A Silicon Valley billionaire has become the majority shareholder of Second Home, the iconic London-founded coworking company known for its funky architecture, uncomfortable vintage chairs and illustrious investors.
To take a controlling stake of the company LA-based investor Riaz Valani's private equity firm Global Asset Capital put in £7.8m — at a valuation vastly distant from the £130m price tag the eight-year-old company once held.
The deal wipes out the stakes of the majority of Second Home’s all-star cast of angel investors — a list that reads like a who’s who of London’s early startup scene: including the likes of Wired’s founding editor-in-chief David Rowan, collapsed payday lender Wonga’s Errol Damelin and online car retailer Cazoo’s Alex Chesterman.
But it protects Second Home from the fate of another renowned coworking space — New York’s The Wing, which announced last month that it was permanently closing its remaining locations.
Robin Klein, cofounder of VC firm LocalGlobe, Martin Lau, president of Tencent, Yuri Milner, the Russian-Israeli billionaire, who renounced his Russian citizenship this month, and top European VC firms Index Ventures and Atomico have also backed the company, founded in 2014 by Rohan Silva, once a senior policy advisor to former UK prime minister David Cameron.
For Silva, handing over the controlling stake might just be worth it. Second Home, which has raised over £60m and has spaces in London, Lisbon and Los Angeles, had been plagued by overrunning construction projects more or less since launch — and that was before Covid came along. Losses hit £22.7m in 2020, up from £15.6m the year before.
When Covid hit, I didn't think Second Home would survive.
Despite the fact that the “valuation set was pretty low” and his own stakes in the business have been watered down, Silva insists that this is not a sale: “I'm honestly just relieved and happy that we got through to fight another day, because when Covid hit, I didn't think Second Home would survive.”
“It’s not a sale”
“Second Home is now wholly owned by a US entity,” Silva explains on a call with Sifted, and plans to become a US REIT (real estate investment trust) in the future.
How (and how not) to run a startup.
Before the new deal, the largest shareholder was Jim O’Neill, former chairman of Goldman Sachs Asset Management and a House of Lords peer, who owned 34.5% and took the controlling share in May last year. Silva’s stake was worth £15.5m at the company’s peak valuation.
In 2021, Second Home took £5m in investment from the Future Fund — a pot of funding for high-growth private companies affected by the pandemic — which was matched by three investors: O’Neill, Valani and Robin Klein. Klein was Second Home’s first investor, and owned a 1.8% stake before the write down of shareholders last week.
Those investors, alongside Silva himself, are the only ones that have so far been given shares in the new US entity.
Silva says the deal was structured to protect the Future Fund’s share of the business — and that a portion of Klein and O’Neill’s stakes were protected because they, unlike other investors, were part of the convertible loan round that the fund took part in.
Second Home declined to confirm what percentage Silva, Klein, O’Neill and the Future Fund now hold – but clarified that Valani, who was the first investor in e-cigarette startup Juul, is the majority shareholder. Klein told Sifted he was not aware how much of the business he or the Future Fund now owned.
Silva tells Sifted that all the other old shareholders — including Chesterman, who previously owned 0.6% of the business, and Damelin, who owned 0.4% — have the option to reinvest in the US entity pro rata in a second (smaller) round of funding that he expects will take place before Christmas.
“I think a large number of them are going to, which is great,” says Silva. Sifted spoke to one who said they were unlikely to do so and had more or less written off the business. Sifted contacted several others who did not respond to our requests to comment.
Last week’s resignation of shareholders’ stakes had been predicted by Sky News in July, which reported that Silva had told shareholders they would see their investment in the company “reduced to zero” if the proposed deal were to go through.
Silva started Second Home with entrepreneur Sam Aldenton, opening its first site in a former carpet factory in east London in 2014. Aldenton left in 2019.
Silva is a former civil servant who later took a job advising David Cameron and then chancellor George Osborne on their tech strategy. He’s also been an entrepreneur-in-residence at Index, and is still a columnist for the London newspaper the Evening Standard.
