SOMERVILLE, Mass. – As the recent recipient of $28 million in venture financing, CO Space Inc. has created a niche for itself in the co-location market, taking a lead in the storage and maintenance of electronic equipment for telecommunications, data and Internet companies.
Unlike its competitors, which serve only one portion of the market, CO Space provides its clients with both storage facilities and various support services, says G. Gabriel Cole, the company’s president and chief executive. Among the benefits of serving all three sectors is that clients can enjoy one-stop shopping, while at the same time receive operational advice about multiple markets and ways to integrate various resources. One attempt at cost cutting, for example, is for data companies to maintain billing information for telecom companies.
The company’s three founders Cole, Linda Cole, director of regulatory compliance, and Catherine Davies, director of marketing and communication, had worked together at RTE Group Inc., a telecommunications and real estate consulting firm.
Uncovering the Market
While consulting, the founders discovered a lack of housing space for companies with small offices and lots of equipment, Cole says. With their combined expertise in real estate and telecommunications, the two decided to start a company that would store and maintain hardware for small companies or tsatellite offices of larger corporations. At press time, the company was housing high-quality computer equipment such as servers and credit card verification machines for 40 clients, including Storage Networks Inc., a data storage firm and Dream Communications Inc., a Web hosting firm.
Unlike clothing manufacturers, for example, who can produce products in one city and ship them to other locations, data, telecom and Internet companies rely on wires in the ground and must establish a physical presence in each area they choose to serve. As a result, outsourcing this expansion process to a collocation facility often is a practical way to reduce cost, time and staff expenditures. CO Space helps clients plan networks, set up equipment by establishing connections to outside cables and maintains systems after they are up and running.
Clients are charged based on the amount of physical space, power and services required. CO Space typically charges $35 per square foot per month and competes with companies like Exodus Communications Inc., Equinox Solutions Inc., Frontier Global Center, COLO.COM, Switch & Data Systems and Inflow Inc.
Beacon Ventures and Alta Communications co-led the company’s second round of financing, each contributing $8 million to the deal. CO Space’s search for funding, which began in September and ended in November 1999, included $8 million from AEW Capital Management, $3 million from Latona Associates and a total of $1 million from high-net-worth individuals.
Through personal and professional contacts, the company last spring received $4.3 million in a first round of seed funding, which began with just over $2 million from The Centennial Funds, followed by another $2 million investment from Norwest Venture Capital, Cole says. High-net-worth individuals contributed the balance, closing the round in May.
CO Space’s seed round investors back computer networking, electronic media, telecommunications, software and e-commerce companies. So the two firms decided to refrain from entering a second round to allow venture firms with a combination of telecommunications and real estate expertise a chance to provide strategic advice and add value to the company, Cole adds.
Client’s Special Needs
Apart from needing real estate savvy to negotiate leases and purchase agreements, collocation facility organizers must understand specific condition and location requirements. The floor of a building, for example, must withstand the weight of power supplies and other communications equipment. Additionally, the facility must be located near underground fiber and cable lines, which connect the site to other communications hubs.
“We worked hard to build a syndicate that would give us some power in the real estate market,” Cole says, pointing out the importance such a relationship would have on time-to-market and finding the right location for companies. Forming a strategic alliance with its VC backers will allow CO Space to determine which cities that have a demand for collocation spaces, allowing clients an easier way to enter these new markets while staying focused on their core businesses.
The company plans to raise a third round of financing in mid-2000, possibly in the $50 million to $60 million range, depending on market demand. CO Space expects to hold an initial public offering after a third and final round, Cole adds.
John Halsted, a senior vice president at Beacon, cites the experience of CO Space’s management team as a compelling reason for investing in the company. “It [the collocation industry] is all about who can move the fastest” he says, referring to the speed at which a collocator can set up shop in a new city. The firm based its decision to invest in CO Space on Cole’s combination of technical, real estate and marketing expertise, which are all vital to the process, he says.
Expanding its Presence
CO Space used its seed round financing to hire additional staffers and to open its first collocation facility in Summerville, Mass. The company now has 45 full-time and 30 contract employees, including engineers, security guards and sales representatives. The additional funding also will help open five other offices in Waltham, Mass.; Houston; Jersey City, N.J.; Brea, Calif.; and Alpharetta, Ga. CO Space eventually plans to open offices in Denver, Chicago and Loudoun County, Va., among other places, Cole projects.
The offices will average some 25,000 square feet, with some reaching 75,000 square feet. Each facility will have a glass-enclosed room, along with temperature and humidity controllers for storing around 750 pieces of equipment per location.
The collocation company aims to hold 8% of the total market share in the space by 2003, after five years in operation, Cole says, but could not estimate the company’s current market share.
In addition to the company’s three founders, the CO Space management team includes Leonard Weiss, chief financial officer, Steven Gunderson, vice president of sales, Robert DiMeo, vice president of telecom products, James Berets, vice president of Internet products, and James Fields, controller.