Venture Scenes | Take 5
My blog about Startups, Venture Capital, and Movies.
The Storage Wars
The self-storage industry dates back to at least the 1950s, when the Bekins company rolled out storage vans across the USA. The company serviced the post-WW2 population that was flocking to all corners of the country, looking to set down roots and acquire and store assets (a sharp reversal of the preceding decades). Following that, storage and moving giants U-Haul and Public Store were formed in the 1960s and 1970. Today, the industry is mature and filled with massive incumbents, a plethora of SMBs, as well as upstart companies looking to disrupt.
The self-storage business is unique in its profitability, economies of scale, and mismatch of consumer demand and satisfaction. All of these factors have given rise to a new wave of startups looking to innovate and attack the space. At the same time, the incumbents are ferociously acquiring and consolidating in order to shore up their defenses. The Storage Wars have begun. The answer to the age-old question of “Where the $@*% am I going to put my stuff?” hangs in the balance.
Key Elements
Self-storage facilities are open to the public and provide access to consumers looking to rent a storage unit on a short-term or longer-term basis. Customers store items in their units (can include lockers or larger storage spaces) for indefinite periods of time, but will have access to those goods at any time. For the purposes of this analysis, self-storage facilities do not include those that are apart of rental buildings or otherwise contractually attached to any property. We are also not going to be analyzing “specialty” storage spaces that accept boats, fine wine, Walter White’s mountains of cash, or RV’s — although I am sure that specialized industry deserves its own deep-dive analysis. The key elements of self-storage facilities are as follow:
- Self-storage facilities are capital-intensive to build but highly profitable to operate. The largest capital outlays associated with self-storage facilities lie in the land acquisition and construction of the storage facilities themselves. These costs have been exacerbated in recent years as rising consumer expectations have led to investments in advanced technology and greater security surveillance systems. Aside from these expenses, overhead costs for self-storage businesses are typically quite low. Maintaining the property requires minimal cleaning, and storage facility operations typically only have three employees on-site at any given time. In general Self-storage facilities enjoy profit margins of ~35%, and industry heavyweight Public Storage routinely achieves margins of 50% or higher.
- The self-storage business is largely recession-proof. Even in recessions, the self-storage industry typically sees an extremely low failure rate (<10%). The business model’s durability during economic downturns is a result of customers requiring storage space for their goods if they are forced to downsize their living arrangements due to lost jobs or economic hardship. We are a society that owns “things” (and lots of them) and that truism does not change when GDP turns negative. Self-storage securities are actually seen as a safe haven by investors during economic downturns.
- The industry is still fragmented, but it has consolidated somewhat in recent years. “Mom and Pop” storage unit owners still represent 70%+ of this industry. The top three companies in this industry represent less than 20% of the market. That said, the industry has experienced a level of consolidation in recent years. As shown below, large REITs like Public Storage have relied on acquisitions to fuel growth. Even startups in the space have joined in the M&A activity.
- The majority of units are located in the suburbs, and the power users are in the south. 52% of all storage units in the US are in the suburbs, and southern users account for 41% of all storage unit customers. The south is home to nearly 1/3 of all storage units as well. Because of the population density and steady demand (again, Americans are not buying less stuff as time goes on) in most major American cities, nearly every major market has a self-storage occupancy rate of 95–100%.
- 50% of self-storage unit customers are residents looking to rent for longer than six months. These particular users represent roughly 50% of the market, while residents looking to rent on a short-term basis represent 21% of the market (IBISWorld). Enterprises represent 18% of the market.
Current State of Self-Storage Market
Throughout the United States, and especially in urban centers, demand for storage space has consistently risen. The number of people using self-storage units has hit an all-time high of 13.5 million, an increase of 3.5 million from 2005. Concurrently, the square footage of homes has decreased over time, and Americans’ propensity for hoarding belongings has risen. Millennials are also renting longer, and renters provide another demand source for self-storage space (IBISWorld).
In addition to consumer demand, enterprise demand for self-storage units has also crept up in the past five years. One area of note — the rise of SMBS utilizing online retailing platforms such as Amazon, E-Bay, and Etsy has generated demand for storage units to store inventory.
