WeWork is a real estate business that acts like a technology company. It's backed by powerful Silicon Valley venture capitalists, hires data scientists and DevOps engineers and sports a valuation that's about 20 times annual revenue.
John Arenas is taking a very different approach with his co-working business Serendipity Labs. Founded in 2011, a year after the launch of WeWork, Serendipity is sticking with investors who live, sleep and breathe real estate.
Serendipity, based in Rye, New York — 30 miles north of WeWork's Manhattan headquarters — has just raised $11.3 million from investors, including billionaire Craig Hall, one of the top real estate developers in Dallas. The company disclosed the financing in a filing on Monday.
"All of our investment to date has been from strategic capital and not venture capital," Arenas said in an interview with CNBC. The business is focused on the "shift from long-term conventional leases to flexible, variable real estate. To do that you need to find your way a bit," he said.
Arenas has been in the market for decades. He was an executive at Regus from 2001 to 2004, joining through the sale of Stratis Business Centers, where he had been CEO for five years. In 2005, he started on-demand workplace start-up Worktopia and sold it in 2011.
His company is currently running far behind WeWork in terms of size. WeWork has 203 locations in 50 cities, while Serendipity has six locations. But WeWork's $20 billion valuation has brought with it multiple stories of missed revenue targets and reeled in profit forecasts.
Serendipity does have a lengthy roadmap for growth, with over 100 projects in the pipeline over the next few years. It sees a particular opportunity to help large companies give employees in smaller towns and suburbs places to work and stay connected, and is banking on a combination of company-owned buildings in major cities and franchises in smaller markets.
Arenas said the model is analogous to the hotel industry, where the majority of chains are operated by experienced franchisees.
Serendipity previously raised money from office furniture manufacturer Steelcase. In addition to the new financing from Hall, who also joined the board, Serendipity said on Monday that it's teaming up with the developer to open its first office in the Dallas area, a 29,000-square-foot space at KPMG Plaza at HALL Arts.
Hall, whose firm owns over 3 million square feet of office space in the Dallas area, said he's been looking at the co-working market for a while both because it fosters entrepreneurship and because the trend is clear: Employees are more disparate, and companies are knocking down walls in favor of open floor plans.
"That means fewer square feet per person, which lowers demand for office space," said Hall, whose own office went to an open floor arrangement. "That's the biggest shift we've seen in the last decade."
Serendipity has offices opening soon in cities including Miami, Nashville and Columbus, Ohio. It has plans for multiple locations in Phoenix and Los Angeles, and will then move up the coast to the Bay Area and Seattle, Arenas said.
In each market, Serendipity is looking for the right experts, whether they're for franchises or company-owned offices.
"The Bay Area is a little bit like breaking into jail as a co-working company," Arenas said. "You have to do it very carefully and know where you're landing."
In other words, it doesn't matter how much technology you have — real estate is a tricky business. Losing money is easy.