(Bloomberg)—Knotel Inc., which pitches itself as a steadier investment than much larger competitor WeWork, raised $400 million at a valuation that catapults the startup to unicorn status.
A fundraising round that closed this week drew investors including Kuwait-backed Wafra Inc. and Japan’s Mori Trust, Itochu Corp. and Mercuria Investment Co. They’re betting that upstarts can still challenge WeWork, the office-sharing juggernaut backed by Masayoshi Son’s SoftBank.
“Some of the largest asset managers in real estate have doubts about the WeWork model," Knotel co-founder and Chief Executive Officer Amol Sarva said in an interview. “In looking for an alternative, they found us.”
The fundraising was in exchange for 15% to 30% of the closely held company, he said, implying a valuation of at least $1.3 billion. He declined to be more specific.
WeWork, in contrast, has achieved a private-market valuation of $47 billion, placing it far ahead of a slew of rivals around the world hoping to lure away its members. It’s planning an initial public offering next month that may raise more than $3 billion.
One key difference between the startup and WeWork is that Knotel only counts large companies such as Starbucks Corp., Microsoft Corp., Oracle Corp., AT&T Inc. and BP Plc as clients. Founded in 2016, Knotel spans more than 4 million square feet of flexible workspace. Its leases have a weighted-average term of more than two years and a cohort of more than 100 desks.
“Our business is so different,” Sarva said, predicting his company will leap past its much larger rival. “In 18 to 24 months they’ll be behind us. It’ll be like EBay and Amazon, Myspace and Facebook.”
Knotel previously raised $160 million from investors including Newmark Knight Frank, Norwest Venture Partners and Sapir Organization, which also participated in the recent round. Other investors in the firm have included Rocket Internet and Bloomberg Beta, the venture capital arm of Bloomberg LP, the owner of Bloomberg News.
With the proceeds from its recent fundraising, Knotel intends to get “way deeper” in cities it’s already present, such as New York, San Francisco and Los Angeles.
“In a place like New York, 100 buildings isn’t enough, 1,000 buildings isn’t enough,” Sarva mused, estimating that the leading player in a category can reach 30% of the total market. He estimated that would be in the vicinity of 3,000 buildings in New York, where it has more than 108 locations to WeWork’s 62. Knotel says it’s also more ubiquitous in cities such as Paris and the San Francisco Bay Area by number of locations. To be sure, WeWork’s footprint is much larger.
The new capital will help Knotel spread farther afield, targeting cities such as Tokyo, Seoul, Beijing, Shanghai, Shenzhen, Hong Kong, Singapore, Mumbai, Delhi, Bangalore and Hyderabad. Within the U.S., it will seek locations in Houston, Dallas, Chicago and Atlanta.
David Scheer, Dan Reichl
© 2019 Bloomberg L.P.