The level of demand has outpaced supply in most major markets. Chicago, New York, and Los Angeles have seen their occupancy rates creep up to 100% (IBISWorld). Most major operators have aggressively pursued adjacent markets once a city like Chicago reaches 100% capacity.
While M&A is a key growth strategy for the major REITs, they also invested heavily in construction and organically building out their footprint. There are currently more storage facilities in the United States than there are McDonald’s, Pizza Huts, Wendy’s, and Dunkin’ Donuts combined. The number of self-storage enterprises in the United States is expected to grow 3.7% annually over the next five years (IBISWorld).
There is still a rampant supply-demand imbalance at any given time in most major US markets. The inconsistent quality of supply has also created painful inefficiencies and poor UX in the self-storage industry. This demand-supply imbalance creates massive inefficiencies and customer frustration on a large scale. It has also represented an opportunity for startup founders.
Startups & Incumbents
As previously mentioned, there are a number of startups looking to innovate the self-storage market. Below are some of the startups that I find most intriguing tackling the inefficiencies and challenges within the self-storage market:
- Clutter. The largest startup in the space, Clutter is a provider of on-demand storage and moving services intended to assist customers store their physical belongings. The company’s platform manages the pick-up, storage, and retrieval of extra stuff and offers secure storage for all the items, backed up by an online photo inventory and warranty policy, enabling consumers to safely and affordably store their belongings and make people’s lives convenient (Pitchbook Definition). The company most recently raised a $200mn Series D at a post-money valuation of $600mn. The round was led by Softbank, and other notable investors in the company include GV and Sequoia Capital.
- Makespace. Provides storage services intended to store and retrieve belongings on-demand. The company’s services provide pick-up, packing, and delivery services so that customers never have to visit a storage facility and also offer a visual catalog of the items stored so that they can manage and choose which items to be delivered back through a mobile app, enabling customers to experience an affordable storage service (PitchBook Definition). The company raised $55mn in financing in May 2020, bringing its total funding to ~$160mn.
- Closetbox. Provides storage and concierge services intended to provide doorstep pickup and delivery. The company’s storage and concierge services include hassle-free loading, hauling, and moving into storage as well as offering free pickup and on-demand return delivery for the cost of a self-storage unit, enabling customers to avail full-service storage facility alternatives (Pitchbook Definition). The company raised a $7.3mn Series A round in 2018, bringing its total funding to $19.8mn.
- Neighbor. Dubbed the “Airbnb of storage”, Neighbor is a developer of an online peer-to-peer self-storage community designed to connect people with unused space for storage. The company’s platform homeowners turn their garages, basements, RV pads into additional monthly income, and renters are given a flexible and affordable storage alternative, enabling homeowners to earn additional monthly income and renters with storage alternatives (Pitchbook Definition). Neighbor most recently raised $10mn Series A round led by Andreesen Horowitz.
- Spacer. Based in Australia, Spacer is a Provider of a premier peer to peer marketplace for storage space designed to connect hosts of space with renters who need space. The company’s marketplace for space allows hosts to list and rent out their unutilized storage space or parking to individuals and small businesses in their local community, enabling renters to save up to 50% on storage & parking in the local area (Pitchbook Definition). In 2017, the company expanded into the US by acquiring SF-based Roost. National Storage recently invested $1mn in Spacer. The company has raised $5mn to date.
As shown above, startups in this space have received interest and funding from some of the most prominent VCs. And consumers have flocked to many of these companies as a result of capacity constraints for traditional storage unit businesses. COVID has likely accelerated some of the interest in using self-storage, as households were stuck at home with nothing to do but examine all of their belongings and the space used to store those belongings. But this is a startup market that has ebbed and flowed, as TechCrunch notes:
On-demand storage startups have sprung up all over the world, hopeful that their new take on an antiquated, fragmented and valuable ($38 billion annually spent on storage) market would lead to big returns in a brave, new, Uberified world. But in reality, we’ve seen a lot of ups and downs, with various startups merging, closing, transferring and trying to pivot in the process.
