It was the IPO that never landed.
The fallout of coworking space startup WeWork’s first attempt at going public has become the subject of a documentary, books, and an upcoming television series after revelations about the company’s financial picture and conflicts of interest came to light in its S-1 filing. Adam Neumann, the company’s then-CEO and co-founder, was ousted from the company amid the debacle. The whole ordeal has become code for how a charismatic leader can build a business that grows beyond anyone’s expectations—and crumbles just as fast.
WeWork drove serious losses for venture capitalists—and primarily SoftBank, which had invested at least $18.5 billion in the company. The company, which has improved its financials since going public via a SPAC merger last year, is still running at a deficit—reporting a net loss of more than $844 million in the third quarter of 2021.
What all of the fallout has meant for WeWork’s real estate partners, which rent out the space it used to set up its coworking offices around the world, is unclear. New York-based Rudin Management, for one, made a huge bet on WeWork, leasing the company approximately half a million square feet, including a building on Wall Street in which WeWork is the sole tenant. Rudin declined to tell me whether WeWork had ever defaulted on any of its lease payments.
And yet, Rudin Management still seems as bullish as ever. “I don’t think we would have done anything different,” CEO Bill Rudin told The Real Deal in December 2019.
Three years after WeWork’s implosion, the real estate giant is taking another bet on coworking with a team of ex-employees from WeWork’s enterprise business. Rudin Management’s venture investing arm, Rudin Ventures, is joining a $9.6 million seed funding round ($1 million of which is debt) for Daybase, a startup with 12 staffers—seven from WeWork—that wants to build and scale a new hybrid coworking company across the U.S.
Rudin is one of three real estate companies or families investing in the venture—alongside the VC firms True Ventures, which led the round, Company Ventures, and Good Friends. (WeWork didn’t respond to requests for comment for this story, and a SoftBank representative declined to comment.)
CEO Joel Steinhaus, COO Doug Chambers, and Daybase’s other co-founders—who all worked within WeWork’s enterprise business and focused on its larger clients—plan to use the capital to build out technology, hire more corporate staff, and built out a hybrid workspace model that will target the suburbs.
“Working from home was not a uniform experience for everyone,” says Steinhaus. “I think the pandemic created a clear need for a third place… between going into a hub office and working from home.”
The startup’s first location opened this year in Hoboken, New Jersey. Daybase wants to operate in retail spaces on the ground floor of buildings within densely populated neighborhoods. The coworking spaces will be near city centers, but in residential areas where commuting is long or difficult.
Unlike WeWork’s expansion strategy, which relied on venture capital dollars to quickly scoop up leases and expand around the world, Daybase has received approval as a franchisor. Local business owners will front the original capital and own each business, but pay Daybase a licensing fee for use of their floor plan models, marketing and branding, and technology, like their app, to help run it. In addition to Hoboken, it’s working to open two more spaces in Harrison, New York, and Westfield, N.J. by the end of this year, then start opening franchise locations in the next 12 to 14 months.
“That’s how we want to think about capitalizing this business,” Steinhaus says.
Daybase is also partnering with luxury rental real estate companies—like Rudin Management—to build spaces within their own buildings, acting as an amenity to their building but also a rent-paying tenant.
Thus far, Daybase has a few more than 300 members. People can either walk-in or pay for a membership, which starts at $50 a month and includes access to a coworking space and coffee and tea, with the option to pay for desks or meeting rooms by the hour. (A $199 a month membership includes credits to use for desks and meeting rooms)
Investors avoided getting detailed with me about their due diligence processes for investing Daybase, and how they ensured this wouldn’t be a WeWork 2.0, where investors ended up losing billions on their original investment.
Nelson Schubart, head of investments at Company Ventures, noted that the Daybase team joined WeWork “well after its founding phase and the formation of the business model.” In particular, it was attracted to them coming from the enterprise side of the business, “the most valuable segment” at WeWork.
Daybase has “a clear, compelling and sustainable growth model. We were also drawn to the Daybase team based on their experience working on WeWork’s very successful enterprise segment,” Michael Rudin, executive vice president of Rudin Management, emailed me in a statement, declining to answer further questions.
The alternate capitalization model stood out to True Ventures, principal Ariel Winton-Jones tells me. “I think one of the learnings they had at WeWork was around capitalization of this sort of business,” she says. “[Daybase] set out on a mission to … really focus their equity dollars on funding, people, and technology and leverage capital partners for the individual locations.”
Daybase won’t be the only franchising coworking space company in the business. There are already players like International Workers Group, which has the brand Regus, or Office Revolution.
But Steinhaus thinks Daybase can bring something new to the table: A coworking space within a 10 minute walk or drive from home. “We want you to be able to be where you are, and have the same level of service that you have in your hub office,” he says.
Steinhaus, perhaps unsurprisingly, wanted to downplay and distance himself and his colleagues from WeWork—emphasizing the leadership team’s experience prior to the company. He wouldn’t speak about Neumann specifically.
