Those who detest reality TV shows possibly don’t know the role they played in Karan Virwani’s life. During his final year of college, inspiration struck Karan while watching an episode of Dragons’ Den, a British reality TV show in which budding entrepreneurs pitch their ideas to investors in the hope of securing funding for their businesses. But Karan didn’t woo any investors—instead he pitched his idea to the Embassy Group, his father Jitendra Virwani’s billion-dollar office space business.

What was Karan’s original idea? He wanted to rent out workspace to startups in return for equity. He then tweaked that to leverage the family’s bank of real estate to set up co-working spaces to rent to startups and small companies. As it turned out, New York-headquartered WeWork Companies, one of the world’s largest co-working space providers, also was exploring partnering options with local real estate developers to set up base in India. Around the middle of 2015, U.S.-based real estate baron and angel investor in WeWork, Marc Schimmel, met Karan, following an introduction by legal firm Khaitan & Co, WeWork’s legal representatives in India. “The Embassy team liked the idea. During my research, I read about WeWork,” Karan, 26, now chief WeWork executive officer of WeWork India, tells Fortune India, sitting in its first shared-office space building in Bengaluru.

In late 2016, WeWork announced its foray into India, in partnership with Embassy. The name of the new entity: WeWork India Management. What clinched the deal for the Virwanis was their first-hand experience of the WeWork headquarters in New York, which convinced them about what the combination of technology and real estate could achieve.

WeWork India gets all its design elements, technology, training knowhow on how to run a community set-up and backend systems to run the operations from its U.S. partner. It also uses a proprietary tool to source real estate and track deals. Embassy uses its expertise in finding and negotiating the right real estate at the right prices. Simply put, Embassy provides the real estate and funds for the business. This was a slightly different path from that of Karan’s father, who is known for constructing mammoth business parks for global corporations.

“We pay a management fee to WeWork for all the services they provide. There is no profit-sharing. It is not so different from how international hotel brands operate here with real estate developers,” Karan says, adding that the co-working company works with multiple local developers. “All our buildings are leased properties, including the ones from Embassy. Currently, we have close to about two million sq. ft. of office space, of which only 20% are Embassy properties,” he continues.

Bengaluru was WeWork’s first stop. WeWork India started operations in July 2017, with its first shared-office space comprising 2,200-plus workstations at Embassy’s Residency Road building in Bengaluru. Apart from Embassy, it has also leased properties from developers such as Prestige Group, RMZ, and Salarpuria Sattva Group, among others. And in just a year, it has built a network of nine shared working spaces in key cities such as Bengaluru, Delhi-National Capital Region (NCR), and Mumbai. “Having a partner like Embassy Group is essential in understanding the local culture and it also gives us credibility in the market,” says a WeWork spokesperson based in New York.

Founded in 2010 by Adam Neumann and Miguel McKelvey, WeWork has since raised close to $7 billion in venture capital and privateequity funding so far. In August 2017, the startup raised $4.4 billion from Japanese conglomerate SoftBank that valued the company at $20 billion. Globally, WeWork rents out office space at 283 locations across 22 countries and has more than 250,000 members.

However, the shared-office space provider is yet to make a profit. According to a Financial Times article from April, sales at WeWork more than doubled to $886 million in 2017 from the previ ous year, while it recorded a loss of $884 million during the same period. Despite these questions, WeWork is likely to raise funds soon at a valuation of $35 billion, according to multiple media reports.

In July 2017, SoftBank and Chinese private equity giant Hony Capital announced a $500 million investment to boost WeWork’s operations throughout China. The investment vehicle created an entity called WeWork China. WeWork will be responsible for the management and operations of WeWork China, while SoftBank and Hony Capital will each own a minority stake.

The India business model, however, is unique, with a real estate giant as an equal partner. But like its U.S. partner, WeWork India is facing losses. For 2016-17, WeWork India had total revenues of Rs 27 lakh and losses of Rs 8 crore. It registered total expenses of Rs 82.8 crore, according to filings with the registrar of companies. The company’s net worth was a negative Rs 5.99 crore.

