Want to retain top talent? Let’s compare your investees’ office environment with your competitors.

Open letter to angels and VCs: if your investees don’t check out coworking after reading this post, you might want to stop investing in them

{Seed stage investors, this post is not for you. I’m talking about companies who have already raised VC money or substantial angel financing. For seed stage entrepreneurs and freelancers, I’ll be writing about the joys of Hot Desking in another post.}

Back in the days before I became an entrepreneur, I was Assistant Director at Prudential Asset Management Asia helping to manage a $1 billion private equity investment fund. One of my most unforgettable experiences was when I was assigned to go dig deeper into one of our larger investments that was having a tough time getting traction. Long story short, after camping out at our investee and piecing together information and reports I figured out that the company was actually selling its products at a negative gross margin after all logistics costs were fully accounted. This means if the company sold item X to a customer for $10, the cost of good sold including product cost, payment processes, shipping and returns handling, etc. was, say, $12. Not good.

Discovering your investee has negative gross margins feels something like this

This led to a chain of events where the CEO was fired, we took the company through a Chapter 11-style reorganization, I played a role as acting CFO, and the company did an IPO. Shortly after that I resigned, raised money from my ex-bosses and became an Internet entrepreneur. I founded three different Internet businesses, raised more than US$20 million financing from angels, VCs and corporates, managed two of them to profitability, and one failed to reach profitability.

So my dear angel and VC friends, I can understand your position.

You want your investees to grow as fast as possible while using the least amount of capital. Founders are hustling hard, doing one hundred different and diverse tasks while trying to get traction while the runway lasts.

But here’s the thing: you want founders and investees who know how to do basic accounting, i.e. the concept of taking all relevant costs into account. And as highlighted in my story above, that’s not always the case. When it’s not the case, the situation will be quite bad.

Which is why you should re-consider backing them if they don’t at least check out coworking after reading my post that itemizes every single item of the total cost of office space and clearly shows how coworking can cost less than traditional office space.

The key here is the “total cost of office space”. Rent is not the total cost of office space, it is only one component. Like an iceberg, there are many parts that are under the surface: depreciation of renovation fit-out, depreciation of furniture, internet connection, electricity, management fee, security, cleaning, and more.

Rent is only the tip of the iceberg

Bottom line: in many cases coworking offers great office space that costs less than traditional office space.

How? In a nutshell, sharing. The fundamental concept behind coworking is that the coworkers share things like meeting rooms, public space, lounge and pantry, office automation / IoT technology, printers, WIFI, security, cleaning, and building management, thereby reducing the average cost for everyone.

For those of you who are into product challenges, follow my team’s story as we try to invent a little calculator-like tool that helps people to calculate their total cost of office. Click here to check out version 1.

We’re working on a version 2 and I’ll update this post later when it is ready.

Hope this is helpful! All comments and feedback welcome!

[Full disclosure: I’m the CIO CXO of naked Group, owner/operator of naked Hub coworking. Come visit us when you are in Shanghai!]

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