When asked what he learned during his time at WeWork, Steinhaus says “rapid growth created a new company in much shorter increments of time,” which led to communication issues and breakdowns in processes. He wants to run a team where they document things frequently, share those materials, have intentional meetings, and draft company policies early on—including its own remote work policy.
After all, Daybase has its headquarters in midtown Manhattan, but its employees don’t work in the office every day. As you could imagine, they tend to take a more “hybrid” approach.
See you tomorrow,
Jessica Mathews
Twitter: @jessicakmathews
Email: jessica.mathews@fortune.com
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Jackson Fordyce curated the deals section of today’s newsletter.
VENTURE DEALS
- Fanatics, a Jacksonville, Fla.-based online sports retail company, raised $1.5 billion in funding from investors including Fidelity, BlackRock, and MSD Capital, per The Wall Street Journal.
- Insider, an Istanbul-based online marketing platform, raised $121 million in Series D funding led by Qatari Investment Authority and was joined by investors including Sequoia, Riverwood Capital, 212, Wamda Capital, Esas Private Equity, and Endeavor Catalyst.
- Connecteam, a New York-based employee optimization app, raised $120 million in a Series C funding co-led by Stripes and Insight Partners and was joined by investors including Tiger Global, Qumra Capital, and O.G. Tech.
- Luminous Computing, a Mountain View, Caif-based photonic chip develop DEVELOPER?, raised $105 million in Series A funding from investors including Gigafund, Bill Gates, 8090 Partners, Neo, Third Kind Venture Capital, Alumni Ventures Group, Strawberry Creek Ventures, Horsley Bridge, Modern Venture Partners, and others.
- NCX, a San Francisco-based carbon marketplace, raised $50 million in Series B led by Energize Ventures and was joined by investors including Scribble Ventures and TIME Ventures.
- Epsilogen, a London-based immuno-oncology company, raised £30.75 million ($41.20 million) in Series B funding led by Novartis Venture Fund and was joined by investors including 3B Future Health Fund, British Patient Capital, Schroders Capital, Caribou Property, Epidarex Capital, and ALSA Ventures.
- Tenderly, a Belgrade, Serbia-based blockchain development platform, raised $40 million in Series B funding led by Spark Capital and was joined by investors including Accel and Point Nine Capital, Abstract Ventures, Coinbase Ventures, Uniswap Labs, Daedalus, Guillermo Rauch, Jinglan Wang, Eric Ries, and Tihomir Bajic.
- FreeWill, a New York-based estate and will planning company, raised $30 million in Series B funding led by Bain Capital Double Impact and others.
- ParkourSC, formerly Cloudleaf, a San Jose, Calif.-based sensor platform developer, raised $26 million in funding led by Cota Capital, John Chambers, and others.
- CardinalOps, a Tel Aviv, Israel-based threat coverage optimization company, raised $17.5 million in Series A funding led by Viola Ventures and was joined by investors including Battery Ventures, Glilot Capital, and Symbol.
- Tastewise, a Tel Aviv-based food platform that brings products to market, raised $17 million in Series A funding led by Disruptive and was joined by investors including PeakBridge and PICO Venture Partners.
- Faros AI, a Sunnyvale, Calif.-based engineering operations platform, raised $16 million in seed funding led by SignalFire, Salesforce Ventures, and Global Founders Capital and was joined by investors including Maynard Webb, Frederic Kerrest, Adam Gross, and others.
- Piñata, a Newark, N.J.-based rewards and credit building membership program for renters, raised $13 million in Series A funding led by Wilshire Lane Capital.
- Rebel Girls, a Larkspur, Calif.-based female empowerment brand,raised $13 million in seed funding led by Owl Ventures and was joined investors including MindShift Capital, Emmeline Ventures, Joelle Kayden, Deborah Mei, Sukhinder Singh Cassidy, Wenda Millard, Brit Morin, Simone Otus Coxe, and Kat Taylor.
- RioGrande, a Mexico City-based platform to scale and build online brands, raised $12 million in seed funding led by Y Combinator and Jaguar Ventures and was joined by investors including Arielle Zuckerberg, Justin Mateen, and others.
- Filtered, a Boston-based technical interview platform, raised $10 million in funding led by AI Fund, Silicon Valley Data Capital, and TDF Ventures.
- Source.ag, an Amsterdam-based agtech startup building A.I. for greenhouses, raised $10 million in seed funding led by Acre Ventures and was joined by investors including E14 Fund and Astanor Ventures.
- Archive, a Miami-based e-commerce marketing and automation platform, raised $8 million in Seed-2 funding led by Tiger Global and Human Capital and was joined by investors including Battery Ventures, Anti Fund, Red Antler, 305 Ventures, and others.
- Nested, a Geneva, Switzerland-based social trading platform based on financial NFTs, raised $7.5 million in Series A funding led by Alan Howard and was joined by investors including Republic Capital, Kenetic Capital, CMT Digital, Joseph Eagan, former president of Polychain Capital Lily Liu, Julien Bouteloup, REKT, Blackpool, and others.
