The Silicon Valley billionaire has become the majority shareholder of Second Home, the famous co-working firm founded in London known for its funky architecture, awkward old chairs, and high-profile investors.
In order to acquire a controlling stake in Los Angeles-based private investment firm Riaz Valani, Global Asset Capital has placed £7.8m – at a valuation far from 130 million pounds sterling The eight-year-old company was once owned.
The deal wiped out the stakes of the majority of Second Home’s all-star cast of angel investors — a list that reads like who’s who from the early London startup scene: including the likes of Wired’s founding editor-in-chief David Rowan, the collapse of Wonga’s payday lender Errol Damelin and trader Online car retailer Cazoo’s Alex Chesterman.
But it does protect Second Home from the fate of another popular co-working space – The Wing in New York, which announced last month that it would permanently close its remaining locations.
Robin Klein, co-founder of venture capital firm LocalGlobe, Martin Lau, president of Tencent, and Yuri Milner, the Russian-Israeli billionaire, who gave up his Russian citizenship this month, and major European VC firms Index Ventures and Atomico have also backed the company, which was founded in 2014. Written by Rohan Silva, who was a senior political advisor to former British Prime Minister David Cameron.
For Silva, handing over the controlling stake may be worth it. Second Home, which has raised more than £60m and has spaces in London, Lisbon and Los Angeles, has been plagued by construction projects in one form or another since its launch – and that was before the emergence of Covid. Losses were £22.7m in 2020, up from £15.6m the previous year.
“When Covid hit, I didn’t think Second Home would survive.”
Despite the fact that “the appraisal group was too low” and his private stakes in the business had been watered down, Silva insists that this Not Selling: “I’m honestly relieved and glad we managed to fight another day, because when Covid hit, I didn’t think Second Home would survive.”
“It’s not discounts”
“Second Home is now wholly owned by a US entity,” Silva explains in a call with Sifted, and plans to become a US Real Estate Investment Trust (REIT) in the future.
Prior to the new deal, the largest shareholder was Jim O’Neill, the former chairman of Goldman Sachs Asset Management and the House of Lords peer, who owned 34.5% and acquired the controlling stake in May last year. Silva’s stake was worth £15.5 million at the company’s peak valuation.
In 2021 Second Home received £5 million in investment from Future Fund – A Funding pot For private, high-growth companies affected by the pandemic – interviewed by three investors: O’Neill, Falani and Robin Klein. Klein was the first investor in Second Home, owning a 1.8% stake before shareholders were written off last week.
These investors, besides Silva himself, are the only ones who have so far acquired shares in the new US entity.
Silva says the deal was structured to protect the Future Fund’s stake in the business — and that a portion of Klein and O’Neill’s stakes were protected because, unlike other investors, they were part of the fund’s convertible loan round.
Second Home declined to confirm what percentage Silva, Klein, O’Neill and the Future Fund would now hold — but made it clear that Valani, who was the first investor in e-cigarette startup Juul, is the majority shareholder. Klein told Sifted that he doesn’t know how much business he or the Future Fund have now.
Silva told Sifted that all other legacy shareholders – including Chesterman, who previously owned 0.6% of the company, and Damelin, who owned 0.4% – had the option to reinvest in the US entity pro rata in a second (smaller) round of financing expected to take place before Christmas.
“I think a lot of them are going, which is great,” Silva says. Gherbal spoke to someone who said he was unlikely to do so and somehow wrote off the business. Sifted contacted several others who did not respond to our requests for comment.
Sky predicted shareholder resignation last week July news that mentioned That Silva has told shareholders they will see their investment in the company “go down to zero” if the proposed deal goes through.
Silva Second Home started with entrepreneur Sam Aldenton, and opened its first location in a former carpet factory in East London in 2014. He left Aldenton in 2019.
Silva is a former civil servant who later took on a job as an advisor to David Cameron and then George Osborne on their technology strategy. He has also been an Index-based businessman, and continues to be a columnist for the London Evening Standard.
