Enterprise workspace provider Knotel has banked $400 million in a round led by Wafra, a wholly-owned subsidiary of Kuwait’s Public Institution for Social Security. Tokyo-based Mori Trust, Itochu and Mercuria joined Norwest Venture Partners, Newmark Knight Frank, Bloomberg Beta and Rocket Internet in contributing to the round. The fundraise values Knotel at more than $1 billion.
Founded in 2016 and based in New York, the company provides over 4 million square feet of workspace in more than 200 cities. Knotel did not immediately respond to PitchBook’s request for comment.
The funding announcement follows reports in May that the company was seeking an undisclosed amount of funds at a $1.5 billion valuation, with Singapore’s GIC Private Ltd. possibly participating. GIC Private appears to be largely absent in Wednesday’s announcement, however.
Knotel reportedly holds big names such as Starbucks, Microsoft, Oracle and AT&T as clients. It has cumulatively raised about $560 million in equity funding.
The company will pursue an entrance into Asian cities including Tokyo, Seoul, Beijing and Hyderabad, as well as US cities including Houston, Dallas, Chicago and Atlanta, according to Bloomberg. In addition to its global expansion plans, the company plans to invest in Baya, an internal blockchain-based software platform used to analyze potential acquisition opportunities, and Geometry, a furniture rental subscription service for the company’s clients.
Competing and ballooning
As WeWork (aka The We Company) has gained attention on its journey to the public markets, Knotel has quietly been working to compete with the former. Both companies lease vacant office space and market it with added value via interior design, furnishing and real estate administrative services.
Unlike WeWork, Knotel targets companies needing a private, full-service alternative to traditional lengthy commercial lease periods. WeWork focuses on individuals and small teams interested in shared workspace using a membership-based business model, although it does offer larger, dedicated spaces geared toward enterprise clients.
Both workspace providers have received significant investments from firms based in Tokyo and the Middle East. Knotel’s funnel of funds from firms in Japan and Kuwait appears to be somewhat of an off-brand of WeWork’s funding pool from Tokyo-based SoftBank and, indirectly, Saudi Arabia’s Public Investment Fund and Abu Dhabi’s Mubadala Investment Company.
Ultimately, it remains to be seen how such VC-backed workspace providers will justify ballooning valuations and claims of being “tech” companies versus real estate companies. In comparison, Luxembourg-based International Workplace Group holds a market cap of £3.71 billion (about $4.5 billion), as of August 21, while offering about 547,344 workstations at the end of 2018. In 2Q 2019, IWG booked a £294.9 million (about $357.69 million) profit after tax by leasing 58.8 million square feet across 3,334 locations worldwide, with clients such as Google, Nike and Nokia.
WeWork, by comparison, lost $904.65 million in 1H 2019. It similarly reports a workstation capacity of 604,000 as of June 30 (up from 466,000 at the end of 2018) across 528 locations. Perhaps owing to its $47 billion valuation as of January is its past growth rate in excess of 100% YoY, although past performance is not necessarily indicative of future results as the company gradually matures.
In comparison to established but lesser-known competitors such as IWG, Knotel and the highly unprofitable WeWork seem to be scoring valuations based on hype and hope, as has been commonly seen in 2019’s IPO frenzy.
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