The Spanish architects SelgasCano designed the first space in Spitalfields which, the team were always proud to point out, had no straight lines. It looks something like a 60s apartment crossed with a botanical garden and a children’s play area. The cafe at one point doubled up as a restaurant run by Louis Solley, a former head chef at London institution Ottolenghi.
Its roster of events has included talks from artists and astrophysicists and authors like Alain de Botton, Reni Eddo-Lodge and Michael Pollan. A bookstore, Liberia, opened in 2016, just across the road from the site. It’s a magical space, with mirrored walls and books organised by theme, not author.
Second Home was cool, it was different and it looked amazing — but in practice, sometimes it just didn’t work.
At the Clerkenwell site where Sifted was once based, the lifts stopped working for months. The chairs — hand-picked, one-of-a-kind — were often back-breaking, and tenants (including Sifted) weren’t allowed to change the seats in their own offices. There were no mugs to make tea — just glasses — and the barista would frequently refuse to make lattes if it was past midday.
In 2017, Second Home opened a second London site in the fancy residential neighbourhood of Holland Park, and in Lisbon, in a space above the Time Out food market — a popular tourist haunt. In Portugal, they took plants to a new level. Design blogs lapped it up — but it opened six months late.
The next site, in the trendy east London neighbourhood London Fields, which was due to open in spring 2017, didn’t open until 2019. Another, in the central London office area Clerkenwell, also opened in 2019.
The noose around its neck
The company’s big mistake, several former shareholders and employees told Sifted, was its LA project.
Work on the two-acre Hollywood site began in the summer of 2018. It first actually got bums on seats in November 2019.
The problem with getting it open, Silva told Sifted, was with the developer. “The construction was on time, but the deal we did was a deal we’ll never do again. The guys who bought the site committed to spending a certain amount of money transforming the building, and then everything else was on us. Within months, the budget had gone over that amount.”
“It was really tough because we weren’t in charge of construction.”
It’s more like a campus than a coworking site; there are 60 outdoor ‘pod’ offices, 6,500 trees and plants, and a 1960s building designed by Paul Williams (the first African American inducted into the American Institute of Architects, Silva tells us) with some more traditional style offices.
It’s won a host of architecture awards, however Second Home says the site isn’t yet full or profitable, but expects it to be by “early next year”.
“It definitely would’ve been easier to stay in London — our group operations in Europe were profitable for about three months pre-Covid,” Silva says. “The really easy thing to do would’ve been 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 have signed.
And that it was.
“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 have signed.”
The pandemic was also hard on Second Home, and Silva says he didn’t think the business would survive. Occupancy fell to around 10 or 20%, he says — although luckily many tenants had signed 12-month leases so the impact wasn’t felt in one fell swoop.
Second Home decided to take the Future Fund money “because it was there and we were eligible” says Silva. “The round came together pretty 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 — has committed to put up “tens of millions of pounds” to purchase new — and existing — properties.
There’s an offer in for one of the existing sites, he says — but won’t disclose which one.
If the deal were to go through, Silva confirmed GAC would take more equity in the business in exchange for its capital commitment.
You do things and you learn from them.
Further expansion in London and LA is on the cards, and Silva says he’d like Second Home to be working on three new projects in 2023, and buying 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 the British taxpayers' money to the Future Fund. “That’s what I’m really working hard on. All our numbers look really good.” Silva also plans to move back to the UK by the end of the year.
All the London sites and the Lisbon site are now profitable (inclusive of rent, staffing and operational costs), he says. Average occupancy rate are over 80%, and the company expects to achieve group profitability in 2023.
And the chairs?
The vintage chairs are no more, says Silva. “You do things and you learn from them.”
Freya Pratty is a reporter at Sifted. She tweets from @FPratty and writes Sifted’s climate tech newsletter — you can sign up here.
Amy Lewin is Sifted’s editor and cohost of The Sifted Podcast, and writes Up Round, a weekly newsletter on VC. She tweets from @amyrlewin
This article was amended to reflect that Yuri Milner renounced his Russian citizenship earlier this month.