Why VCs Love Agile Workplaces – Part I

Venture capitalists need to have confidence in a company’s business plan and management team in order to invest. Startups typically focus their pitches on product/market fit and business development strategy to win this trust.

But, VCs also care a great deal about operational efficiency and shrewd financial management. In fact, how a company manages one of its biggest line items—an office lease—can demonstrate the savviness, innovation, and relentless focus that investors love.

Traditional office leases can stunt a startup’s growth

Startups must stay nimble. Do you know what’s not nimble? A ten-year commercial office lease that locks a growing company into a specific space for a specific headcount for a very specific number of years.

Even the most laser-focused founder knows their truly great idea for a marketplace could evolve into a better idea for a SaaS (aka “software as a service”) platform overnight. Startups that don’t make a major pivot will still need flexibility to scale teams as new products are launched and to test new markets.

As TechCrunch noted in an article on the dangers of traditional office leasing: “Good startups grow. Great startups grow smartly, with a watchful eye toward an unrestrictive future… [but] growing startups often risk entering into creative office space leases that could stymie their growth, anchor them in their race against the competition, or altogether crush them with debt.”

Having a space that doesn’t suit the business can be bad news for venture capitalists who are looking to invest in dynamic, high-growth companies with founders who can focus on their business, not get distracted by their office.

Venture capitalists want startups to scale

Derek Bittar, co-founder of the venture capital firm Indicator Capital, sums up VCs’ growth expectations: “From one day to the other, a startup may entirely shift its business model… Venture capitalists have an understanding that startups’ decisions must be fast and fluid, capable of flooding markets and disrupting everything within its reach.”

Jason Lemkin, an entrepreneur-turned-VC at SaaStr Fund, is even more specific about how startup teams need to grow outside of their original offices:

“In the end, we all end up with a distributed team. No one these days can get to 500 or 1,000 employees from one location. Well, almost no one. Especially in SaaS, most of us can’t even get to 80-100 employees without having a distributed team.

Generally, at a minimum:

− We all need more cost-effective locations to scale SMB (small- and medium-sized business) sales.

− We all need field sales locations closer to big end customers.

− We all end up with multiple engineering teams as we scale, often in other countries.

− We all end up with customer success (which needs to be close to customers) and customer support (which is very cost sensitive), scaled not just in multiple locations, but globally.”

This kind of growth is exciting, but the timing of the ‘scaling events’ listed above are hard to anticipate and need to be acted on almost immediately—two realities that traditional real estate owners have a hard time accommodating.

And as startups scale, they need access to liquidity. As Paypal co-founder and investor Peter Thiel said earlier this year, the majority of the money that he invests in startups winds up in the hands of “urban slumlords.” Agile options are more affordable and leave less capital tied up in security deposits and long-term contracts, enabling founders to focus on scaling.

Read on here for part two of our in-depth look at how agility contributes to success.