Home WeWork rival Second Home forced to seek fresh funding
November 3, 2019
Second Home, the co-working space run by a former aide to David Cameron, has been forced to seek new funding after multimillion-dollar cost overruns at its long-delayed Hollywood outpost squeezed the start-up’s finances.
Rohan Silva, the start-up’s co-founder, told the Financial Times he had agreed terms for a new injection of capital from existing investors, dismissing concern from several people close to the company who said it was facing a cash crunch.
Second Home’s search for new funding, a year after it had raised £20m, came just as investors were cooling on shared-office start-ups, following the spectacular implosion of SoftBank-backed WeWork.
The UK-based start-up, which has five other locations in London and Lisbon, has also been hit by the recent resignation of its chief financial officer, Matt Roeser, according to two people familiar with the matter.
Mr Roeser, who joined Second Home a year ago, resigned in September but agreed to stay on a little longer in a limited capacity, one of the people said. Mr Roeser declined to comment.
Mr Silva said he expected the new funds to arrive before the end of November, which should help to cover the extra costs incurred by the build-out of its flashy new Los Angeles space, as well as fund future expansion.
He declined to name the follow-on investors or specify how much they had promised.
The start-up has previously raised over £60m from big-name investors including Martin Lau, Tencent president, Jim O’Neill, former Goldman Sachs chief economist, and Yuri Milner, a Russian billionaire, as well as top European venture capital firms Index Ventures and Atomico.
Second Home was launched in 2014 by Mr Silva, who was an adviser to Mr Cameron in government and played a key role in the London “Tech City” initiative, and Sam Aldenton, a London-based food and entertainment entrepreneur.
The pair built the company with a heavy emphasis on design and aesthetics that helped Second Home, with the assistance of its architects, SelgasCano, stand out in a crowded co-working space market and win plaudits in the press.
The start-up has struggled operationally, however, with new sites opening behind schedule, setbacks in expanding current locations, and some employees complaining about the culture at Second Home.
Mr Silva sought to distinguish Second Home from WeWork’s breakneck pace of expansion, according to one person who has worked with him. But the two companies ultimately took a similar approach, striving to sell an aesthetic and sense of community that they each hoped would elevate their businesses above a generic property outfit.
Second Home’s first expansion into the US was delayed for years before it finally opened in September. The 90,000 square foot campus in Los Angeles included dozens of individual yellow-roofed “pods”.
Mr Aldenton has described the campus as Second Home’s boldest design yet. “We’re buying 6,500 plants and having 400 full-size trees,” he told Surface Mag this year.
The LA office has attracted tenants including Monzo, the London-based fintech start-up, and the charitable arm of Snap, parent company of LA-based Snapchat. But the total cost of the facility ran into tens of millions of dollars, exceeding Second Home’s original budget by millions.
Mr Silva blamed Second Home’s contractors for the overruns. “We weren’t in charge of building the building,” he said. “Of course, some of those [extra] costs get passed to us. That’s pretty standard for a tenant. But the reason investors are happy to put money in is the occupancy and revenues [from the LA offices] are so far ahead of forecasts.”
He said future locations would come with a more “standardised” design. “The reason we didn’t standardise earlier is we didn’t want to lose the magic,” Mr Silva said, blaming WeWork’s failure on a lack of differentiation.
Second Home had recently hired a former senior WeWork manager to help it grow in London, he added, and the company is actively scouting for new office locations in Europe and the US.
Co-working groups proliferated in the wake of WeWork’s rapid expansion, but that exuberance has faded in recent months. The Clubhouse, a business members’ club with three London venues, entered administration in August and was subsequently bought by serviced office group IWG.
Central Working, which has more than 10 sites around the UK, collapsed into administration this month, and IWG is also in talks to buy that group, according to a person briefed on the situation.
Pembroke VCT, one of Second Home’s investors, values the company at a little over £130m, according to its disclosures. In 2017, Second Home made a loss of £5.2m on £5.4m of revenues, according to accounts for that year.
Companies House records list the start-up’s 2018 accounts as overdue by a month.