August 22, 2018
Sometimes, two heads are better than one. That’s why merging with an established or upcoming coworking brand may be a great way to fuel the growth of your coworking space.
Alongside the explosion of new coworking spaces in recent years, there has been a trend towards consolidation through mergers and acquisitions. Oftentimes, complementary brands will seek each other out in order to create an offering and member experience that is truly unique.
Choosing to align one’s business with a like-minded brand is also a great way to pool resources and knowledge, as well as reduce costs. Additionally, increasing the number of physical locations within your portfolio of spaces can dramatically transform the member experience and create a competitive advantage that many brands don’t have.
Funding Source #4: Mergers and acquisitions
The decision to join forces with another coworking space in order to scale-up is another source of funding for your growing coworking business, and an increasingly common one.
Once again, this is occurring across the board with coworking spaces of all sizes – from WeWork’s reported $400M acquisition of Chinese coworking startup Naked Hub through to numerous regional players teaming up around the globe.
For smaller spaces, merging along the lines of similar business models is not only a valuable exercise in articulating their product offering, but may actually end up being a relatively painless process. Two Nordic coworking spaces, Founders House and Mesh, that cater only to the startup scenes in their respective countries, recently merged and enjoyed a seamless transition because the two had identical membership models, clientele, and objectives.
Who else has leveraged this funding source?
Last month, Optix client Workflourish succeeded in completing a merger with Craftwork Coffee Co. to fuel a statewide expansion of their business in Texas. Through this acquisition, Craftwork plans to move out of the traditional stand alone coworking space model and build on the success of Workflourish, entering the apartment space. They aim to work with multi-family residential builders “to align their businesses and properties while creating a symbiotic relationship between the commercial real estate developers, their residents, and the thriving, growing business community that Craftwork Coffee currently serves.”
How can I secure this type of funding?
There is no secret recipe for successful mergers. That being said, taking a strategic approach, cultivating a strong management team, and digging deep to truly understand your members’ needs will certainly help to create favorable conditions.
No matter how strategic you are, fostering cultural compatibility between both entities is a crucial component to ensuring the transaction drives the expected long term results. Another thing to think about when looking for a merger target is to define your financial goals and find the appropriate business that would best help you achieve them – whether to reduce costs, grow your revenue, increase your market share, etc.
Choosing the right funding source
We hope you enjoyed this series on the various funding sources available to coworking spaces and hope we have given you some useful insights for identifying the appropriate funding type for your organization.
You can choose to pursue a source that will inject money into your business: either the modern method of crowdfunding or the traditional method of VC funding. With VC funding however, you should be mindful of the equity that you would have to give up to make the deal.
You can also choose a funding method that is more complex – that of finding and collaborating with other businesses either in the form of strategic partnerships or in a merger deal. Then again, the reality is that finding the right source of funding is not easy and patience is key.
Rest assured, there is an influx of capital as well as the formation of new partnerships and creative business models in the wake of WeWork’s rise to a multi-billion dollar valuation. We will undoubtedly continue to see a lot more activity in this space in the years to come.