Investors

Business/Operations Fundraising
1

Hey team,

I have been approached by three different investors in the last few weeks for new locations. Creative Density is looking at a second location and building up the new community for it in a simlar way to how we did it two years ago. It’s very grass roots and will only happen if the community can be formed before the space opens. Once this process started to happen that’s when investors started to show up.

I know several others have had similar experience so I am hoping I can have guidance about important questions to ask and possible structures.

What I’m thinking:

Business structure:

Creative Density’s current location remains my own domain. They don’t get a chunk of that but they are investing in future locations with the new location being a new business entity. We will share access to my intellectual property but in case of a split I will retain control in a reasonable time frame of transition.

How much money:

They are looking to purchase the building and renovating it. I’m working on how much money they need to put in beyound that and how to split revenue and profits.

Do they have a good personality match and complimentary skill set?

I’m laying out my principals of what I want coworking to be and that profit is not the sole driving force. Yes, we want to make money but we also want this a platform and community that supports freelancers and remote workers as well as small teams. Private offices sell fast but they can not dominate the space and must be around only a third of the space. They do have a good skill set that compliments my own as an experience coworking space owner.

Any advice would helpful.

Craig

2

Craig,

This is a very interesting topic and I was thinking about introducing a similar question to the group. I was recently talking with someone involved with coliving down in SF and thoughts about real-estate came up again. I’d love to buy the building we are in but the hard assets Office Nomads has is mostly a bunch of Ikea desks and that’s not exactly good collateral for a loan that size. Navigating the relationship with investors is tricky as you are highlighting. I don’t know how to make someone millions, but I do know how to make a profitable business and a strong community of loyal members. Seems like a lot to work with if the right investors came along.

···

Jacob

Office Nomads - Individuality without Isolation
http://www.officenomads.com - (206) 323-6500

On Tue, Aug 20, 2013 at 9:22 AM, Craig Baute - Creative Density Coworking [email protected] wrote:

Hey team,

I have been approached by three different investors in the last few weeks for new locations. Creative Density is looking at a second location and building up the new community for it in a simlar way to how we did it two years ago. It’s very grass roots and will only happen if the community can be formed before the space opens. Once this process started to happen that’s when investors started to show up.

I know several others have had similar experience so I am hoping I can have guidance about important questions to ask and possible structures.

What I’m thinking:

Business structure:

Creative Density’s current location remains my own domain. They don’t get a chunk of that but they are investing in future locations with the new location being a new business entity. We will share access to my intellectual property but in case of a split I will retain control in a reasonable time frame of transition.

How much money:

They are looking to purchase the building and renovating it. I’m working on how much money they need to put in beyound that and how to split revenue and profits.

Do they have a good personality match and complimentary skill set?

I’m laying out my principals of what I want coworking to be and that profit is not the sole driving force. Yes, we want to make money but we also want this a platform and community that supports freelancers and remote workers as well as small teams. Private offices sell fast but they can not dominate the space and must be around only a third of the space. They do have a good skill set that compliments my own as an experience coworking space owner.

Any advice would helpful.

Craig

–

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3

In addition to how we’ve handled fundraising for Indy Hall (in which we haven’t taken investment), I’ve raised a non-trivial amount of capital for our first steps towards a residential spin on Indy Hall. Both have taught me quite a few things.

  1. We created an LP(limited partnership) to own/manage the equity generated by the new project. The LP is maintained by myself and our real estate development partners, and is structured similarly to a “standard” business partnership. The roles and responsibilities of our partners are clearly defined, and ours are as well.

Our investors are non-controlling investors, trusting us based on our demonstration of traction and past history of success. That LP is also TOTALLY separate from Indy Hall’s and our partners’ LLC. This keeps Indy Hall’s existing assets safe should something go haywire with the deal.

  1. Be your own first investor. Since investors are essentially buying a piece of your traction, but there’s no better way to keep your foothold than to invest yourself. In addition to the fact that I was a controlling partner of the LP, I contributed ~16% of the total capital raising goal. I would try to find a way to bring some % to the table yourself (friends and family). I had a personal goal of at least 10%, and thankfully was able to do that from savings.

  2. Regardless of legal control, put yourself in a mindset where every investor becomes your business partner. This can be an advantage, especially when investors have more skin in the game than simply a financial investment, but it can also be a disadvantage.

Money is a BAD reason to bring someone on as a business partner, even if you like everything else about them.

Quick story: in Indy Hall’s first growth/expansion, we had a member approach us about the finances. He was a great member, and believed in Indy Hall’s future. He offered investment because he saw the opportunity, but we decided to take on the money as debt instead because money wasn’t the right reason to bring on a new business partner.

  1. Decide your terms ahead of time, and hold your ground. We had investors who we really thought was a good fit for the project, but he wanted all kinds of modifications to our terms. It ended up being a big waste of time and legal fees, and we ended up turning him away from the project.

