from a different point of view. For me, it is important that the company needs to see itself as thrifty and spunky. Which is why the subletting out of space at either very low prices in co-working spaces, or just low prices within a larger company that has too much space can be a powerful message to the troops, that we are a lean underdog, and every penny is going to be stretched as far as possible.

    Sharing space is always cost effective, and every early business expense you can reasonably delay should be avoided, but you DO need to understand that you will be inheriting the vibe of that other company. So, a great rent deal at a company with a whiny, loser vibe ain’t worth the cost savings.

    In Boston there are probably 30 good choices for companies under 10 people that are reachable by public transportation. Don’t get too big for your britches, especially before you can show reasonable revenue. My rule of thumb: no space needed until after A round, and no 6 figure salaries to anyone until the A round.

  • Lou Tamposi

    (Candidly, I’m a broker, who represents primarily tech and early stage tenants)

    This is a question I think about every day when I’m working with clients. And, truthfully, there is no absolute *right* answer: It really depends on your company culture, what options are available in your city, and how you approach the process.

    Jay, I absolutely agree that you need to start thinking about it WAY sooner than you think. My team typically recommends to our clients they start the very initial process between 9 and 12 months before you need to move. This allows plenty of time for a thorough search of the market, touring and viewing a short list of properties, negotiation of terms, drafting a lease, negotiating a lease, and, if necessary, the completion of the buildout and actual move. These things take time – and there are almost always hiccups along the way!

    Geoff, to your point, this time can be a real suck on the decision makers in the company. It’s tough to find 2 hours to go look at space, especially if they are places they won’t even work in the first place. Wading through Loopnet and Craigslist take time, and, especially if this is the first time a team has gone through the space finding process, you end up learning on the fly – which can extend the process and add additional costs.

    In Boston specifically, there is an influx of young companies in that 10-20 employee range, and all of them are “fighting” over the the same spaces you mneiton, Ty. I’d say, realistically, that number is even smaller when you factor in rent, condition of the space, and ability to move in immediately. And these spaces go quickly (I can think of 3 or 4 subleases in the 2,000-3,000 SF range leased almost immediately). I think that for companies of this size, the best course of action is often going into a coworking space – whether that’s the CIC, WeWork, Coalition, or any of the other great options out there.

    With all the moving pieces in the real estate hunt, I think it’s exceptionally important to have a partner that knows the market, knows what is going on, and can act as a de facto “real estate team” for small companies. They can handle the initial search, help quickly narrow that down based on a cultural fit, keep the timeline on track, and also effectively negotiate the best deal. It’s also worth noting that when you work with a tenant rep broker, you (the company) aren’t paying our fee, so there is no additional cost to working with one. (To be fair, the fee is built into your rent, so you do technically “pay” it. But you don’t automatically “free” up room in the rent by not working with a broker – happy to chat more about this, since it’s a contentious issue).

  • Alex Lassar

    Great post, Jay. Here in SF we’re feeling the same ‘crunch’ for deemed acceptable (read: cool, read: previously-occupied and ready to go, read: well located / SOMA, Mission, Potrero) spaces for growing pre-series thru post-A. I think there is a big grey area about the process and when it should start. I think that the EDUCATION should be started way, way early– what’s out there, who can help you out, etc– you’re right it’s 9+ months maybe a year if you can imagine that. I think that for engaging in the search in earnest, it’s really a push-pull between the velocity of the market, how much build you need, and how early landlords/sublandlords are marketing their spaces. The good news is that getting educated early allows a founder to move on the “right” space when it comes up. It also allows your representative to learn much more about you, your culture, etc. and proactively dig up opportunities– “make” opportunities for you, instead of having to choose what happens to be officially on the market. Your rep should know occupiers who are both coming and going, and when those leases officially expire– they have all the puzzle pieces. Chances are, there will be little time to act when the actual space need arises– especially coming out of cheaper/shared/smaller digs, so being pro-active and not just responding to listings really broadens the number of alternatives.