RocketSpace, Dexus Property to open startup coworking spaces in Australia

Australian real estate group Dexus Property and San Francisco-headquartered curated coworking community RocketSpace have partnered to launch a network of campuses in Australia specifically for technology startups that have established a product-market fit and are generating revenue.

Launched in 2011, RocketSpace provides startups with desk space as well as access to capital, hands-on workshops, peer group roundtables, and networking events. It has hosted more than 1,000 startups to date including 18 unicorns such as Uber, Blippar, SuperCell, and Spotify.

RocketSpace members have collectively raised more than $21 billion, excluding Uber.

The company has been expanding its presence beyond the San Francisco Bay Area this year, with Australia being its latest launch target.

RocketSpace will initially open campuses in three locations in Sydney, Melbourne, and Brisbane in 2017, accommodating for teams of one to 100 people. The campus will be equipped with a variety of workspace options as well as a multi-gigabit internet connection, cafe, collaborative workspaces, and event space.

Founder and CEO Duncan Logan told ZDNet that Australia has always been on RocketSpace's list of markets to eventually expand into; however, it wasn't until Dexus approached the company with a partnership opportunity that RocketSpace decided to make its next international move.

"[Dexus] has been watching the 'office-as-a-service' market grow around the world and also in Australia ... and came to the same conclusion that we had, which is that coworking as a business model has a far better product-market fit than a conventional office especially for fast-growth technology businesses," Logan said.

"They were looking for someone who was already in the space, who knew about the space, and could articulate it well ... I don't know who else they spoke to, but they ended up with us."

In regards to the nature of the partnership, Logan said it is "like a operator-capital partner model". Dexus, which invests directly in Australian office and industrial properties with AU$22.2 billion worth of assets under management, is covering a lot of the initial expenses such as fit-outs of the coworking space, and will operate the space much like a hotel operator would.

"It's not a traditional lease," he said. "Both parties are motivated to make it as successful as possible."

Logan added that RocketSpace can enhance the value of Dexus' properties; if the coworking community host does its job well, then the startups will eventually outgrow the space and will need to move into an office of their own. This is also where Dexus comes in.

"At any one time about, 140 to 150 startups [work out of RocketSpace] in San Francisco. But every month, there are startups growing and having to move on and find new offices," said Logan. "I think it will be a feeder system to an organisation like Dexus that has a large property portfolio."

Kevin George, Dexus' office and industrial executive general manager, said the property group, in partnership with RocketSpace, wants to provide "an unrivalled service" to tech startups by "creating a bridge between Silicon Valley and major hubs in Australia".

Logan, on the other hand, said RocketSpace is not looking to compete with existing coworking spaces such as the non-for-profit Fishburners; rather, it wants to contribute to the growth of the Australian startup ecosystem. It's also keen to collaborate with other stakeholders in the ecosystem.

"I was in China a couple of months ago with Peter Davison from Fishburners and I think what he's done there is fantastic," he said.

"Whenever RocketSpace arrives somewhere, we really want to earn our stripes by trying to increase the size of the overall ecosystem and make it a greater success. There's a lot of great stuff already going on in Australia; we're super excited to see what we can do to help it. Maybe we can bring something with a bit more of an international flair to help more entrepreneurs be successful overseas."

Logan said it is actually the Australian government's landing pad initiative that marks the starting point of RocketSpace's interest and involvement with the Australian startup ecosystem.

The Australian government announced the first three locations in February for its AU$11 million startup landing pad initiative aimed at accelerating the nation's access to international business networks, entrepreneurial talent, business development, and investors by creating an ecosystem for innovation. Silicon Valley was revealed as the inaugural landing pad location, with the initiative taking up tenancy at RocketSpace technology campus in San Francisco.

"[Australia has] a pro-tech government, a pro-entrepreneurial government. We've seen a number of government officials come up here to talk about what they're wanting to do, how important they see tech within the Australian economy, which is exciting," Logan said.

RocketSpace has a two-pronged monetisation model. One is that it charges startups a monthly fee based on the number of desks they use.

But a bigger portion of its revenue comes from corporates. RocketSpace has a consulting division that advises corporates on how they can work with startups.

"Typically, the corporates have great scale and reach and the startups are great at innovation. If you put that together in the right way, it should be a highly symbiotic relationship," Logan said. "A corporate might come up and say we're interested in mobile security startups and we will source those startups and run a pilot project for the corporate. That's what they're paying us for."

"The corporates get cutting-edge innovation to help them stay relevant and the startups get scale and reach in a marketplace that otherwise can be hard to scale in or is expensive to scale in."

Logan added that the startups not only have general access to more than 150 Fortune 500 companies around the world -- such as JetBlue, Schneider Electric, Converse, British Airways, Tata Communications, Royal Bank of Scotland, Pfizer Consumer Healthcare, and AB InBev -- but also to their heads of innovation and other business unit leaders that are specifically looking for startups to work with.

"There's a marketplace forming where the startups bring innovation and the corporates bring scale, and we're the broker between the two," he said.

In the last three years, we've seen an increase in the number of partnerships between large companies -- the big four banks, telcos, postal services, law firms, and accounting firms -- and startups.

In September, an Optus report backed what many entrepreneurs have touted before: that big established companies and startups should form synergistic, mutually-beneficial relationships if they want to thrive in the digital age.

Large companies are typically more focused on meeting short-term growth targets and often struggle to maintain an ideas-driven culture and pursue innovative projects, the Optus report states.

Early-stage startups, on the other hand, aren't bound by the same constraints and focus on the product and business model. However, they struggle with capital, developing systems and policy, access to markets, growth management, and effective leadership, according to the report, and this is where large companies can help.

Logan said the corporate venture capital market (CVC) is exploding in other parts of the world like Silicon Valley and expects the same to happen in Australia.

"In Silicon Valley, we're seeing about 40 percent of all the funding coming from corporate capital," he said. "That's almost two companies a week get funded in RocketSpace."

"Corporations say: 'We want to test your technology, test your idea, but also to help out. We'll invest couple of million dollars to help you grow and take some equity so if things go well we get some upside'.

"I don't see why Australia would be any different to any other market that we're seeing that happening like London, Canada, or the US."

Earlier in December, Telstra Ventures released a report on the evolution of corporate venture capital, predicting it to account for at least 35 percent of total global VC dollars invested by 2025.

"Technology disruption, global competition, and corporates seeking access to new revenue streams, products, and customers are driving the increase of CVC in both percentage and absolute dollar terms," said Mark Sherman, managing director of Telstra Ventures.

"Apart from funding, emerging private companies can benefit significantly from CVCs if managed properly, including access to established channels to market, large customer bases, complementary products, brand endorsement, and other capabilities."

In September, the Australian government officially launched its AU$23 million incubator support program, which will fund the creation of new incubators in a bid to see more successful startups emerge from the country.

Launching the event at fintech incubation hub Stone & Chalk in Sydney, Minister for Industry, Innovation and Science Greg Hunt said he expects business incubators will increase innovation capacity in Australia's urban areas, as well as regional and rural Australia and in university precincts, by bringing communities of entrepreneurs together to increase the flow of local knowledge and foster "collaboration".

The government's funding pool will be distributed via an application process, where matching grants valued between AU$10,000 and AU$500,000 will be awarded to the successful candidates for the creation of new incubators in regions or business sectors with strong links to international trade, and for existing, high-performing incubators to expand their services.