Then, there are the major incumbents in this space who have aggressively bought up facilities in order to increase their storage offerings and shore up their positions:
- Public Storage. Largest Storage REIT in the country with 2,400+storage facilities. As previously discussed, the company has spent over $3bn in recent years buying up 100s of storage facilities across the country. The company accounts for 12.4% of total industry revenue (IBISWorld).
- Extra Storage Space, Inc. The company currently oversees 14.0mn sq ft of rentable storage space. Since 2015, the company has purchased 384 additional self-storage facilities. ESS accounts for 4.9% of the market (IBISWorld)
- CubeSmart. Owner of 523 self-storage facilities. CubeSmart went on a buying spree the past couple of years, spending $81mn, $228mn, and $247mn in 2017, 2018, and 2019 respectively. The company accounts for 3.1% of total industry revenues (IBISWorld).
TAM
The self-storage market in the United States is quite large. Estimates range from $23 –$39.5 billion (IBISWorld, Neighbor.com). There are over 185,000 self-storage establishments in the United States. IBISWorld projects that industry revenue will grow 12% over the next five years.
Future Opportunities in the Self-Storage Market
Capacity constraints in urban markets will require a solution. A simple search of the storage unit capacity in nearly every major market reveals the underlying supply-demand problem facing urban markets. There will be an ongoing need for solutions that can solve some of the major inefficiencies in these cities. I think the winning solutions will range from on-demand storage startups to peer-to-peer storage offerings.
Enterprise SaaS tools offering vertical-specific solutions. There is a large need in this market for vertical-specific Saas tools that can integrate into existing workflows of SMBs. Specifically, payments, accounting, and other related administrative tasks are often stuck in the 20th century. There is a white space in this market for startups to assist industry operators with their end-to-end workflow. This is an industry with a dire need for modernization, and I believe there is an interesting opportunity for vertical-specific Saas tools to fill that gap.
Self-storage startups targeting e-commerce marketplaces. Spacer (listed above) took the savvy approach of specifically targeting businesses on both sides of e-commerce marketplaces such as Ebay as described here:
The startup has also found a growing niche among businesses on both sides of the market, with the likes of eBay sellers or other small home-based businesses needing extra space to store stock and businesses with extra car parking spaces or office space coming to the platform to make extra cash.
I think there are future opportunities awaiting startups that can strategically target the flow of goods related to e-commerce marketplaces.
Conclusion
There are a number of startups chasing market share in this space, and incumbents have been aggressively buying up competitors and additional storage space. I think there is a ripe opportunity in this market for continued disruption and innovation, and I am particularly excited to watch the journey of Neighbor. To me, the marriage of an AirBnB-like P2P marketplace with self-storage is a winning combination. Let the Storage Wars begin.
Startup Closeup
Today, Paris-based Kili Technology unveiled its service that allows enterprises to annotate raw data such as video, drone aerial images, contracts, and emails. The company’s collaborative platform enables employees to make the data labeling process more efficient.
I plan to do a complete deep-dive on the data annotation sector, especially as more and more deals seem to pop up in the space. It is a fascinating market that has accelerated growth in the past year. The data problem is one that faces most early-stage AI startups, and it plagues researchers as well. Finding the right data, and the right amount of that data is essential for the development of any supervised learning algorithm. “Dataification” has become the key to most artificial intelligence applications, and solutions such as Kili’s represent extremely exciting opportunities at the early-stage.
Kili’s system, as d’Archimbaud explained, relies on a basic concept, similar to tagging people in a photo on Facebook. When users click on an image, a little box pops up so they can type in a name and attach a label to the image. Kili uses AI to allow enterprises to take this process to an industrialized scale to create higher-quality datasets.
“Before, people were thinking that AI was about algorithms, and having the most state-of-the-art algorithm,” d’Archimbaud said. “But it’s not the case anymore. Today, AI is about having the best data to train models.”
I think the immediate future of AI will be a race to solve the “dataification” conundrum that so many developers face. I also believe a longer-term opportunity for AI rests in algorithms that do not require human judgment to train the models. I am fascinated by this area of artificial intelligence research, and I look forward to diving deeper into companies like Kili in a future post.
