Venture Realty Capital

Venture Realty Capital

Back when I worked in the venture capital space, startups always came seeking a lot of investment. Often far more than they needed. We would sit with ventures we thought had some potential, and during the process, break down the investment needs. Eventually, we would arrive at a number that was close to what we felt they really needed. And that amount would often be far smaller than what they initially sought. In pre-dot-com Silicon valley terms, we removed the Ferrari and frills from the investment sought.

In my current consulting practice, founders sometimes tell me how investors nowadays really shred the business off of anything heavy. How they like to invest only in the brand if that’s possible. Even pushing the business owners to hive manufacturing or anything else even moderately heavy to another business entity. To an entity they don’t invest in, but which might eventually compete with other companies to supply to this brand.

Obviously logical. Except when it’s not. Sometimes, investors might lose clarity and hive off functions that might be critical to the eventual success (or failure) of the venture. And while restricting investment into a lean venture makes financial sense, it often seems greedy from a founder’s point of view.

Investors, even the most aggressive of them, look for anchors. Anything that will help them measure (or value) and hopefully de-risk the investment with reference to their firm’s or internal reference scale. Basically to give them a level of comfort or confidence in the investment opportunity. That’s of course, when they haven’t let blind optimism cloud their decision. Anchors could be anything from it being a venture floated by a seasoned serial entrepreneur, or the founding team bringing in a lot of relevant experience, big name clients already buying from this startup, a patented product in a big emerging market, etc. It could even be a model that has proven itself in another market.

However, in recent times, given the inclination of venture capitalists to invest in startups that are extremely lean, it is a little surprising to find ridiculous amounts of money being pumped in by investors into co-working spaces.

According to Wikipedia, WeWork (now The We Company) managed 10,000,000 square feet (930,000 m2) of office space globally. US-based Industrious has raised $142 million to date. Of that amount, it raised $80 million last year to double its co-working sites in the US to 60. In October last year, India-based Innov8 raised $4 million. It boasted of 4000 seats across 13 centres in domestic cities. The We Company has raised a heart-stopping $12.8 billion till date.

Even if these firms have artificial intelligence doing matchmaking and improving the quality of business networking that happens, which they don’t – it would still not justify the quantum of funding. And certainly not so if they don’t own any of the real estate that they sublet to businesses and solopreneurs.

I just hope all the investors are aware of that before investing. Because without any underlying realty, the investment is all about creating fun work spaces, events and workshops. In some ways, that could be comparable to a nice bar that organizes regular gigs, has a familiar crowd, and, and that is it!
Sure that’s worth a lot, but worth investing $12.8 billion dollars?

In many ways, it feels like a Facebook. Initially fun for users, but as the founders got ridiculously rich, all it served users beyond a reducing benefit of keeping pace with the lives or events family and friends, is be an advanced, high-tech, time-killer.

Is that what WeWork might be too? While giving members a wonderful feel-good environment, is it really serving that purpose well? Even offering a support ecosystem to businesses via these ventures seems like a complicated (and probably not very effective) way to add value.

VC’s have moved away from investing in core assets. Even to the point of stripping the business of anything non-core, including manufacturing. But they are alright with investing boatloads into tech-using real estate companies.

Venture capitalists seem to have traded the “venture” in their names by betting on owned or rented real estate as opposed to their fundamental objective of funding new age ventures. Sounds messy.