Convene, founded in 2009, started out as an event-space company and then added flexible offices and coworking spaces.
The company’s CEO told Business Insider it has been profitable every year it’s been in operation except for 2019.
That stands in contrast to rival WeWork, which has drawn criticism for its lack of profitability. It revealed $47 billion in future lease obligations and a nearly $2 billion loss in 2018.
Read all of BI’s WeWork coverage here.
Comparing flex-office companies can be difficult.
“The reality is that if you go under the hood of each of the companies, I think all of us have a different strategy,” Ryan Simonetti, CEO of event and flex-space startup Convene, told Business Insider recently.
Convene, founded in 2009 and last valued at $500 million, started out as an event-space company and then added flexible offices and coworking spaces. Its focus is more on partnering with its own landlords instead of employing traditional leases.
Simonetti talked with Business Insider last week about how his startup and other seemingly similar companies should be categorized, and discussed how Convene has plotted a path to profitability. How to define the flex-space industry has become top-of-mind for potential investors after coworking giant WeWork released financials in a step towards going public.
WeWork’s mid-August S-1 prompted harsh criticism from the likes of NYU professor Scott Galloway and real-estate billionaire Sam Zell. In the first half of the year, WeWork had a loss of $690 million on $1.5 billion in revenue.
Simonetti said that Convene has been profitable every year of operation except for 2019 — the result of a more aggressive growth strategy this year. He said that the company is profitable at the unit level only now, but could be back in the green overall again in 2020.
Read more: Here are the old-school real estate problems that WeWork’s technology hasn’t solved. It may mean a less than lofty valuation on IPO day.
Here’s what Simonetti shared with us about how Convene works:
Convene had looked at launching a more-traditional coworking product, focused on smaller customers. It didn’t see the right opportunity in the market, so instead started a product that caters to 10-50 person teams and growth-oriented businesses.
The startup views itself in more of a hospitality company model, and Simonetti said that feels less like Amazon’s AWS cloud service, which helps companies outsource fixed assets, and “a lot like Airbnb meets Hyatt or Hilton or Marriott.”
Convene has 35 locations: 26% of those are managed partnerships, and the other 74% are partnership-structured leases.
Partnership leases involve a base rent, and Convene also shares a slice of revenue or profit. All of Convene’s deals of this kind involve the landlord putting up a bulk of capital for renovations.
When it comes to margins on revenue, once spaces leased by Convene are up and running, they tend to hover at around 35% unit-level earnings before interest, tax, depreciation and amortization — a key profit benchmark.
Convene’s best-performing management contract locations make …read more
Source:: Business Insider – Tech