  2. Back to the first point about the LP, buying/building property is a completely different business than running a coworking space. We have an offer on the table from our landlord to buy the building we currently occupy in the next 2 years, which could be both lucrative and meaningful for our community, but I’m not in the business of being a building manager nor do I want to be. That’s my choice - yours may be different.

But in our case, among the MANY considerations is finding a partner who DOES want to be that building manager.

  1. In this still-very-conceptual model for buying our current building, my goal would be to seed the investment pool (if not completely close it, though that may be too far of a reach) with funds from Indy Hall members and their connections. Basically, if we’re going to take investment, my top priority is for it to be from people who already intimately understand the value we’re creating and who want to help us share that value with others.

In a far less conceptual reality of now, every penny we’ve ever BORROWED (and a significant portion of the money we’ve raised from investors) came from people who’ve already been impacted by Indy Hall - in most cases, in a financially positive way - and are looking to reinvest that in a way that will benefit themselves and others.

Actual conversation I’ve had: “being a member of Indy Hall helped me make $XX since joining. I want to put that towards the future of the thing that helped me get here, so that it can keep helping me advance.”

-Alex

-Alex

···

–

/ah
indyhall.org
coworking in philadelphia

On Tue, Aug 20, 2013 at 12:22 PM, Craig Baute - Creative Density Coworking [email protected] wrote:

Hey team,

I have been approached by three different investors in the last few weeks for new locations. Creative Density is looking at a second location and building up the new community for it in a simlar way to how we did it two years ago. It’s very grass roots and will only happen if the community can be formed before the space opens. Once this process started to happen that’s when investors started to show up.

I know several others have had similar experience so I am hoping I can have guidance about important questions to ask and possible structures.

What I’m thinking:

Business structure:

Creative Density’s current location remains my own domain. They don’t get a chunk of that but they are investing in future locations with the new location being a new business entity. We will share access to my intellectual property but in case of a split I will retain control in a reasonable time frame of transition.

How much money:

They are looking to purchase the building and renovating it. I’m working on how much money they need to put in beyound that and how to split revenue and profits.

Do they have a good personality match and complimentary skill set?

I’m laying out my principals of what I want coworking to be and that profit is not the sole driving force. Yes, we want to make money but we also want this a platform and community that supports freelancers and remote workers as well as small teams. Private offices sell fast but they can not dominate the space and must be around only a third of the space. They do have a good skill set that compliments my own as an experience coworking space owner.

Any advice would helpful.

Craig

–

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You received this message because you are subscribed to the Google Groups “Coworking” group.

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4

Craig,

when you talk about investor there´s a majority
of options to look for. The first thing it is know yourself and what are your
main goals with Creativity Density. I think you already know most part of these
information, although know you need to know if these investor have the same
goal as you, if they have the same values, if they complement you with
something (like: empower you network, gain scale to implement new projects, or
etc.)

I think the model Alex
said before it is very closed to the endowment funds ( Financial endowment
Wikipedia), endeavor it is a organization that has something cool about
companies that they helped and after the program these companies (they don’t
call startups other than scale ups´) give some equity to them and these is the
fuel to continue to help new scale ups.(http://endeavor.org/)

Hedge funds and others
financial investors will invest in the space if they saw something unique and
they will help you to create a scalable model, using their money, network,
structure and etc. It is basic these. They will buy equity from you very cheap,
invest in the company to transform in a big thing, with stability and continuous
recurrence of money inflows and then sell these partition very high and you
have the rights to follow on, and also make money.

Looking more close to
your case, I enter in the website to understand about it. So i will give you
some advices imagine myself at your seat.

You showed yourself
opened to Investors looking to new branches
and replication of creative density model.

·
Ok. Who are these
people ? Do they have the necessary skills to be a space operator? Why they
don´t open a new space, and want CD brand? I might be for several reasons, but
it is important to know. It could be a strength they think you have ro other,
but in the end you will have to fulfill or exceed their expectations.

·
Is your business ready
to be escalated? Core process of the business are tested, secured, atomized?

·
What you going to offer
? Management software? Training? Branding?

·
What this will enable
you to do that you can´t do today? Size for hold your own events (talks,
training, networking, etc.)

·
Are going to charge for
royalties or maintenance? How much?

·
How much they will need
to invest to build a new brunch? What are the strategic locations? the boundaries
(10 miles range)? the guidelines for architecture, furniture quality, network,
internet, decoration, number of people, kinds of spaces, communication boards?
Do you have partners for it? How much working capital someone needs in these
king of business?

·
What are the things you
don’t want to lose?(very important)

Now you going to need a
law partner and a mentor with franchise
or M&A experience to help you in these moment. Finally i don’t like the
idea of buying the build you rent today, these is a asset that you already generate money, if you buy it you
are going to generated the same money with more investment. And even if the
build it is yours, you need to depreciated (reinvest the depreciation) and also
put in the P&L, inside costs the value of a market rent for that same
building, and the business has to generate money to pay it. otherwise it is a
not a good business.

