WeWork’s Smaller Rivals Are ‘Not Scared of a Recession:’ Term Sheet

August 23, 2019, 1:56 PM UTC

WeWork filed for an IPO, Knotel raised $400 million in funding at a valuation of $1 billion yesterday, and Industrious just closed a big round of capital. 

Industrious, a co-working office space startup, raised $80 million in Series D funding. Investors include Riverwood Capital Partners, Brookfield Properties Retail, TF Cornerstone, Granite Properties, Equinox, Wells Fargo Strategic Capital, Fifth Wall Capital, and the Canada Pension Plan Investment Board.

If you base it purely off of funding rounds, things are looking just peachy for co-working startups. Meanwhile, people are sounding the alarm bells: C.E.O.s Should Fear a Recession. It Could Mean Revolution; Harvard Economist Warns Hong Kong Could Trigger World Recession; and All eyes on Fed chairman as recession fears ramp up.

Hell, even WeWork is worried about a recession. In its S-1, the company explains that an “economic downturn or subsequent declines in market rents” could hurt its operations. It goes on to say: “While we believe that we have a durable business model in all economic cycles, there can be no assurance that this will be the case.”

WeWork has not experienced a global economic downturn since founding its business. And neither have most of its peers. Yet I was surprised to read about a panel discussion that included executives of many WeWork-adjacent businesses who were rather confident about where the market is headed.

“We’re not scared of a recession,” said Nick LiVigne, Convene’s head of product. “We think this is a sustainable model, whether that’s domestic or international.” I don’t know about you, but those sound like some famous last words to me.

To be fair to LiVigne, he explains that 80% of the firm’s revenue comes from non-co-working sources and 50% from enterprise sources. Convene, which is a real estate startup that specializes in flexible meeting and working space, differs from WeWork in that most of its customers are well-established companies with more than $1 billion in annual revenue or ones which have more than 1,000 employees. Convene also offers standalone hospitality services that don’t require it to sign a lease. 

Buuuuuuut if a recession hits, I’m not sure how many people will be “working flexibly” from these facilities as companies tighten their budgets. As WorkSuites CEO Flip Howard asked, “When the market turns down, do these corporations that are paying two or three more times for their office space in exchange for a cool environment and flexibility stay?” 

To say the market is crowded is an understatement. There’s WeWork, Convene, Knotel, Industrious, Spacious, The Yard, The Wing, Alley, and many more that I’m probably missing. 

So what do you do if you’re a WeWork-adjacent business? You raise big money or you get bought. 

In a remarkably honest statement which I personally appreciated, The Yard’s Richard Beyda said on the panel: “We look at the best exit strategy, or the best opportunity to make money. We’re in this to make money. Some people say they want to change the world but we want to do both things at one time.”

VMware GOES SHOPPING: VMware will acquire Carbon Black, a company that focuses on securing modern cloud-native workloads, for approximately $1.9 billion. VMware will also acquire Pivotal for about $800 million.

THIS JUST IN: David Koch, the industrialist and libertarian who used his fortune to transform American politics while also donating more than $1 billion to philanthropic causes, has died. He was 79. Read more at Fortune.


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