Invest for the remote workspace

Although I have been busy the past couple weeks and have not been able to craft a more complete investment thesis, I do want to write about another investment opportunity I would take a good look at with my hypothetical VC fund. The space appeals to me more because of two trends surround the corporate real estate; first, the underutilization of high capex office space, and second, the movement of millennials towards a remote and on-demand workspace.

Corporations spend absurdly high capex on 10+ year leases (even though strategic planning rarely reaches beyond 24 months) that unnecessarily complicate internal ops, accounting, and financial/strategic planning. Corporations must plan for the very rare “high utilization” times where conference/meeting rooms, offices, and desks must be available for all hands on deck. Growth-stage companies also struggle with a similar issue of underutilized commercial real estate: a 50 FTE company must sign a 5-year lease knowing that in just 12 months, the team could have anywhere from 50 to 150 employees. Does the company sign for an office designed for 75? 100? 150? I’ve walked into beautiful startup offices with nowhere near enough employees to fill the space.

Employees Don’t Need 200 SqFt, per US Bureau of Labor Statistics

Second, the workforce as a whole continues to move towards mobile, remote, and on-demand. Per Gallup, 58% of US employees claim that they are just as productive teleworking as they are in the physical office. With expanding options for tech-savvy employees to collaborate and work effectively from anywhere, as well as the prevalent desire to work from anywhere, I see this as a fundamental shift rather than a fad.

The on-demand workspace directly parallels cloud computing, where instead of buying servers that will only see 10% of their compute power utilized on the average day, companies can rely on off-site infrastructure providers like AWS, Azure, Google Cloud, etc. Unless concerned with data privacy and security, companies do not need to maintain costly IT infrastructure that does not get used. Instead, those companies can pay on-demand for cloud computing power that can scale up and down quickly to handle those “high utilization” time periods.

Back to real estate — plenty of players in the market already offer a software or real estate solution. WeWork is the most recognizable name of the bunch. With $1.4B in funding and 2016 revenue estimates of $532mm, WeWork, as a real estate plus managed services provider, has proved out the idea of flexible and short-term workspace leasing.

Always a fan for the SaaS model though, I would recommend looking into software solutions that allow businesses to either schedule, book, and manage office space on-demand. The value prop is that both growth-stage and Fortune 1000 companies can decrease the amount of real estate leased or owned (# of desks/conference rooms, square footage) and maximize utilization rates. Two companies that fit the bill: Condeco and AgilQuest. Condeco raised $30mm from Highland Capital in June 2016 (perhaps we just missed the boat) although AgilQuest appears to be self-funded. One thing I like about AgilQuest is the added value prop of providing a new revenue stream for growth stage companies; if a company has extra office space because of that 5-year lease, it can use AgilQuest to rent out desks (a la WeWork) to the remote employee bases of other companies. Plus AgilQuest is based in Richmond, VA and you know I love that!

Thanks for reading.