The CEO of coworking startup Convene is worried bad press around WeWork's model could taint the entire flex-office industry

Convene

Ryan Simonetti, Convene's CEO

• Convene CEO Ryan Simonetti told Business Insider he's concerned that the "negative press cycle" around WeWork could throw the thesis behind the broader coworking and flex-space industry into question.
• WeWork is considering slashing its $47 billion valuation in half when it offers shares to the public, a move that could derail timing on the IPO, according to media reports on Thursday. The loss-making coworking firm unveiled detailed financials last month.
• "This industry doesn't start and end with WeWork (or coworking) nor does it change the trendline," Simonetti said on Thursday.
• Click here for more BI Prime stories.

Convene's CEO Ryan Simonetti worries that the "negative press cycle" triggered by WeWork unveiling its financials could throw the idea of outsourcing office and meeting space into question.

He talked with Business Insider about the reaction to money-losing WeWork laying the groundwork to go public, and laid out why he thinks the underlying argument for the broader industry is still strong.

"One of the things that's been concerning to me a little bit in the negative cycle that's come out of WeWork is that people are questioning the actual validity of the thesis," he said in a conversation with Business Insider on Wednesday.

"To me, that would be like going back and questioning the thesis that led to the existing hotel industry, the thesis that led to Airbnb or ride-sharing or to cloud or data centers."

That conversation came a day before media reports said WeWork is considering the dramatic move of slicing its $47 billion valuation in half when it offers shares to the public, and that its IPO timeline may be derailed.

"It's not entirely surprising to see a recalibration like this after sophisticated investors had a chance to kick the tires the past few weeks," Simonetti told Business Insider in a follow-up conversation over email on Thursday. "Especially given current market volatility and growing economic uncertainty globally at a more macro level."

Read more: WeWork lays out its path to profitability - and most of its options involve slowing its breakneck growth

WeWork unveiled its pre-IPO S-1 document in mid-August, bringing the coworking and office space outsourcing model into the spotlight. WeWork's wide losses and other details in the filing prompted NYU professor Scott Galloway to nickname the company 'WeWTF." Real estate billionaire Sam Zell told CNBC on Wednesday that "every single company in this space has gone broke."

Simonetti is concerned that the focus on WeWork's model will taint the public's perception of the space as a whole.

"Bill Clinton has a great quote that says, 'Don't focus on the headline, focus on the trendline," he added.

The headline is WeWork and its S-1, he said, but the trendline should be that how companies use real estate is fundamentally changing to an outsourcing model.

"I think all of us are now strategically seeing that and then saying, for us and our core customers, what's the best way for us to build a business," he said, referring to how companies could be re-assessing long-term commitments to real estate.

Convene paints itself as "commercial real estate's first workplace-as-a-service platform." ("Platform" is a word WeWork likes, too - it mentioned it 170 times in the S-1.) It was founded in 2009 by Simonetti and Chris Kelly, who wanted to bring their experiences investing in hospitality and real estate to the office space.

"The thesis was really: what if you ran an office building like a hotel?" Simonetti said.

Convene started with event space and conference offerings, and has now grown to flexible workspace, culinary, health and wellness offerings. Convene recently announced that it will be partnering with primary healthcare startup Eden Health, with one clinic already open in a Convene space in Midtown Manhattan.

Simonetti sees Convene as a plug-and-play option for landlords who are looking to provide more amenities in their space.

Read more: Industrious' CEO tells us why the coworking startup is ditching leases and managing property instead. Bigger rival WeWork is eyeing a similar pivot to help erase losses

Convene's 2018 fundraise brought the company's valuation to more than $500 million, according to Bloomberg. Convene is still dwarfed by WeWork, but Simonetti hopes that the focus on the bigger company won't distract away from the larger story of a change in the workplace.

"This industry doesn't start and end with WeWork (or coworking) nor does it change the trendline," Simonetti wrote over email on Thursday after the media reports of WeWork possibly taking a massive valuation hit.

Roughly a quarter of Convene's locations are management partnerships with landlords, where the company is paid a fee to operate space, but don't actually pay a lease to a landlord. This is similar to how established hotel brands operate.

Simonetti said that three quarters of Convene locations are leased, but that the leases are partnership leases where the landlord puts up capital for renovations. While this model reduces risk by taking the lease off of Convene's balance sheet, it can be less profitable.

"At scale, I think the multiple is higher for a more asset-light, capital-light business, but it doesn't necessarily mean that your valuation is going to be higher," he said.

While Convene may be touting a partnership strategy, it is not alone. Industrious, which recently raised $80 million, is attempting to make management partnerships a majority of their business by 2020. WeWork is also looking to increase the proportion of their spaces under management partnerships.