Aliso Viejo-based Enfrastructure Inc., which is readying for the move-in of the first company to its high-tech campus later this month, has landed $100 million in new funding from AT & T; Corp., Avaya Inc. and other corporate backers, according to co-founder Scott Blum.
The investment is in addition to $100 million that Enfrastructure said it received last September from IBM Corp., Microsoft Corp. and others.
“We’ve received the cash, but we haven’t put a press release out yet,” said Blum of the new funding. “That’s an additional $100 million for the company.”
Along with AT & T; and Avaya, a spin-off of Lucent Technologies Inc. and a prior Enfrastructure investor, other new backers include a bank and a real estate fund that Blum declined to name. He also wouldn’t say how much AT & T; is putting into Enfrastructure, though Avaya is investing $15 million, he said. During a recent tour of Enfrastructure’s flagship four-story building at the Summit Office Campus, the outside of the building and landscaping was completed. But inside, workers were scurrying about, putting in walls, connecting wiring and moving mounds of dirt.
Each of the three main floors is projected to house 10 to 12 companies and some 200 employees. The bottom floor is set to house a cafeteria, a gym, offices for IBM, Microsoft and other backers, and possibly even a bank. In a nearby building is a data processing center, which looked nearly complete, except for installation of the machinery. Thus far, about $20 million has been spent on the campus.
Enfrastructure is looking to create a network of campus-like facilities for companies to set up shop in. The sites call for Internet-connected offices, personal computers and Web servers from IBM, software and services from Microsoft and tax and accounting services from Arthur Andersen.
The 150,000-square-foot Aliso Viejo campus originally was set to open Dec. 15. But the first tenant isn’t set to move in until Jan. 23 because of construction delays. Enfrastructure chief information officer David Watson, who is in charge of setting up the facility, declined to identify the tenant, saying the client hadn’t yet informed its current landlord about its plans to move.
Enfrastructure officials also declined to reveal the names of any of the 25 companies it says have signed up to move into the Aliso Viejo facility, citing confidentiality agreements. At least 10 companies from Blum’s Think Tank LLC incubator, located a few blocks away, will be housed at Enfrastructure. But company officials couldn’t say if those 10 are in addition to the 25 companies or are part of the group.
Enfrastructure is the latest venture for Blum, a 36-year-old technology veteran with a string of entrepreneurial hits and misses on his record. In 1999, he began Aliso Viejo-based Think Tank, which houses InternetMotors, eJets.com and other startups.
Blum is best known for founding buy.com Inc., which has grown to become one of the nation’s largest online retailers. But the Aliso Viejo-based company is a Wall Street dog, falling from around 35 after its initial public offering early last year to pennies today. Like other online retailers, buy.com is looking to turn profitable before it runs out of cash.
In the 1980s, Blum also founded OC memory maker Microbanks Unlimited and Pinnacle Micro Inc., now based in Rancho Santa Margarita. Accounting practices at Pinnacle Micro brought a shareholder suit and Securities and Exchange Commission scrutiny. In 1996, Blum settled with the SEC without admitting wrongdoing.
Even with its high-profile backing, Enfrastructure faces challenges. The market for incubators is all but dead. And while Enfrastructure doesn’t bill itself as an incubator, it could feel the fallout from the sector’s downturn.
Once hot incubators Internet Capital Group Inc., CMGI Inc. and Safeguard Scientifics Inc. have seen their stocks collapse in recent months along with the market for Internet companies and technology public offerings. In October, Pasadena-based Idealab! canceled plans for an IPO.
Enfrastructure is different than an incubator because it charges companies low rates for services and takes small equity positions in the form of warrants, not in stock, Blum said. Enfrastructure is not looking for startups, he said.
“We’re looking for companies that have been well financed and are on the road to IPOs,companies that are past the incubation stage,” he said.
But there are skeptics who doubt whether such companies would want to give up a percentage of their business for lower-cost office space and services. Venture capitalists don’t value a company based on whether it obtains space at a bargain price, they say.
Pressure for Enfrastructure to prove itself is part of the deal, Blum said.
“I feel pressure on every company we start,” Blum said. “I don’t care if it’s buy.com or InternetMotors. If you don’t feel that pressure, there is something wrong with you. There’s no more pressure at Enfrastructure than at any of the other 10 companies.”
But Enfrastructure is the one with big backers behind it. IBM, Microsoft, Avaya and Arthur Andersen have invested in other incubator-type firms, seeing it as a way to get in on the ground floor with startups. Blum said most of the original $100 million investment was cash.
“If it didn’t get any cash, we couldn’t build any campuses, because this is a cash-intensive business,” he said. “You cannot do it with smoke and mirrors. Most of it was cash and there was some credit.”
Enfrastructure originally said it would open at least three other campuses in New York, Colorado and Northern California in the first quarter of this year. Company President James Watson, a former Koll Development Co. president, said he had expected to finalize the real estate locations for these campuses by mid-November. Blum said the real estate deals were still pending.
Cost could slow plans for 25 worldwide campuses. Even with new funding, Enfrastructure may have to raise more money to keep expanding. Blum said he has been talking to “major investments groups” from Europe for additional backing.
Blum said he sees Enfrastructure going a little bit slower than previously planned, opening one campus a quarter.
“This campus has taken a little bit longer than we expected,” said Blum, who often shifts pronouns from we to they when talking about Enfrastructure. “They’re cutting their teeth right now. This is the first campus that they are opening up. They’ll be cookie cutters from now on. When they go to campus No. 2, No. 3 and No. 4, it should be a lot easier. All of them will admit it’s been a learning experience for them.” n