It is a very complex
subject and i am more than glad to help you more, if you wanted. i recommend
some short videos that also might help you.

https://www.khanacademy.org/science/core-finance/investment-vehicles-tutorial

PS: Sorry for the bad English.

Att,

Danilo Salgueiro

Co-founder @ LAB 48
Coworking

···

Em terça-feira, 20 de agosto de 2013 13h22min58s UTC-3, Craig Baute - Creative Density Coworking escreveu:

Hey team,

I have been approached by three different investors in the last few weeks for new locations. Creative Density is looking at a second location and building up the new community for it in a simlar way to how we did it two years ago. It’s very grass roots and will only happen if the community can be formed before the space opens. Once this process started to happen that’s when investors started to show up.

I know several others have had similar experience so I am hoping I can have guidance about important questions to ask and possible structures.

What I’m thinking:

Business structure:

Creative Density’s current location remains my own domain. They don’t get a chunk of that but they are investing in future locations with the new location being a new business entity. We will share access to my intellectual property but in case of a split I will retain control in a reasonable time frame of transition.

How much money:

They are looking to purchase the building and renovating it. I’m working on how much money they need to put in beyound that and how to split revenue and profits.

Do they have a good personality match and complimentary skill set?

I’m laying out my principals of what I want coworking to be and that profit is not the sole driving force. Yes, we want to make money but we also want this a platform and community that supports freelancers and remote workers as well as small teams. Private offices sell fast but they can not dominate the space and must be around only a third of the space. They do have a good skill set that compliments my own as an experience coworking space owner.

Any advice would helpful.

Craig

5

Thanks Alex and Danilio.

The model that was described by Alex basically outlined my thought process. The leading investor right now is already in the space and has been following the coworking movement for a while and been a friend for over a year. I believe he has a valuable skill set but I would just need to clearly lay out my goals because we might differ a bit. I don’t want to be an office manager but create a work clubhouse that is a platform for mobile workers and freelancers.

I would have the hands on role and marketing message so I would continue to guide the culture and create a message that continues to attract smart and friendly members.

I’ll continue to follow through with more questions as I go through this process.

Craig

6

This is a very useful discussion for me, as we’ve also been approached by a half-dozen folks partnerships in the past two years.

Those discussions did not result in an actual partnership, and the experience instead led us to decide to focus on the following two options:

A Licensing Model

Essentially your own business under your own entity and brand, but powered by Office Divvy ™ where we offer access to our systems, procedures, network, --available at different levels.

A Franchise Model

Your own business, DBA as Office Divvy ™ with all operations, systems, policies running as an exact duplicate of our own operations.

Before we pull the trigger to have clear formulas and pricing for these options, we wanted to prove to ourselves first that our systems will actually hold up for duplication and for licensing. That’s why we’ve just launched our second location (and did that close to home, only 8 miles away).

Of course time will tell whether we can execute on the above options for 3rd-party involvement/expansion.

I did benefit from the discussion and ideas under this thread, and for that, thank you.

Ky Ekinci

Co-Founder

Office Divvy ™

···

on twitter: @OfficeDivvy
personal: @KyEkinci

7

Hello! After launching 3 locations we’ve decided to expand outside of San Diego via a franchise model - mainly because we feel each space needs a strong, local leader… someone who is dedicated to building community. We wanted to mitigate the challenges of building a brand and searching for/setting up systems/back-end, to allow the local business owner to be able focus on what’s important.

Franchising is a VERY intensive and expensive process. I self funded for the first three locations and only took on an investor when it was needed to get us through this process. The person I chose is a member of our community and truly believes in what we’re doing. She not only brought capital but also expertise. We’ve been working with franchise experts for the last 8 months and are getting close to filing in a handful of states.

I’ll keep the community posted on how it goes.

Felena

···

On Tuesday, August 20, 2013 9:22:58 AM UTC-7, Craig Baute - Creative Density Coworking wrote:

Hey team,

I have been approached by three different investors in the last few weeks for new locations. Creative Density is looking at a second location and building up the new community for it in a simlar way to how we did it two years ago. It’s very grass roots and will only happen if the community can be formed before the space opens. Once this process started to happen that’s when investors started to show up.

I know several others have had similar experience so I am hoping I can have guidance about important questions to ask and possible structures.

What I’m thinking:

Business structure:

Creative Density’s current location remains my own domain. They don’t get a chunk of that but they are investing in future locations with the new location being a new business entity. We will share access to my intellectual property but in case of a split I will retain control in a reasonable time frame of transition.

How much money:

They are looking to purchase the building and renovating it. I’m working on how much money they need to put in beyound that and how to split revenue and profits.

Do they have a good personality match and complimentary skill set?

I’m laying out my principals of what I want coworking to be and that profit is not the sole driving force. Yes, we want to make money but we also want this a platform and community that supports freelancers and remote workers as well as small teams. Private offices sell fast but they can not dominate the space and must be around only a third of the space. They do have a good skill set that compliments my own as an experience coworking space owner.

Any advice would helpful.

Craig