Office space startup Knotel raised $25 million in a Series A funding round as it prepares to take on WeWork in the growing market for flexible workspace.
The round included venture firms Bloomberg Beta, Rocket International, 500 Startups and Invest AG.
Knotel manages and builds out office space under partnership agreements with landlords and leases the spaces out to small- and mid-sized companies under short-term deals.
The New York-based startup has eight locations running and four more set to open soon — all in the Big Apple. The firm’s co-founder Amol Sarva said he plans to expand from 200,000 square feet to around 1 million square feet by the end of the year. “We intend to build a vast global enterprise,” he said.
Knotel, founded in 2015 by Sarva and Edward Shenderovich, doesn’t bill itself as a co-working company. Unlike WeWork, The Yard and others, it generally turns away freelancers and one-person companies in search of a desk. Instead, it focuses on small businesses who may be growing out of a WeWork but balk at signing a ten-year lease. The majority of tenants have more than 20 employees.
Its pitch is also very different from WeWork’s. While the $17-billion company talks about building a global social network that allows its “members” to “do what they love,” Knotel merely bills itself as a savior from rigid lease terms. The idea is that tenants may be willing to pay more per square foot if they can shrink, grow or cancel as they please and don’t have to worry about hiring receptionists, buying furniture or sorting out Wifi.
Where WeWork spends heavily on buildouts to give its spaces a uniform design, Knotel puts on a lighter touch and even in a single Knotel building, individual floors can look different. Sarva, who helped found the mobile technology companies Virgin Mobile USA and Peek, said spending less on buildouts helps make its spaces cheaper than the co-working competition, but declined to disclose average prices per square foot or desk.
While most co-working companies sign leases and make a profit off the spread between rent and membership fees, Knotel partners with landlords under profit-sharing deals. The arrangement is similar to hotels, according to Sarva. He argues that by avoiding long-term leases with landlords, his company is better equipped to withstand an office market downturn. “Real estate is a cyclical category,” he said, “so you design your business to be friendly to risk.”
Another company that partners with landlords to offer flexible office space is Breather, although it offers space by the hour (rather than month or year) and leases out individual meeting rooms rather than entire offices. The company recently raised $40 million in funding.