What WeWork’s $355 Million Series A Means for the Future of Co-Working
WeWork, the self-described “platform for creators”, just announced a $355 million Series A, giving it at a $5 billion valuation and rocketing it up to the #10 spot in the Wall Street Journal’s Billion-Dollar Startup Club list. WeWork’s product is co-working space for small businesses. The spaces are generally in buildings renovated to provide modern, trendy working environments for young start-ups and freelance workers at a cost accessible to them.
Full disclosure — I’ve been a member/tenant of the WeWork SoHo West location in downtown Manhattan for the past 6 months trying to grow the company I founded, FoundryOutdoors.com. For me, joining WeWork has been a good decision, and evidently others feel the same way.
Founded in 2010 by Adam Neumann and Miguel McKelvey, the community for entrepreneurs has grown to 16,000 active members (paying tenants) as of this writing who rent office space from within one of the company’s 32 locations worldwide, including in most major US cities as well as London, Amsterdam, and Tel-Aviv. They’ve grown so fast that their about page can’t even keep up. Although I’ve only been a member for 6 months, there are perks that keep me loyal and coming back month after month. For one, tenants pay relatively low rent on a month to month basis, which is unheard of in the world of commercial real estate. There’s also the benefit of having everything from WiFi to coffee to office cleaning taken care of, with plenty of other perks like happy hours and a keg of free beer on every floor. My floor even has a 60" flat screen we watched the World Cup games on.
All of this feeds into a bigger picture. WeWork has carved out a new way of enabling small businesses to do business in the context of collaboration within an environment that actually makes its members want to come to the office every day — thereby generating brand loyalty and repeat customers (members).
Ultimately, the primary friction that’s being eliminated is cost. On my floor I count about 100 open-plan “labs” desks and about 40 more private office spaces which cost a bit more. At the current rate of $400 per labs desk and ~$600 per private desk, the monthly rent collected on this floor can be ballparked at $60–70k (I assume 90% occupancy — there are very few open spots; in fact I had to wait a month to snag one). In a traditional model this type of cost would have only been accessible to larger companies even if the floorplan was carved up into halves or quarters, but because of the flexibility and low cost, it suddenly opens the floodgates to all kinds of entrepreneurs and freelancers that were working from home or coffee shops before.
And $355 million says that’s not stopping any time soon. The $5 billion valuation places WeWork in with heavy hitters like Pinterest, SpaceX, and Spotify, valued at $5.0, $4.8, and $4.0 billion respectively. Huge numbers by any stretch of the imagination. And while $355 million won’t go as far in the world of commercial real estate as it may in the world of, to use Adam Neumann’s terminology, creative companies, the way in which their capital has been strategically deployed up until this point has been an exciting thing to watch unfold. The recent push to rapidly expand co-working spaces internationally is likely to continue under that guidance, as well as (I’m sure) further domestic openings in major hubs like Philly and Houston, as well as additional NYC and San Francisco locations.
It could be that this landmark round of fundraising spurs more competitors to get truly disruptive in real estate and hop on board the co-working train. There are plenty of other co-working spaces in NYC like Grind and AlleyNYC, but none with the runway, scope, or offerings of WeWork. Putting up big fundraising numbers will likely attract other competitors whose eyes are now open to the possibility of creating a 10-figure company around the idea of putting like-minded entrepreneurs together in a space they love.
Regardless, I’m a believer in the movement of creating hotbeds for innovation and freelance work, and WeWork has been leading the pack with gusto. Witnessing first-hand the benefits and freedom that a work environment like this provides while remaining affordable instills a degree of zealotry in me that makes me, in a way, unsurprised at their ability to raise such a huge sum of money to continue this rapid growth. It’s going to be exciting to see where this road leads.
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