As WeWork struggles, competitor Knotel raises $400m

22 Aug 2019

Image: Knotel

While WeWork has been suffering heavy losses, Knotel appears to be thriving, but it still has a long way to go before it can catch up with the co-working giant.

Earlier this summer, it emerged that co-working space provider WeWork has been suffering heavy losses. In July, Business Insider reported that the SoftBank-backed company was losing $219,000 every hour of every single day.

The following month, the nine-year-old company, which has 527,000 members, released financial results for its IPO filing. The figures showed that the company was losing $5,200 per customer and is on track to lose $2.7bn this year.

However, WeWork insists this is part of its business model: “We have a history of losses and, especially if we continue to grow at an accelerated rate, we may be unable to achieve profitability at a company level for the foreseeable future.”

While this may raise scepticism about the sustainability of co-working start-ups, investors haven’t been deterred from funding one of WeWork’s potential competitors.

‘The future of the workplace’

Knotel, which has properties planned for Dublin, as well as existing spaces in Amsterdam, New York, London, San Francisco and São Paulo, to name a few, announced on Wednesday (21 August) that it had completed a $400m financing round.

In a blogpost about the funding, the start-up said that the round was led by an investment arm of the Sovereign Wealth Fund of Kuwait, called Wafra. There was additional investment from Japan’s Mori Trust, Itochu and Mercuria Investment Co.

“Building on its breakneck growth, Knotel will use the financing to grow its footprint in existing markets, continue expansion into the world’s 30 largest cities and deepen its engagement with global enterprise accounts,” the company said.

Amol Sarva, co-founder and CEO of Knotel, added: “Knotel is building the future of the workplace and we are excited to welcome a group of investors who believe passionately in our product, vision and ability to execute.

“Wafra will help us continue our rapid global expansion and solidify our position as the leader in a fast-growing, trillion-dollar flexible office market.”

In its funding announcement, the company also outlined what it believes separates it from other co-working players that “provide shared spaces for freelancers and company satellite locations”. Knotel, on the other hand, “focuses on providing private and fully-furnished workspaces to large enterprises”.

The company said it will use the fresh funding to accelerate its new innovations: Baya and Geometry. Baya, the firm explained, is a blockchain platform used to internally facilitate data-driven acquisition decisions to help reduce transaction costs. Geometry, meanwhile, is a subscription service for adaptable workplace products, allowing the company to fit out workspaces more efficiently.

Founded in 2016, Knotel has 200 properties and has raised a total of $560m. Its latest valuation is more than $1bn.

‘Looking for an alternative’

While many have concerns about the future and sustainability of co-working, Sarva told Bloomberg that Knotel is something entirely different: “Some of the largest asset managers in real estate have doubts about the WeWork model. In looking for an alternative, they found us.”

“Our business is so different. In 18 to 24 months, [WeWork] will be behind us. It’ll be like eBay and Amazon, Myspace and Facebook,” he added.

While WeWork is operating at a deficit for the time being, Sarva said Knotel’s main focus is “making the business capitally efficient”.

Speaking to TechCrunch, he added: “We will go way deeper into cities … Secondly, we are adding about a dozen more cities. Not 1,200. No-one makes money in Cairo. Thirdly, every time we announce a product or tech product, it’s about the core business.

“That is all about making us grow faster with less capital. Making real estate less painful, faster and with less friction.”

Time will tell if Knotel can take on WeWork, but it certainly has a long way to go before its $1bn valuation can catch up with WeWork’s $47bn valuation.

‘Laughably weak’ Wi-Fi

If WeWork doesn’t have enough to be worried about with finances and competition, on Wednesday it was reported that the security of its Wi-Fi systems is “laughably weak” and “downright dangerous”.

According to Fast Company, the Wi-Fi is based on a “shaky foundation”, with dated security and an easy-to-guess password that is shared at locations around the US and abroad.

WeWork was criticised for having a Wi-Fi network that was almost as vulnerable as having no password at all, as this can facilitate man-in-the-middle attacks.

Fast Company explained: “A hacker could set up an imposter Wi-Fi network with the same name, ‘WeWork’, and the same password. WeWork members who inadvertently connected to this imposter network would give the hacker access to their data stream. The fake network could also redirect members to phishing sites, like faux versions of Gmail or a bank, to harvest information.”

When this vulnerability was pointed out to WeWork by a security researcher, the company reportedly attempted to upsell a private, wireless office network for $195 per month, plus a $250 setup fee.

Kelly Earley was a journalist with Silicon Republic