3 things startups must consider before agreeing on an office space

By Sahil Sethi.

The future of Indian startups has seen a sharp rise in the creation of new startups with a further up expected. We have witnessed huge funding rounds in 2014 and 2015, wherein VCs, PE funds and angel investors all have been very active in infusing capital in Indian startups.

Key indicators such as opportunities existing in the domestic market, access to capital/mentors, and increased M&A and consolidation activities clearly point towards the new evolution of the ecosystem. However in 2016 the level of fund raising has slowed down, as investors are looking for their earlier investments to start showing growth or they are looking for startups with strong fundamentals. But that does not mean Indian startup euphoria is dead. It is still alive and kicking. However dynamics of the game have changed. Startups displaying product innovation and ability to upscale will continue to receive funding.

Now with slow funding the startups need to carefully evaluate their Corporate Real Estate (CRE) strategies as they shape overall business direction and add long-term value to the venture.

Increasing competition is causing startups to look for ways to enhance profitability and squeeze costs. The below 3 criteria, if considered, can help startups make the right choice for their office space and help in starting up right!

  • Cost: This needs to be realistically in sync with the financing plans and current cash positions. As startups generally raise funds every 18 to 24 months, they cannot afford to miscalculate their cash flows. A general thumb rule is to have at least 6 months’ rentals in their bank accounts as landlords demand advance rental every month.
  • Location: Attracting talent for a startup is key for growth.  Analysing the location where there is a readily available talent pool is critical. For example, in Delhi/NCR a startup would prefer a location close to metro connectivity. This can followed by sub factors:

Support services:These include banks, restaurants, medical clinics, cafes and salons are now quite common in office complexes, a perfect example in Gurgaon is DLF Cyber City as it has integrated all these services and has emerged a preferred choice for MNCs and startups

Proximity to social infrastructure: As employees spend more of their waking time in office than home, proximity to day-care facilities, residential colonies, multiplexes, health clubs are definitely key factors in an office location checklist. 

  • Flexibility: Expansion is definitely a part of the growth cycle of a startup. It results in demand for additional space for new recruits. The terms in the lease agreement need to be clearly defined for hard options & FRR (First Right of Refusal) or exit clause from the lock–in period.

For a startup to understand the above fundamentals can be a daunting and time consuming task.  It is always advisable for a startup to engage a property advisory firm as it can make their property search easy and cost effective. A professional real estate advisory firm can offer following benefits:

  • Real time local data with latest market rentals and best practices precipitating from global channels.
  • Aggressive negotiation seeding from good relations, market awareness and excellent interpersonal skills.
  • Help in understanding the legal issues involved in a transaction.
  • Integrated services like space planning, fit-out design and facilities management, all under one roof.
  • Trust and reliability as such organisations driven by service excellence handpick human resources with best-in-class education backgrounds and work experience.  
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