Throwback Thursday: Moving to self-storage startups

Editor’s note: With MakeSpace announcing last week it raised $17.5 million in Series B funding from Harmony Venture Partners, Upfront Ventures and others, we’re re-posting a sector analysis story on the self-storage space that originally published in the June 2015 issue of VCJ.

VCs have poured billions of dollars into storage startups for enterprise data. They’ve embraced digital content storage for consumers.

Now, they’re thinking outside the box, so to speak, as more investors back self-storage for consumers to put away their stuff like winter sweaters and spare sofas.

It was only a matter of time. After all, public storage is a $24 billion market in the United States, according to the Self Storage Association, the official trade organization for the U.S. self-storage industry. And the market is growing fast. It’s projected to surpass the $30 billion mark by 2019, the market research firm IBISWorld reports.

At first blush, self storage does not seem like a sexy area for investing. Nor does it seem like something that should be tech enabled.

But when Ann Miura-Ko, a partner at Floodgate, took a look at the market, she noticed not just the massive size of the market, but the stickiness of the space for consumers.

“People put their stuff in storage and leave it there for a long time,” she said. “This business model of set-it-and-forget-it can be extremely valuable.”

She has lots of friends who put their old college books in storage, thinking they’d eventually use them in their next home. But often that never happens. Instead people put more and more stuff in storage, and after a while they need an even bigger storage space, Miura-Ko said.

She added that people have a much stronger emotional attachment to their physical things, especially compared to their digital content. “This makes physical storage a service that people will stay with for a very long time,” she said.

All this led her to invest in Boxbee, one of several venture-funded startups in the self storage space. The Brooklyn, N.Y.-based company has a raised a total of $7.3 million from a number of investors, including Floodgate, Metamorphic Ventures, Google Ventures, 500 Startups and others.

The Boxbee service is fairly simple. The company delivers packing boxes to the consumer. The consumer fills those boxes with personal items, catalogs the contents on Boxbee’s website, and then schedules a pickup. The boxes are stored in local warehouses and can be returned to consumers whenever they request. The company charges $7.50 a month per box. Pickup is free, but there is a flat delivery fee of $30. Boxbee currently operates in San Francisco, New York City, Oakland and Berkeley, with plans to expand strategically.

“The opportunity here is to expand the market rather than to replace what exists today. … With the advent of mobile, there are new types of services that can be layered on top of storage.”

Ann Miura-Ko

Partner

Floodgate

Boxbee’s biggest competitor is MakeSpace, which runs a similar service. Billing itself as “your closet in the cloud,” MakeSpace has raised about $10 million from Upfront Ventures, The Founders Fund, Collaborative Fund and others. For about $25 a month, MakeSpace customers can fill up four bins with their stuff. The company picks up and delivers on demand. Customers can also create a visual inventory of their stored items, making it relatively painless to retrieve items and schedule a delivery.

Mark Suster, a general partner at Upfront, said the company has huge scale advantages over the local physical self-storage providers because the company stores goods in remote locations outside of town, yet can ship the items back quickly. “It’s like DropBox for your physical stuff,” he wrote on his blog.

He said that the company is spending millions of dollars on IT innovation to build a better user experience than the traditional operators can provide.

“Try calling your local storage facility and tell them you want boxes three and five out of nine delivered to you in 24 hours,” he said. “Try getting them to send you anything at all. Or even to help you figure out what you have in storage without hauling your ass down to the facility and trolling through all of your old stuff.”

Another emerging startup in the self-storage space is SpareFoot, which recently landed a $33 million round led by Revolution Growth and including Insight Venture Partners. The Austin, Texas-based company, which has raised about $50 million to date, was founded in 2008 on the premise of becoming the Airbnb of self-storage. The company offered a service whereby you could rent out space in your basement or garage to people who needed extra storage.

“But they found out over time there were issues around security, trust, ease of access, and personal privacy,” said Scott Hilleboe, a partner at Revolution Growth who led the recent investment in SpareFoot. “Even in exchange for a low storage fee, most people could not get past those issues.”

So the company quickly pivoted to an OpenTable model for self-storage. “What OpenTable did for making restaurant reservations, that’s what SpareFoot is doing for the self-storage industry,” he said. The company created an online platform that lets consumers in need of self-storage quickly and easily find and book a facility that meets their needs based on price, location and other filterable options.

The SpareFoot platform features 10,000 storage facilities, or about one-fifth of all the storage facilities nationwide. “Today we are larger than all the other aggregators out there combined,” Hilleboe said.

He added that the company aims to continue to grow that leadership position, as well as offer additional products and services to the independent facility operators, such as the ability for consumers to monitor their good online, such as through video.

Although the self-storage experience has traditionally lacked a “wow” factor, Miura-Ko said she didn’t invest in Boxbee to upend the market and displace the incumbents.

“To me, the opportunity here is to expand the market rather than to replace what exists today,” she said. ”Most consumers have been happy with public storage. But the opportunity we see is that with the advent of mobile, there are new types of services that can be layered on top of storage. Most interesting to us was the things we could do to make storage even more valuable to the user.”

Things like retrieving your winter coats on a day’s notice, without having to make a special trip to the storage facility. The company has even talked about starting a storage sharing service. Miura-Ko believes that if Boxbee gets enough critical mass in a particular location, consumers could start to share goods between one and another.

“For instance, maybe I put my sewing machine into storage. But there is someone in my neighborhood who wants to use it. Maybe I make them pay for it, or maybe I just let them borrow it,” she said. “That is an example of what is possible if we made storage more of a service rather than something that we just put our stuff into.”

Investors in the self-storage space believe a number of factors are working in their favor. “As the general populace migrates to urban centers, and as people consume more, that all leads to a larger theme of storage becoming more and more valuable in our lives,” Hilleboe said.

Miura-Ko said that streamlining and downsizing are also big macro trends in society today. She said a service like Boxbee can capitalize on that opportunity by helping consumers organize their lives and de-clutter.

As for exits, whoever is successful in this market could prove to be a very attractive target for any of the large public self-storage companies in the space, such as CubeSmart, Public Storage and Extra Space Storage, which are now trading at or near all-time highs. There is also potential to grow big enough to go public.

“We believe there are standalone businesses in the self storage space that can be multi-billion dollar companies,” Miura-Ko said.

One thing is certain. The storage space is about to get sexy.

“Storage is an arcane industry that’s been run the same way for decades,” Hilleboe said. “The time is right for technology disruption.”

Tom Stein is a Palo Alto, Calif.-based contributor. He can be reached at tom.stein@yahoo.com.

Photo illustration from ©iStock.com/alexsl

To download an Excel file of targets in the space: Select venture-backed, self-storage startups