Sharing economy

Chinese co-working firm Kr Space gets new fire power

Kr Space, which has had to endure job cuts and a shortage of capital, has completed a new Rmb1 billion round of funding.

Kr Space, a co-working space that spun off from technology media platform 36kr.com, said on Wednesday that it had raised Rmb1 billion ($145 million).

The funding for the largest co-working space company in China was led by IDG Capital, Gopher Asset Management and Yixing Capital. Kr Space completed its $387 million Series B funding in June last year from Gopher, IDG, China Minsheng Investment Group, Prometheus Capital and others.

The fundraising comes in a crucial time. After overly rapid expansion, Kr Space has been mired in negative publicity since the end of last year. It is also involved in a lawsuit with Hong Kong developer Chinachem Group. Kr Space is being sued for failing to take possession of seven floors of one of the group's properties. Chinachem is claiming $63.8 million in compensation, according to an SCMP report in April.

Founded in 2014 by 36kr.com, Kr Space became a standalone brand in 2016. Its primary focus was providing co-working space in central business district in major cities. It completed its $37 million Series A funding in 2016 with two further strategic rounds in 2017. It soon expanded into 11 cities two years after operation. 

With the help of its investors, Kr Space soon extend its business to Hong Kong in the summer of 2018 - when real estate prices were at a high. But since then, things have run less smoothly. Some leasees finished their contracts in the company's Shanghai co-working space. And it has been rumoured that staff have taken kickbacks from interior decorators.

 

Kr Space is not the only one to suffer from the recession of co-working spaces. WeWork, the US co-working space that has already filed for a New York IPO, posted losses in 2017 and 2018. And in January, its biggest investor SoftBank only invested $2 billion in the group. This is a tenth of the expected amount.

From the point of view of private equity investors, the dynamic has shifted from investing in homebuilders to operators that add value to property developments. The changing mindset of investors requires property operators to use the property efficiently, and to make a profit despite market volatility.

Co-working spaces are under particular scrutiny at the moment. Many reckon that the bubble has burst in the sharing economy. Shares in listed ride-sharing company Uber dropped 18% in the first two days of their New York debut last week. As bike-sharing companies in China fail, co-working spaces are under pressure to increase their profitability. 

Kr Space will use proceeds to develop property management and fundraising services – a move towards a profitable asset management model. Wang Xuequan, the new chief executive of Kr Space (he was only appointed in April), said that Kr Space would serve the full life circle of a startup and was aiming for a profitability.

 

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