NEW YORK (BLOOMBERG) - Knotel Inc, which pitches itself as a steadier investment than much larger competitor WeWork, raised US$400 million (S$553.6 million) at a valuation that catapults the start-up 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 per cent of the closely held company, he said, implying a valuation of at least US$1.3 billion. He declined to be more specific. Unicorn are privately-held start-ups valued at over US$1 billion.
WeWork, in contrast, has achieved a private-market valuation of US$47 billion, placing it far ahead of a slew of rivals around the world hoping to woo its members. It's planning an initial public offering next month that may raise more than US$3 billion.
One key difference between the start-up and WeWork is that Knotel only counts large companies such as Starbucks Corp, Microsoft, Oracle, AT&T and BP as clients. Founded in 2016, Knotel spans more than four 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," Mr 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 US$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, 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," Mr Sarva mused, estimating that the leading player in a category can reach 30 per cent 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 US, it will seek locations in Houston, Dallas, Chicago and Atlanta.