Spanish architect SelgasCano designed the first space in Spitalfields which, as the team has always been proud to point out, did not have straight lines. It looks like a 60’s apartment crisscrossed with a vegetable garden and children’s play area. The café at one point doubled as a restaurant run by Louis Solly, former head chef at London’s Otolenghi Institution.
His list of events included talks from artists, astrophysicists, and authors such as Alain de Botton, Rene Eddo Lodge and Michael Pollan. A bookshop, Liberia, opened in 2016, just across the road from the site. It’s a magical space, with mirrored walls and books organized by topic, not author.
Second Home was cool, different and looked great – but in practice, sometimes it just wasn’t work.
At the Clerkenwell site where Sifted was based, the lifts had been out of work for several months. The chairs – hand-selected, one-of-a-kind – often had a broken back, and tenants (Sifted included) were not allowed to change seats in their own desks. There were no cups for making tea – only cups – and the barista would often refuse to make a latte if it was past midday.
in 2017, Second Home has opened a second location in London in the posh residential neighborhood of Holland Park, and in Lisbon, in a space above the Time Out food market – a popular tourist spot. In Portugal, they took flora to a new level. Design blogs are designed – But she opened Six months late.
The next location, in the trendy East London district of London Fields, which was scheduled for Open in Spring 2017did not open untin 2019. Another office opened in the Clerkenwell office area in central London in 2019.
noose around his neck
Several shareholders and former employees of Sifted have said the company’s big mistake is the Los Angeles project.
Work on The two-acre Hollywood location launched in summer 2018. It already had its first homeless seating in November 2019.
Silva told Sifted that the problem with unlocking it was with the developer. “Building was on time, but the deal we made was a deal we would never do again. The people who bought the site committed to spending a certain amount of money to transform the building, and then it was all on us. Within months, the budget was over that amount.”
“It was really difficult because we weren’t in charge of the construction.”
It is more like a campus than a co-working site; There are 60 outdoor offices, 6,500 trees and plants, and a 1960s building designed by Paul Williams (the first African American to be admitted to the American Institute of Architects, Silva tells us) with some traditional-style offices.
It’s won a bunch of architecture awards, but Second Home says the site isn’t full or profitable yet, but it expects to be by “early next year.”
“It was definitely easier to stay in London – our group’s operations in Europe were profitable for about three months before Covid,” Silva says. “The really easy thing is to open 10 more in London.”
“But as an entrepreneur, you always want to climb the next mountain.”
“It was a deal we shouldn’t sign.”
“It’s the hardest thing I’ve ever done,” Silva says. “And I’ve been really open with investors – it was a deal we shouldn’t sign.”
The pandemic has also been difficult for Second Home, and Silva says he doesn’t think the business will survive. He says occupancy is down to about 10 or 20% — although fortunately many tenants have signed 12-month leases, so the impact has not been felt in one fell swoop.
Second Home decided to take the Future Fund money “because it was there and we were eligible,” Silva says. “The tour came together very quickly.”
As part of the new plan to own some of its sites, Second Home says Global Asset Capital (GAC) – the private equity firm where Valani is a general partner – Commit to allocating “tens of millions of pounds” to the purchase of new and existing properties.
He adds that there is a view of one of the existing sites – but he won’t reveal which.
Should the transaction go through, Silva assured that GAC would receive more equity in the business in exchange for its capital commitment.
“You do things and learn from them.”
Further expansion to London and Los Angeles is on the table, and Silva says he would like Second Home to work on three new projects in 2023, and buy one or two of the existing buildings.
He says, despite the fact that Second Home is now a US-controlled entity, he hopes he can return British taxpayers’ money to the Future Fund. “That’s what I’m really working hard on. All of our numbers are looking really good.” Silva also plans to return to the UK by the end of the year.
He says all of the London and Lisbon sites are now profitable (including rent, staffing and operational costs). The average occupancy rate has exceeded 80%, and the company expects to achieve group profitability in 2023.
And what about the chairs?
Silva says the old chairs are no longer there. “You do things and learn from them.”
This article has been modified to reflect Yuri Milner renouncing his Russian citizenship earlier this month.