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Enfrastructure was launched with much fanfare Monday morning at New York's W Hotel. The project -- backed by more than $100 million from Microsoft, IBM, Arthur Andersen, Avaya, and the incubator ThinkTank -- plans to offer fully built-out offices (dubbed "campuses") with a menu of low-cost infrastructure and professional services (such as accounting and legal) for technology companies.

Although it plans to house an incubator in each of its so-called campuses, Enfrastructure stresses that it is not an incubator and will not offer incubation-type services, such as strategic advice.

WALKING IN YOUR FOOTSTEPS

For all the ballyhoo, Enfrastructure isn't the first company of its kind.

TechSpace, a similar venture, launched in 1998. It has already filled office parks in New York, Boston, San Francisco, and Toronto -- with 35 early-stage companies in its New York facilities alone. London, Miami, Seattle, and Austin facilities are set to open in early 2001.

The combination of a small equity stake and recurring monthly revenues for services makes TechSpace and Enfrastructure winning business models, says Dave Wright, vice president of private equity services at the Aberdeen Group. At Aberdeen, Mr. Wright and his associates are in the midst of a large incubator study, which thus far has identified five traditional incubator business models. Three of those models are "miserable," he says, but two of them -- including Enfrastructure's planned small equity stake and cash-for-services model -- are likely successes.

"It all sounds good, but you've got to have execution on their end as far as the pricing models in order to appeal to VCs," Mr. Wright says.

YOU'RE NOT ALONE

The main benefits Enfrastructure hopes to offer, according to company president Jim "Watty" Watson, are speed to market and capital preservation. "As lofty as it sounds, we really hope to change the way business is done because we believe companies shouldn't have to make these decisions about infrastructure," says Mr. Watson, formerly chief executive officer of the Koll Development Company, a commercial real estate development firm. "Investors in the VC community and the investment banking community would prefer to see those dollars flow into the development of a product or a brand than into infrastructure."

Mr. Watson declines to specify the exact amounts clients would be charged per service, but says its partners' products would be acquired by Enfrastructure at a significant discount and marked up slightly for sale to the resident companies.

Enfrastructure's backers stand to make more than an equity return: they'll make money from sales of their products and services. IBM will provide storage and hardware, Microsoft will sell e-commerce platforms and software, Arthur Andersen will dole out accounting services, and Lucent Technologies spinoff Avaya will offer telecom products.

NEW KID IN TOWN

Enfrastructure is the brainchild of Scott Blum, the founder and former CEO of Buy.com who formed his own incubator, ThinkTank, last fall. While determining the infrastructure services his incubated companies would need, he realized that having a fully equipped office space would be useful for other companies as well, he says. ThinkTank is funded entirely by Mr. Blum and will be located on the first Enfrastructure campus, to open in December in Orange County, California.

Each Enfrastructure campus will house an incubator for seed and early-stage startups, while the rest of the building will house established tech firms. Mr. Blum says Colorado telecom companies, including Qwest Communications and Level 3 Communications, have already approached him about partnering for the Denver-area campus's incubator.

Enfrastructure will eventually build 25 campuses, starting in Southern California, New York, Northern California, and Colorado in the first quarter of next year. It will attack Asia next with investor and joint-venture partner Hanny Holdings of Hong Kong. It also plans to take its infrastructure package off-site to established corporations next year.

IT'S ONLY ROCK AND ROLL

Although the well-connected Mr. Blum was able to put together a heavy-hitting team of partners for Enfrastructure, he isn't alone. In February, Safeguard Scientifics invested an undisclosed amount in TechSpace.

Like Enfrastructure, TechSpace makes no up-front investment in its companies, but what sets it apart is that it takes no equity stake (whereas Enfrastructure will take between 2.5 and 7.5 percent). It does, however, reserve the right to invest in the companies' later rounds through its separate $15 million venture fund, TechSpace Xchange. The fund is operated in partnership with Safeguard Scientifics. "We want to keep our cash flow situation separate from the equity upside in our fund," says president and CEO Debra Larsen, a former commercial real estate agent who cofounded the company with chairman Bruce Bockmann, formerly a managing director with Morgan Stanley Dean Witter in Australia. TechSpace Xchange will be raising a larger fund of around $100 million later this year.

Ms. Larsen says TechSpace has been generating significant revenues based on its fee-for-service model, where companies pay TechSpace per service used. Its partners include IBM (also a partner in Enfrastructure), as well as marketers Zero to Five, advertising firm NetMedia/VC, and legal and accounting firms to be announced next week. The company's early-stage clients, she says, dictate what services are added to the roster, so most clients end up using the entire smorgasbord of offerings.

Ms. Larsen is skeptical that the later-stage companies Enfrastructure is targeting, which presumably have already chosen service and technology providers, will be so willing to use all of their offerings. "At my stage in the game, there are very few people who have preconceived ideas about partners and providers," she says.

Aberdeen's Mr. Wright is also skeptical that Enfrastructure's client companies will be any better off in the long run. "If infrastructure can be had at less than market rate, then sure, that's fantastic," he says. "But VCs aren't valuing the companies hatched from incubators on their infrastructure."

"Infrastructure services certainly speed up a company's time to customer but they don't link the companies directly to those customers through partnerships, one of an incubator's biggest value propositions," he adds. "And it doesn't mitigate the risk of experimenting with capital."

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