And yet, according to media reports, the India entity is in talks with Goldman Sachs and Warburg Pincus to raise nearly $200 million at a valuation that could catapult it to unicorn status—a startup worth $1 billion. While Karan refuses to comment on the fund raise, he says money, as and when raised, will be used to fund WeWork India’s growth and expansion. Experts say most investors look at scalability of the business, the overall size of the market and how much market share the company is going after to derive the valuation.

Co-working space firms essentially operate a month-on-month revenue model. Revenue is based on the number of tenants at each location. On an average, it takes about three years for a property to break even, and rentals typically depend on the location of the building. WeWork India currently claims to have more than 10,000 members across the country.

Business is clearly booming in the co-working real estate space. Anuj Puri, chairman, Anarock Property Consultants, anticipates that by 2020, demand for co-working spaces is set to outgrow that of the traditional office space.

But industry insiders say the trick to successful co-working spaces lies in having medium workspaces of 40,000-50,000 sq. ft. as it is the occupancy that ultimately leads to profitability. This is probably where WeWork India is going wrong, says an industry peer, who did not wish to be identified. “It takes an occupancy rate of 50-60% to break even in this business. The larger a space is, the more difficult it becomes to find takers and have a full house,” he says

Even as it manages revenues and growth plans, WeWork India must manage another dichotomy. The WeWork global mission seeks to “create a world where people work to make a life, not just a living”. The company says that it maintains a standard ex perience for its members across its locations, stressing greatly on the twin benefits of a community experience, while being able to access a global network of entrepreneurs and businesses.

“We do all our designs in-house so our design aesthetic is consistent across the world. For every location we go into, global design elements comprise about 80% of the aesthetic and the rest is based on local sensibilities,” says Ryan Bennett, also chief WeWork executive officer, WeWork India, who joined from the global team last December to streamline operations.

Indeed, changes have been made to accommodate Indian preferences.

 Ryan Bennett, chief WeWork executive officer, WeWork India 
Ryan Bennett, chief WeWork executive officer, WeWork India 

The pantries are larger as Indians tend to like eating lunch together and share food. There are separate microwaves for vegetarian and non-vegetarian food. WeWork India spaces also have larger boardrooms as the number of people attending meetings is more.

Another difference is the member mix between WeWork globally and WeWork India. Globally, enterprise members (defined as companies with more than 1,000 employees) represent 25% of WeWork’s total membership (about 253,000). In India, enterprise businesses comprise almost 45% of the total member base, including names such as Microsoft, HSBC, Discovery Channel, and Jaguar Land Rover. However, India seems ahead of the curve, as globally, WeWork’s enterprise business is growing. “In the year to September the enterprise segment grew by around 370%,” The Economist reported in July, interpreting this shift as a sign of the company’s stability. As of June, big firms accounted for about a quarter of its membership and revenues, the article noted.

“We are able to provide an office at different locations in cities across the world. And this value proposition is a no-brainer for large firms which save 15-30% of their real estate costs globally, which translates into millions of dollars,” says Karan.

 Sidharth Menda, chief executive, CoWrks  
Sidharth Menda, chief executive, CoWrks  

The competition agrees. Sidharth Menda, chief executive of Bengaluru-based CoWrks, points out that large corporates are open to the idea of coworking spaces in a big way. “Some have come to us with a mandate from their New York office that half of their real estate portfolio needs to be in co-working spaces and the other half in traditional spaces.” CoWrks, which started in 2016, has about 50% of its clients from the enterprise space, with names like Airtel, Alibaba, and EY on its roster.

For Gurugram-based Smartworks, the enterprise client ratio is much higher. “We have 75% of our clients from the enterprise space, including Tata Communications and ArcelorMittal. Our business model has always focussed on this space,” says Harsh Binani, co-founder of Smartworks, which claims to be the largest managed office-space provider in India for enterprises.

