Entrepreneur Finds a Niche in Tenant-Friendly Commercial Space Listings

For startups, offices are a little like baby clothes: They grow out of them fast. It's a problem Victor Ho, CEO of San Francisco-based FiveStars, was lucky enough to have. His company, which facilitates loyalty card programs for small businesses, moved into and out of three offices in 2012 as his staff ballooned from 15 to 40 to 85.

"I take office space really seriously because I think it's one of the biggest decisions a startup can make," Ho says. But he found that decision-making process complicated by the byzantine ways of the commercial real-estate industry. "If you reach out to a broker, they'll reach out to their set of listings, but they're not incentivized to send you everything," he says. "So we kept seeing things we weren't looking for."

Until recently, the seamless web-search experience enjoyed by residential real-estate browsers has been nonexistent for the commercial market. But Ho found it in the free service offered by fellow San Francisco startup 42Floors.

"If you're a tenant, you want the whole process to be as simple as searching for an apartment," says 42Floors co-founder Jason Freedman. "But most commercial real-estate listings aren't meant for tenants. They're meant for brokers."

Freedman's 14-person company aims to correct this problem by pulling together listings from multiple landlords and brokerages and presenting them in a cleanly designed site, with simple and clear descriptions. Prospective tenants can filter through listings by space, price, leases and sublets, or simply scroll through a map of available offices in a desired neighborhood. The site is packed with high-quality images shot by 42Floors' own photographers.

Users typically need space for 10 to 100 employees, according to Freedman, who picked up his commercial broker's license while developing 42Floors. The company currently operates in San Francisco and New York, but Freedman says it is "expanding aggressively" to many major cities, bankrolled earlier this year by $12.3 million in Series B funding from investors including NEA, Bessemer Venture Partners and Thrive Capital.

Freedman emphasizes that he doesn't want to eliminate the traditional tenant-broker relationship--he just wants to help. "Brokers aren't the problem; it's the technology," he says. "Most tenants still want to work with a broker. They just want the ability to search on the internet, too."

To preserve that relationship, as well as access to listings, 42Floors takes no cut of any lease signed. Instead it generates revenue through its online marketplace, which features vendors such as office-furniture manufacturer Turnstone.

Back at FiveStars, Ho is once again looking for a bigger office, this time using a broker he discovered through 42Floors. "I wanted to look for more options," he says, "and 42Floors is perfect for doing that without committing much time or effort."