- Salaryo, a two-year-old firm that provides financing for small businesses and startups to pay coworking security deposits and rent spaces, told Business Insider on Wednesday that it has nabbed $5.5 million in a mix of equity and debt.
- WeWork has been valued at $47 billion and is eyeing an IPO. Last week, rival Industrious announced $80 million in funding and Knotel said it secured $400 million in financing.
Yair Levy, cofounder and CEO, thinks that the future of coworking will likely lead to a tiered system. The highest-tier, encompassing WeWork and its closest competitors, will eventually give way to a lower-tier that's more accessible for startups. Levy hopes to serve customers in both tiers.
- Click here for more BI Prime stories
WeWork has been valued at $47 billion and is eyeing an IPO. Last weekend, rival Industrious announced $80 million in funding and Knotel said it secured $400 million in financing. Now, even a startup that offers loans for coworking customers is getting in on the action.
Salaryo, which was founded in 2017 and provides financing for small businesses and startups to pay their security deposits on coworking spaces, told Business Insider on Wednesday that it has nabbed $5.5 million in a mix of equity and debt.
We talked with CEO and co-founder Yair Levy about how the company wants to use that money to expand its coworking financing services across the U.S. - and how average coworking deposits it lends for are rising, and a tiered system in the industry could emerge.
Salaryo says it works with tenants in 30 flexible workspace providers, including WeWork, Industrious, Office Evolution and The Yard, across 500 locations. It has now raised a total of $6.3 million.
Expectations for continued growth in coworking are high, though WeWork's recent S-1 filing has shone a light on the financials underpinning the industry - the company had $47 billion in future lease obligations on the spaces it re-rents out to customers and a nearly $2 billion loss in 2018. Industrious and WeWork are both eyeing more partnerships with landlords and other arrangements over traditional leasing deals.
WeWork has said the relatively low costs of its coworking spaces versus traditional leases can appeal to smaller businesses and startups, and also help make it a more appealing alternative during an economic downturn.
But the original idea for Salaryo came from the founders' experience grappling with costs as customers in a flexible office space four or five years ago, Levy told Business Insider.
"We were all working with cash flow challenges, and talking about creative ways to deal with this problem," Levy said.
A small business can apply for a loan on the Salaryo website. According to Levy, the application and decision are completed in minutes, and the decision making is totally automated.
Salaryo will pay the security deposit on the applicant's behalf, and they can move in within 24 hours. For this service, the applicant pays a monthly fee of $10-15, depending on factors like the size of the deposit.
Salaryo has been lending money for 18 months, and said that the average size of a security deposit that it lends for has increased from $2,500 to $3,000. Salaryo is planning to use this funding to expand its operations beyond the 20 US cities it currently operates in. The company says it has originated hundreds of loans, but were unable to provide an exact number.
Michael Ullman, a UK-based VC investor, bought equity in Salaryo, while Canadian real-estate and technology investors Ruby Ventures provided debt funding. Ruby Ventures is managed by Canada's Rubinstein family, who founded H&R Developments. H&R grew into H&R REIT, which is now one of Canada's largest REITs by market-cap.
Levy thinks that the future of coworking will likely lead to a tiered system. The highest tier, encompassing WeWork and its closest competitors, will eventually give way to a lower-tier that's more accessible for startups. WeWork has been working to sign more big companies with longer-term rental arrangements.
Levy hopes to serve customers in both tiers.
"Now we're seeing the flexible becoming the new standard in commercial office real estate," Levy said. "That means that we're expecting to see the barrier to entry, especially the large brands, will be higher than it used to be."