“Many [co-working firms] are targeting large corporate occupiers, who have a three to five-year lock-in period.Startups are still small play for co-working spaces.”
Ram Chandnani, managing director of advisory and transaction services at CBRE India  

An industry insider explains the benefits of co-working spaces for enterprises. “For short-term projects in various locations, these spaces provide the ideal fix with services, amenities and utilities all provided, without the investment into real estate and allied services. A company can send a team in for a project for the short term, meet its objectives and then leave, once the project is done. These ready spaces and short-term rentals are a big asset for companies looking to save on real estate costs,” he explains. Adds Ram Chandnani, managing director, advisory and transactions services, CBRE India, “That’s why many are targeting large corporate occupiers, who have a three- to five-year lock-in period. Startups are still small play for co-working spaces.” Community, therefore, isn’t a paramount necessity for enterprise clients. As another industry expert confirms, in India only three things matter to enterprise clients—hygienic surroundings, power backup and data security.

Consultants, though, are quick to point out the benefits for startups, even though they may be a secondary focus for these spaces. Shared-office spaces in prime locations provide a perfect platform for startups as they come at reduced costs, increase flexibility of working at multiple locations and require no fixed capital investment.

 Maude Abraham, founder of Get Gorgeous, who has taken salon space on rent from WeWork India in Bengaluru.
Maude Abraham, founder of Get Gorgeous, who has taken salon space on rent from WeWork India in Bengaluru.
  “The format gives me the flexibility to keep my overheads low. I renew my contract every four months rather than blocking large chunk as rental.”   
  Maude Abraham, founder of Get Gorgeous 

Agrees 29-year-old Maude Abraham, founder of Bengaluru-based salon Get Gorgeous. “I’m conservative about my running costs as I have a loan. The shared-office format gives me the flexibility to keep my overheads low,” says Abraham, who has a salon unit at WeWork’s Residency Road building in Bengaluru.

But not everyone is gung-ho about the New York-based startup’s success. An article in The New York Times in February points out that even as WeWork expands, it faces persistent questions about its “rich valuation and the durability of its business model”. According to the article, the company does “little more than corporate real estate arbitrage— leasing a space, spiffing it up, then subleasing it out to other tenants”. The article mentions that IWG—a London-listed outsourced office provider, which claims to have 2.5 million members and is report edly the world’s largest serviced office provider— was valued at just $2 billion. And while WeWork is yet to make a profit, IWG has a profitable business model. Yet it is valued below $4 billion (the figure at which WeWork is valued), says a Financial Times article of July. IWG is valued at 1.2 times its forward sales and if the same multiple was used for WeWork, the company “would be worth around $2.7 billion,” the article says. Incidentally, IWG is said to be in the final stages of being sold, with Starwood Capital Group and TDR Capital among the frontrunners, news website Axios reported on July 20. And WeWork is looking to poach their clients, particularly if the winner was Starwood, the website cited sources as saying.

Back home, despite teething issues, entrepreneurs and industry watchers alike remain buoyant about the future of the business. As CoWrks’s Menda puts it, only about 3-4% of all office-space demand in the country is serviced by co-working operators. “This is expected to touch 40% in the next five years backed by demand from large enterprises and SMEs.” A CBRE report pegs the coworking market in India at nearly 10 million sq. ft., with 75% of these spaces in Mumbai, Delhi, and Bengaluru. This figure is expected to touch 13.5 million sq. ft. by the end of 2018.

Which is why Karan is ensuring that WeWork India pulls out all the stops—from globally curated aesthetics to skill sharing sessions, parties to wine tastings and speaker evenings—to woo clients, both enterprise and entrepreneur. Three of its co-working spaces even have beer on tap for members.

Will it succeed? Perhaps, but at least this water-cooler discussion can now be had over a couple of beers instead.

(This article was originally published in the August 2018 issue.)

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