Mic Check
This is an absolute must-listen. Seinfeld touches on some truisms here that I believe apply no matter the discipline or line of work. All of us must harness creativity at some point, and every person has the ability to become a great writer. According to Seinfeld, it requires daily training, constant revisions, and hours of banging your head against the wall. I absolutely loved Jerry’s comments about rewarding yourself at the end of a writing session — by not writing. That is your motivation while you write — you will no longer have to write once you are done. What a hysterical but painfully truthful way to look at the creative process.
I think the part of the conversation that stuck with me most was the comments he made about harnessing creativity. I think Seinfeld was noting that everyone has greatness within them. Everyone has a “superpower” (that you will get asked about in interviews ;). Everyone has some version of a “black stallion.” I think the most successful founders, investors, comedians, writers, podcast hosts, etc. have figured out how to co-exist with and ultimately harness their raw talents.
Anti-Movie Rec
Five years after the end of the Civil War, Capt. Jefferson Kyle Kidd crosses paths with a 10-year-old girl taken by the Kiowa people. Forced to return to her aunt and uncle, Kidd agrees to escort the child across the harsh and unforgiving plains of Texas. However, the long journey soon turns into a fight for survival as the traveling companions encounter danger at every turn — both human and natural.
News of the World
I hate to do this. I love Tom Hanks. I saw he was headlining a western directed by Paul Greengrass (Bourne 2, 3, United 93, etc.) and I was instantly on-board. Quality westerns are a dying breed nowadays, and the closest we get is typically a neo-western written and directed by Taylor Sheridan. Those movies are great, don’t get me wrong, but I was looking forward to bonafide western.
I could not have been more disappointed with this movie. NOTW is just…lifeless. I understand the dramatic arc it is working so hard to establish for the main character. And so will you — we have seen the “fractured soul’s redemption” arc many times in recent years. That is probably the biggest problem I had from the outset. I felt that I knew exactly the story the movie was trying to tell, how it was going to tell it, and where it would end up. There was nothing novel and nothing unexpected.
I also want to go on record here as saying Hollywood needs to find a new trope. The “Old Man and the Child” storyline is thoroughly played out. I can list countless examples here, or I can just direct you to the most recent of examples in Logan, Extraction, The Marksman, Sicario 2,… In no way do I claim to be a film history expert, but this is a trope that just feels tired at this point.
Putting aside that overused plot device, I could maybe recommend NOTW if it were a rousing western drama or action movie. But it is not. It is a slow slog to nowhere. There are detours that feel as if the screenwriters were just making it up as they went along. It feels as if the writers knew where the main character would end up and where they wanted the movie to end. And in the middle, they just threw in a bunch of mini-dramas. These dramas are all, in the end, pointless. They do nothing to develop the characters, except for contriving reasons for the child to form a stronger bond with Tom Hanks (which again, was predictable).
In the end, all of the gorgeous vistas and landscape shots cannot save a movie that does not have an engaging story to tell.
Movie Rec
Writer and journalist David Lipsky (Jesse Eisenberg) interviews author David Foster Wallace (Jason Segel) for Rolling Stone magazine.
The End of the Tour
It’s the first post of 2021, so let’s end it on a positive note. This is a little gem of a movie from almost six years ago. I do not know anyone else who has seen it. The movie revolves around an aspiring writer interviewing the late literary legend David Foster Wallace. It has an extremely simple premise — the story is all in the characters and conversations.
“He wants something better than he has. I want precisely what he has already.”
There are big and grand themes at play here. The underlying story is one of jealousy, artistry, and friendship. But the filmmakers are subtle. There are no grandstanding monologues about any of the aforementioned topics. There are no dramatically exaggerated moments of character development. This is a beautiful movie about the beginnings of a beautiful friendship.
Yes, it is also a movie about two guys sitting in cars, diners, and living rooms. But it’s so powerfully human that it is impossible not to be completely drawn in and emotionally invested in the personal plights of these two characters. I cannot recommend this movie highly enough.
That’s all, folks. Thank you to everyone who has subscribed or taken the time to read Venture Scenes. I will likely move forward with a 1 post/month cadence. Be on the lookout for the launch of my podcast, “Chicago Capital”! As always, if there is a startup or piece of VC news that you find interesting, comment below, or message me on LinkedIn or Twitter! And remember, even though it is February we can still keep those vacation vibes going…
