August 22, 2019 / 3:01 PM / a month ago

CORRECTED-Coworking firm Industrious raises $80 mln, sees profit in 2020

(Corrects final paragraph to say the company now has, not expects to launch, more than 80 locations in 45 U.S. cities)

NEW YORK, Aug 22 (Reuters) - Industrious, one of the largest U.S. coworking rivals of We Company’s WeWork, said on Thursday it raised $80 million from investors and expects to turn a profit next year.

The announcement came a day after Knotel, another large flex-space operator, announced the completion of $400 million in financing.

Both investments reflect investor interest in operators of flexible workspace other than workspace provider WeWork, which is valued at $47 billion. Last week WeWork filed with regulators to go public, perhaps as early as next month.

WeWork could raise several billion dollars in its IPO, a key test of investor appetite for the fast-growing company that operates in 528 locations in 29 countries, but after nine years in business it still has not turned in a profit.

Demand has steadily grown for flexible office providers as they offer companies the ability to sign shorter-term leases than landlords typically are willing to provide. The model has been criticized for exposing a flex-space operator to a mismatch of its short-term revenue with long-term liability.

Industrious has now raised just over $220 million after the Series D round of investment from a retail unit of Brookfield Property Partners, fitness operator Equinox and Canada Pension Plan, a major component of Canada’s retirement system.

“In a few months we’ll be a profitable business,” Jamie Hodari, co-founder and chief executive of Industrious, told Reuters.

He said that when Industrious signs a direct lease with a landlord, the profit margin is more than 30%, while less risky partnerships with landlords deliver a margin of more than 90%, albeit on less revenue.

New York developer TF Cornerstone and Plano, Texas-based Granite Properties also participated in the fund-raising round.

Cash flow in the first six months of this year covered 90% of Industrious’ overhead and by the first quarter of 2020 should cover all of it, Hodari said.

The company has turned to revenue-sharing agreements in which landlords invest the majority of money for new locations. A more capital-efficient model will allow Industrious to speed up growth of its nation-wide network, it said in a statement.

Industrious now has more than 80 locations in 45 U.S. cities, more than doubling the number of sites since it raised $80 million in February last year in a Series C round, the company said.

Reporting by Herbert Lash, Editing by Sherry Jacob-Phillips and Howard Goller

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