A year and a half after the city of Charleston converted a former downtown video store into the Flagship, an incubator for startup technology businesses, officials are planning an expansion.

The Flagship 2, already nicknamed FS2, is the next stage of the city's effort to attract and grow knowledge-based entrepreneurs by giving them affordable, flexible workspace and connecting them with key resources.

The new facility, scheduled to open in April, is meant for ventures that have advanced past the startup stage.

In the Flagship 2, which fronts Alexander Street and is adjacent to the existing Flagship at East Bay and Calhoun streets, businesses will have larger offices with room to add employees as they grow. They'll also have more privacy than is afforded by the glass walls of the original building, said Ernest Andrade, director of business development for the city and director of the public-private Charleston Digital Corridor initiative.

Entrepreneurs in the new incubator will be able to stay longer than the one-year time frame that comes with renting in the original Flagship, Andrade said.

All 11 of the Flagship's work spaces are occupied, and Andrade has said interested tenants frequently contact him about availability.

"The constant flow of demand for workspace the Flagship has enjoyed since opening affirms that Charleston's knowledge economy is vibrant, and FS2 will serve an even greater role in fostering this growth," he said.

So far, five businesses have "graduated" from the incubator and grown into larger space elsewhere. Andrade said all of those companies are still operating and have added jobs, a track record he would like to see continue.

**City investment
**The city is paying $500,000 to improve the inside of the 13,700-square-foot building that previously housed a retail store and TV studio. That investment will convert the interior into 14 offices ranging from 300 to 5,000 square feet. Many will have their own kitchens and bathrooms.

At the original Flagship, the minimalist glass-fronted offices are 75 to 150 square feet –- generally just enough space for a desk.

The renovation plans also call for the addition of a lounge area near the entrance of the building. Andrade said the space is intended to draw technology-minded entrepreneurs together for conversations and events.

The city is leasing the building from Mazyck Holdings LLC for $145,000 annually for the first five years and $155,000 for the following five years. The landlord will contribute $100,000 to upfit the building, city documents say.

Tenant rents, at about $18 per square foot, are expected to cover annual operating costs, Andrade said.

Charleston Mayor Joe Riley, in a letter to City Council about the project, said the project has a "huge economic development benefit" of helping new businesses start and grow in the community.

"It is important during this economic downturn, from which I believe we are emerging, that we seize special opportunities like this to foster the growth and development of small businesses," Riley wrote.

Capital costs for the original Flagship totaled $120,000, the city said. Andrade said rents in that building cover about 80% of costs.

**'Connected to a program'
**Andrade says the Flagship and its sequel are more than just co-work space.

Entrepreneurs have desks, computers, Internet connectivity, phones and conference space ready to go from day one. The idea, as city officials have explained it, is that by offering people with ideas the resources they need, they are then able to focus on growth and profitability.

The rent, which ranges from $400 to $750, is on a month-to-month basis. Those starting up businesses have said it's difficult to sign long-term leases, as is often the norm for commercial space, at a stage when income isn't stable or even guaranteed to exist.

Another benefit of working in the Flagship, city officials say, is the help that staff members offer with things like getting business licenses, finding attorneys, networking with like-minded professionals and, eventually, finding suitable longer-term spaces.

"Over here, you're connected to a program," Andrade said. "You're part of the Digital Corridor family."

The Charleston Digital Corridor is a public-private effort the city initiated in 2001 to spur the growth of knowledge-based companies locally. Companies that are involved offer feedback to the city on industry needs, Andrade said.

The Flagship 2 is, in part, a response to that feedback, he said.

"If you're introducing entrepreneurs to the local knowledge economy, as they grow, some might want to stay in that environment," Andrade said.

At the original Flagship, that's generally not an option.

Andrade says a year is the "sweet spot" for Flagship companies. By that time, they are either ready to grow and move on or ready to reassess. So far, the five companies that have moved on have done so because they were growing, he said.

At the Flagship 2, technology companies can plan to stay longer, and they can grow into flexible space as needed.

That's attractive to Rich Stanton, a current Flagship tenant who is working on a venture that helps small and medium-sized business streamline their social media management.

"When you start a new business, it's good to be surrounded by fellow entrepreneurs," Stanton said.

**A select group
**As with the first Flagship, not everyone is a fit for the new facility.

For starters, tenants must be knowledge-based ventures, Andrade said. They must be further along than the startup phase, and they must be seeking continued growth.

With its incubator projects, Andrade said the city is looking to attract growing companies with high-wage jobs, not provide office space for businesses that are content with a few existing clients.

"We want to support the companies that want to be the next multimillion-dollar companies," he said.

Although the private sector likely considers businesses' track records and credit history when leasing office space, Andrade said the city instead considers their potential for capital investment and job creation.

Since June 2009, the city says that tenants and graduates of the Flagship have raised more than $15 million from public and private sources.

They have created 65 jobs for a combined payroll of more than $5 million, the city said.