[Investor] — Why I invested in a coworking space?
Meet Charlie O’Donnell, early investor in The Wing — by Coworkies — Coworking Communities.
Hi Charlie and thank you for your time, could you please introduce yourself and tell us a bit of your background?
I am the founder of Brooklyn Bridge Ventures, a seed stage firm here in New York operating out of my second fund (it’s a fifteen and a half million-dollar fund). I spent my entire career in the venture capital asset class, which is not the common path. A lot of people start a company or are angel investor and then join funds but I started funding funds. I was at the General Motors pension fund and we had been investors in ventures since 1978, long before I was there. Funds would come in and pitch us along with endowments and Insurance companies. That is the big money that goes into the bigger funds.
Union Square Ventures came to pitch us in 2004 and I later became their first analyst at USV. I did some startup stuff on my own after that. It was more a learning experience than financial outcomes but I came back to venture right after that to help First Round Capital to open its New York office. I spent a couple of years there, did several interesting deals (GroupMe got sold to Skype, refinery29 was getting big). It was a short time period of 2 years but pretty successful. I took that track record out to start my own fund in 2012 and have done around 46 deals since the beginning.
New York is really well known for its Coworking scene, when did you get to know about it and how is it relevant to your work?
I think the first person that told everyone about coworking in New York was Tony Bacigalupo. To explain, I will break up New York in several time periods:
- .com, pre-2000s,
- from 2000 to 2004 there basically just wasn’t anything. It was nearly kind of dead.
- Starting around 2004, 2005, Union Square Ventures raised their first fund and the scene started to pick back up again. In those early years, 05, 06, 07, the community was just trying to find each other “who else does tech in New York?”. It was hard to find! It was the pre-twitter era, nobody was on Facebook. In the meantime, I started a networking community called Next NY in 2006. At that time period a few of us got to know each other. Tony and a bunch of other people got to know Chris Messina and Tara Hunt. They had a space in San Francisco called Citizen Space. When Tony came back to New York he said “we need to do something”. He tried to put together New Work Cities and at the time he approached New York city government and others but no one really understood what it was. When you look at it today, it’s just so amazing how far things have come! 10 years later, the NYC government went from not knowing to actually do it themselves.
They were spaces like Sunshine sweets but they were just shared office spaces, there was no real community like we know it today. That was really my first experience with coworking. They were other pockets of people who were coworking in small groups. They knew each other and worked out of each other spaces.
The next big move was when Jesse Middleton did wework labs. It was funny because wework labs was what most people heard about wework and a lot of people did not know the difference between wework labs and wework.
When you ran into a startup person and they were telling you “we work out of wework”, they meant wework labs. The rest of wework was less startuppee. Jesse joined wework because the wework team realized that. He was somebody who was really plugged in into the community and by acquiring wework labs wework kickstarted their growth and expansion.
Right around that time, you also had Techstars opening up in New York and there was this spectrum composed of desk spaces, accelerator programs, true incubators that were actually building companies out of their space. People would fall into multiple categories like betaworks. betaworks were building companies, investing in companies and if you happened to be friend with the betaworks team you could grab a desk. It was all very loose and under the radar.
Originally, I started out of the NYU space in Dumbo because as far as coworking was concern in Brooklyn there was a lot of options. As I live in Brooklyn it was just easier for me. There was a group in Dumbo called Studiomates, which was 2 rooms: the first room was ran by Tina Einsenberg, Swiss Miss, who also started creative mornings and the second room was run by Jessi Arrington. People were paying rent to Tina or Jessi depending on which room they were working from.
That building got bought, because it was an old building in an upcoming area so the landlord kicked everybody out. Both Studiomates were looking for a new home. At the same time, Kitchen Surface was leaving their space. They were in a town house in Gowanus and they were looking for someone to take over their space. So half of Studiomates went to town house and the Tina’s room went to friends work here in Brooklyn.
Those are the early days, but now it’s just like million of spaces. I could name 20 on top of my head. It just make so much sense for small companies, onesies and twosies. Each space has very different degrees of programming, trying to be a little more than just desk spaces. People are realizing that work life balance is important and all of the Brooklyn spaces attract people living in Brooklyn. If you don’t need to commute in the city everyday that’s perfect.
I don’t need to be in the city everyday. I need to be there maybe 3 times a week. I don’t want to have to commute and come back if I don’t have to. A fair number of my portfolio companies are in Brooklyn too and it’s very convenient.
You were an early investor in The Wing, how did you end up investing in them? What convinced you?
Their lawyer reached out to me and sent me their deck, which, as I mentioned in my article, was originally Refresh and not The Wing. It was more of a utilitarian sort of space like a transition from home to social life to work. One thing I noticed and experienced here is that people are abandoning big gyms like the New York Sports club. That happened to me. You got bored. You walk in and it’s always the same stuff. More and more people are going to classes and I found the classes that I really like but that class has one shower in the place. With that example, I understood the utilitarian needs for the space but being a guy I was not really conscious of how gender dynamics played in various spaces.