- BastionZero, a Boston-based cybersecurity company focused on building infrastructure remote access, raised $6 million in seed funding led by Dell Technologies Capital and was joined by investors including Akamai and Digital Garage Lab Fund.
- MyPlace, a New York-based house sharing platform, raised $5.8 million in seed funding led by Freestyle and was joined by investors including Haystack, Oceans, and OnDeck.
- PTO Exchange, a Woodinville, Wash.-based benefits platform focused on unused paid time off, raised $5.4 million in seed II funding led by TTV Capital and was joined by investors including Fin Capital, Manifold Ventures, CFV Ventures, SpringTime Ventures, Forefront Venture Partners, and WestRiver Group.
- Nifty League, a Mill Valley, Calif.-based NFT gaming platform, raised $5 million in seed funding led by RSE Ventures and was joined by investors including Spartan Group, Lerer Hippeau, VaynerFund, Private Ventures Group, Advancit W3, Avocado Guild, EVOS Gaming, TEOH Capital, 3SE Holdings, y2z Ventures, Nyan Heroes, DraftKings Co-founder Matthew Kalish, and Gallery Media Group CEO Ryan Harwood.
- SecureCo, a New York-based data cybersecurity company, raised $2.5 million in seed funding from investors including Florida Funders.
- Quiver Quantitative, a Spring Green, Wis.-based investment research platform, raised $2 million in funding led by Allos Ventures and was joined by investors including M25, Bascom Ventures, Lancaster Investments, Connetic Ventures, WARF, and the Idea Fund of La Crosse.
PRIVATE EQUITY
- Altus Capital Partners acquired Winsert, a Marinette, Wis.-based manufacturer of metal parts for aerospace and food processing companies. Financial terms were not disclosed.
- British Columbia Investment Management Corporation acquired a minority stake in Zedra, a Geneva, Switzerland-based wealth and fund management company. Financial terms were not disclosed.
- Invictus Growth Partners acquired a majority stake in Revation Systems, a Minneapolis, Minn.-based cloud-based engagement and communication company. Financial terms were not disclosed.
- Sheridan Capital Partners recapitalized SpendMend, a Grand Rapids, Mich.-based audit recovery services company. Financial terms were not disclosed.
- TradePending, a Capstreet portfolio company, acquired AutoAPR, a Charlotte, N.C.-based provider of website engagement tools for the automotive, power sports, RV, and marine industries. Financial terms were not disclosed.
EXITS
- Partners Group acquired Forterro, a London-based resource planning software company, for €1 billion ($1.11 billion) from Battery Ventures.
OTHER
- SciPlay Corporation acquired Alictus, an Ankara, Turkey-based mobile game developer and publisher for 80% of Alictus (worth $100 million). THIS OKAY?
- Beyond Limits acquired Altec Products, a Laguna Hills, Calif.-based document management provider. Financial terms were not disclosed.
- Goodway Group acquired Tuff, an Eagle, Colo.-based marketing agency. Financial terms were not disclosed.
- Verbit acquired Take Note, a London-based transcription services company. Financial terms were not disclosed.
IPOS
- Roxe, a Hoboken, N.J.-based blockchain infrastructure company for payments solutions, said it plans to go public by the end of the year.
SPAC
- Perfect Corp., a New Taipei City, Taiwan-based 3D glasses virtual try-on company, agreed to go public in the U.S. via a merger with Provident Acquisition Corp., a SPAC. A deal values the company at around $1 billion.
FUNDS + FUNDS OF FUNDS
- Cornell Capital, a New York-based private equity firm, raised $1.7 billion for a second fund focused on consumer, financial, industrials, and business services companies
- PA Capital, a Richmond, Va.-based private equity investor, raised $473 million for a ninth fund focused on the lower end of the middle market and also raised $200 million for a new fund focused on co-investment deals.
PEOPLE
- Charger Investment Partners, an El Segundo, Calif.-based private equity firm, hired Aaron Figura as managing director. Formerly, he was with OpenGate Capital.
- Cornell Capital, a New York-based private equity firm, hired Allen Chu as partner and head of Asia, Charles Buaron as managing director, and Emily Mason as managing director and head of investor relations. Formerly, Chu was with Dymon Asia Capital, Buaron was with Oak Hill Capital, and Mason was with Silver Point Capital.
- HarbourVest, a Boston-based private equity firm, promoted Dan Buffery, Gonçalo Faria Ferreira, Aliza Firestone Goren, Richard Hickman, Fran Peters, and Alex Wolf to managing director. They also promoted Aiko Adachi, Nicholas Bellisario, Melissa Cahill, Todd DeAngelo, Kyle Dowd, William Hasten, Conner Hayes, and William Thompson to principal. Lastly, they promoted Brooke Logan, Alicia Novak, Sandra Pasquale, Igor Rudfeld, Diarmuid Walsh to senior vice president.
- LeapFrog Investments, a London-based private equity firm, hired Yalin Karadogan as partner. Formerly, he was with Cinven.
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