After the WeWork IPOcalypse, Southeast Asia’s co-working spaces spot an opening

For someone who’s competing head-on with WeWork, Nam Do was effusive in his praise of the co-working giant. In fact, his chain UpGen was inspired by a WeWork facility in Silicon Valley, where his office was located. “The model is brilliant,” he thought at the time.

WeWork’s future, however, has become murkier after its planned US trade debut tanked. It shaved its valuation from US$48 billion to US$15 billion, and even that didn’t fly with investors. CEO Adam Neumann has stepped down, and the company is mulling laying off one-third of its workforce.

A meeting booth at Vietnamese co-working space UpGen / Photo credit: UpGen

Brickbats are being thrown at the firm for its questionable corporate governance, and at the co-working model as a whole. If co-working is truly in a bubble, then WeWork’s competitors in Southeast Asia should brace themselves for a reckoning.

Do, however, is challenging that notion. He tells Tech in Asia that UpGen, which operates 21 locations across Vietnam, Malaysia, and Thailand, is already valued north of US$300 million after operating for three years.

Most importantly, UpGen is financially sustainable. “We’ve been profitable almost from day one,” he says, adding that the startup’s profit margin is about a quarter of revenue. In comparison, shared-office giant IWG, which runs a co-working chain called Spaces, has a margin of 14.5%.

Do also claims that at each location, UpGen’s EBITDA margin – a measure of a firm’s operating profit as a percentage of its revenue – stands between 35% and 40%. These numbers prove that co-working is an attractive business model, he says.

Investors apparently like what they see. The startup announced that it raised funding from private equity firm Northstar Group late last year – DealStreetAsia puts the investment at around US$15 million.

Co-working spaces in Southeast Asia – some of which raised money just prior to the WeWork debacle – are floating valuations that seem more reasonable compared to the SoftBank-backed giant, Tech in Asia’s analysis shows.

With prospective investors likely to negotiate harder with co-working chains due to the WeWork fiasco, perhaps the lower multiples are good news.

Found8 CEO Michelle Yong tells Tech in Asia that she has never sought a hefty 20x revenue multiple for her Singapore-based company, which is planning to raise money. “In this business, 5x to 10x would be more fitting,” she adds. Which is just as well – the lower the multiple, the easier it is for investors to make decent returns.

A hotly anticipated development is JustCo’s fundraising efforts. As the biggest regional competitor to WeWork, JustCo is aiming to secure US$500 million as it plans an expansion to 40 locations by year-end. This means that its valuation could approach a billion dollars.

A brief history of shared offices

Co-working goes mainstream

Real estate players join the fun

Beyond co-working