Co-working startup Industrious acquired the office sublet listing site PivotDesk and announced a new $25 million funding deal as it prepares to take on WeWork in the flexible workspace market.
The new capital raise, an add-on to a previously announced Series B round led by Riverwood Capital and including Outlook Ventures and Maplewood, brings the Brooklyn-based company’s capital raised to-date to $76 million.
Industrious and PivotDesk both cater to companies looking for flexible, short-term office lease arrangements, but they offer very different products. Industrious runs serviced co-working spaces not unlike WeWork’s. PivotDesk, meanwhile, is an online platform that matches office tenants looking to get rid of excess space with small companies looking to sublet a few desks or rooms.
“To me it’s totally fine that we are taking something under our wing that’s a competition to our core product, because we’re in competition with it either way,” said Industrious CEO Jamie Hodari, who co-founded the company with Madison Realty Capital alumnus Justin Stewart. He said PivotDesk will continue to be run as a separate brand and website, but will likely expand its scope to become an online marketplace for all sorts of short-term office leases (not just sublets).
Industrious declined to disclose the terms of the acquisition and the valuation of the combined company.
With the acquisition, Industrious continues to expand its offerings beyond just co-working. Like WeWork, it no longer just offers desks to startups, but also caters to bigger firms. “I think we probably stopped being purely a co-working company about a year ago,” Hodari said.
WeWork, the co-working behemoth most recently valued at $17 billion, has also been branching out into different business lines like enterprise services and co-living.
Industrious currently has 12 locations in the U.S., including two in New York City, and plans to use much of the new capital raised to lease and build out new spaces. In October, the company signed a 17,255-square-foot lease at SL Green Realty’s 215 Park Avenue South. The location will open in April, Hodari said. He plans to reach 30 locations by the end of 2017.
PivotDesk’s founder David Mandell said joining forces makes sense for both companies. But the deal also reflects a more challenging fundraising environment for real estate startups. “One of the dilemmas we had was we were creating a brand new market with Pivotdesk but it took a lot of time and unfortunately in this industry time equals money,” he said. “The market hasn’t been as giving as it had been in the past.”
The real estate tech market has shown signs of a merger wave beginning to form.
In November, the cloud-based property portfolio management platforms VTS and Hightower merged in a blockbuster deal. And in January, CBRE acquired Floored, a producer of 3D office floorplans.
“You’re reaching the tail end of a bull market and that’s what typically happens at the tail end of a bull market. That just trickles down to startups,” Zach Aarons, co-founder of real estate tech accelerator Metaprop, said in September.
Unlike most PivotDesk employees, Mandell did not join the new company following the acquisition, which closed in January. He wouldn’t elaborate on his plans. “I never really had a desire to become a real estate person and Jamie is very ingrained in the real estate business,” he said. “I’m CEO and that’s kind of what I’ve done the last few gigs. Industrious is Jamie’s company.”