Audrey, one of the founder, is someone that has a big following and she had built that community of people who were interested in Refresh. She pulled that community asking them how would you use it, how often would you use it, etc. a lot of the feedback were “who else is going to be there?” She pulled on the community thread and asked them “why is that important?”, “how would you want to connect with those people?” and the idea of connecting with other female professionals clicked with everyone. Not only to create a safe space, but just because men and women network differently. Guys are much more transactional in nature. (looking at Dimitar during the interview) We will LinkedIn after that interview and then we won’t talk to each other for like 2 years. And if there is somebody that I need to know, I won’t hesitate to reach out to you and ask for info.
Women are much more holistic about getting to know each other, getting to spending time, trust each other, because the reality is that in wrong time they will end up with the short edge of the stick. Trust is bigger factor, reputation is a bigger factor too. Those type of things play into the need for that environment. After Audrey brought it up, I thought it made a lot of sense.
They have done an amazing job since then at executing. The 2 things that got me getting it were this:
- I have a friend who is a member and who spend as much time as she possibly can there and she was there on election night. She said “election night was a terrible night but I could not imagine being anywhere else than in a company of other women because they got what it means for us women”.
- The other thing was when I was in the city and I had some time to kill and I told myself “I wish I had a space like The Wing”, like The Wing for guys, and immediately I thought that it does not sound like a great space at all actually. I don’t even want to hang out in a space like this. But I got to understand how women would feel hanging out in spaces that are 70, 80% guys.
All of this made a lot of sense to me and I am not surprised how successful they have become.
In the blogpost your recently wrote about The Wing, you described it as “It’s perhaps the most well executed company I’ve ever been involved with”, could you please elaborate on that?
They are singularly focused. No distraction at all. I was wondering if they would be able to make time because you know startups grow things their way and drop whatever to take advantage of any opportunity. But with The Wing it’s not like that. They have a plan, they stick to it and focus. They have an editorial schedule, thinking about how to craft the message, and what kind of message are going out, why and to whom. If coworking is not their theme for this week, they are not taking any meetings, no interviews, and maybe they’ll miss some opportunities that way but at the same time it’s also distraction.
They are so dedicated, very detail-oriented. I think that just being able to build things in New York city on time, like dealing with New York building department, permits and architects is a nightmare. I was looking at their progress and received an update email last spring before they opened saying “we’ll open our Soho space on October 15th” and they opened it on the 20th. I was amazed! To be within 5 days, going back to March is amazing. I have never seen that.
There is never been a major headache, issue and I am glad to see they have had attention from other VCs because I don’t think a lot of other people got it in the seed round. They are not so many investors in seed rounds for physical spaces even on the retail side. Their initial round was small checks like mine or BBG and then it was a lot of individuals. I think we were 30 people on the cap table.
How important is it for coworking space to create a strong differentiation with their brands?
I think there are a lot of components to brand. The number one component of a space like The Wing is their values and who is there. Those are intertwine. The space that I am in now, called small city, is more of a friends of friends space so very highly curated. We don’t leave dishes in the sink.
The relationship to each other is very important and it’s all about positivity and helpfulness. That feeling is a creation of Jessi, the Founder, who interview people and who want recommendation for people because they have a certain way that they want to be. There is no shingle on the door that says “hey, come work here, here is our price”.
Then if you look at wework, what they have done is to take a commercial space and created an easy interface around it. I don’t have to deal with fax machines and the guy who owns the building on call and all the other admin stuff. They have created a very consistent experience.
But different weworks have different groups of people, depending on where they are located. I am sure the crew of people that work out of a Brooklyn wework is a little different than a midtown wework. I would not say there is a strong community aspect going on there, other than the New York community that is pretty strong.
When you go to smaller spaces, they have certain environments that they try to portray and it all depends on what somebody is looking for. I think if you were to ask people what’s important when choosing a space, the first thing they would say is location. You would have to have a pretty amazing community for somebody who lives in Bushwick to want to go into Midtown. Particularly in New York where everything is pretty close but no one wants to travel more than 20 minutes.
Coworking space is a hot topic at the moment, as an investor, what would be your advice to people who look to start one?
It’s interesting because most people would not consider coworking to be an investable category for VCs. That being said, look at wework valuation. The default is to look at coworking as a real estate class. You rent a space, you sublet that space, there is a spread. Individual coworking space should throw of a certain amount of cash. If you are just doing one space, you can get investors for it but the transaction is going to look more like a real estate transaction, which is fine.
Places like wework or The Wing are looking to build national footprint or global footprint. They are instances where companies that are traditionally cashflow generating businesses, get to a certain scale but they have to have those ambitions.
You need to think “if I am going to take angel capital or venture capital, where am I taking this” is there a 10 locations plan, 20 locations plan, and how do you build that out over time.
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Check out Charlie’s blog here.
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