Enfrastructure Grabs an East Coast Presence
By ANDREW SIMONS
Aliso Viejo-based Enfrastructure Inc. is moving on a long-planned East Coast expansion with the acquisition of New York-based TechSpace Inc.
The two companies operate similar campus-like facilities in which small companies,especially technology startups,can set up shop. The new company, which will bear the Enfrastructure name, has campuses in Aliso Viejo, Boston, Toronto and two in Manhattan. Company officials wouldn’t reveal the value of the stock and cash deal.
The company plans to open sites in the South and Los Angeles within a year, company officials said.
Enfrastructure sets tenants up with just about all they need to run their businesses, from phone lines to data center services. The company has run an aggressive marketing campaign, including ads that feature several of the campus’ amenities, including a gym, bar, cafeteria, spa and sleep rooms.
“We are thrilled,” said James “Watty” Watson, who will be chief executive of the company. “We firmly believe that the acquisition of TechSpace provides a unique opportunity to accelerate the growth of (our) business.”
The move marks a positive step for Enfrastructure, which had a cool reception to its business last year. The company had earlier planned to open campuses in New York, Northern California and Colorado last year and start expanding to Europe by now.
But the company hasn’t filled its sole facility in Aliso Viejo as quickly as hoped and cut its staff of 60 in half last year as it focused on boosting occupancy. Last October, Enfrastructure officials predicted the company’s Aliso Viejo campus would be near full by last December. At that time, Enfrastructure had filled 70% of its space. It says it’s now on track to meet its goal of 90% occupancy by July.
Enfrastructure faced stiff competition for its East Coast plans from TechSpace, which had already been operating for three years when Enfrastructure opened its doors.
“We spotted TechSpace long before we started Enfrastructure as somebody who was doing something similar to what we were doing,” Watson said.
TechSpace cashed in on New York’s Internet boom, when companies were looking for swankier digs than the traditional staid office space in downtown and midtown Manhattan.
But, just as it hit Enfrastructure, the meltdown among Internet companies hit TechSpace hard. It had to close its just-opened San Francisco facility because there were few takers for office space in San Francisco’s trendy South of Market district.
“We had to pull back pretty rapidly,” said TechSpace Chief Executive Debra Larsen, who will be president of the combined company. “We closed down San Francisco because we were too late. All the companies there were very hurt by what was going on in their industries.”
Six months ago, Larsen received an e-mail from a venture capitalist friend who said she should take a look at Enfrastructure,a company she hadn’t thought of as a competitor.
“I wasn’t looking at opening a facility in Orange County,” Larsen said. “I almost ignored the e-mail since I had received a lot of pitches from other companies.”
But Larsen contacted Watson anyway and began discussing the possibility of a deal. The two signed the papers a week ago.
One thing Watson and Larsen plan to work on is Enfrastructure’s “incubator” image: they hate it.
Incubators such as Pasadena-based Idealab invest in and grow the companies on their campuses. Once a hot business model, incubators have flopped with the tech downturn.
Enfrastructure officials have tried to distance themselves from Scott Blum, one of the company’s largest investors, co-founder and owner of Internet retailer Buy.com Inc.
“Some of that incubator stuff was started by Scott,” said another company founder, Scott Johnstone, in an earlier interview. “While we like to have startups, we are really much more than that.”
Blum, who admits he has a heavy hand in the companies he starts, could be distancing himself from his investments.
The longtime Orange County entrepreneur and investor recently moved to Jackson Hole, Wyo., only five months after he took struggling Buy.com back private.
TechSpace toyed with making its facilities double as incubators two years ago, but pulled back after it didn’t make money.
“Incubators used to be a buzzword,not anymore,” Larsen said.
Headquarters: New York
Founded: 1997
Business: Office space, business and technology consulting, executive recruiting, venture fund-ing via TSX Ventures
Locations: New York, Boston, Toronto
Financing: $50 million in venture funding, mostly from Safeguard Scientifics Inc.
