Financially troubled co-working space provider Kr Space announced on Wednesday that it has completed a RMB 1 billion ($145 million) round of funding, jointly led by IDG Capital, Gopher Asset Management and Hubei Yixing Capital.
Kr Space’s biggest fund-raising ever, which comes after the Beijing-based startup had already defaulted on lease commitments in Hong Kong and Shanghai, will be used to implement a new strategy centred on acting as an asset manager, according to a statement by the company.
While acknowledging that Kr Space has faced difficulties, which include the company having been sued by developer Chinachem for HK$500.9 million ($63.8 million) after defaulting on a lease in Hong Kong, the shared office startup’s chairman now says that the company’s difficulties were mainly due to “strategic adjustments.”
Defaults Give Rise to New Strategy
Liu Chengcheng, founder and chairman of the company, said in a statement that the cash will be used to “push forward the execution of the new strategy.”
Under this new approach, Kr Space will “complete its transformation from a co-working space operator to a provider of comprehensive office services as well as a new type of asset management.”
The co-working spin-off of Alibaba-backed technology platform 36Kr says that under its new approach, it will not only better serve early stage startups by providing flexible shared office spaces, but also offer a one-stop office solution for enterprise clients including location selection, spatial design, construction and operation management for their office needs.
Both IDG and Gopher are previous investors in Kr Space, with Hubei Yixing Capital apparently backing the company for the first time. The startup did not comment on the valuation for this latest round of financing.
Chairman Predicts Rebound
Despite the lawsuit, which came after Kr Space walked away from a preliminary agreement to lease seven floors in ChinaChem’s One Hennessy in Hong Kong, Kr Space’s Liu says the company is now set for expansion.
The 31-year-old first time entrepreneur now predicts that within this year, Kr Space will expand its mainland footprint from 10 to 13 cities, while also setting a goal to expand its custom-office services for enterprises to 20 percent of its total business and bring the average occupancy rate in its centres to 90 percent.
Liu declared these goals just one week after European flexible office giant IWG announced that its Spaces co-working division had had taken over a 5,000 square meter office space next to Shanghai’s Xintiandi complex after Kr Space defaulted on lease for the location.
While acknowledging that Kr Space had closed down “five or six stores” recently, Liu said that analysts were overlooking the company’s opening of more than a dozen stores in other locations at the end of last year.
In December last year, Kr Space was reported to have backed out of a plan for an eight-year lease of the 38th and 39th floors at The Center on Queen’s Road, after having signed a term sheet to lease the property for HK$4.3 million ($550,164) per month, according to market sources who spoke with Mingtiandi.
Kr Space was also said to have backed out of a binding term sheet to lease space in New World’s Victoria Dockside project in Tsim Sha Tsui. Local media accounts also indicate that, despite Kr Space listing an upcoming opening at Hong Kong’s Times Square on its corporate website, the company had already abandoned plans to open in that location.
Back in mainland China, Kr Space was said in February to be closing down six locations spanning 30,000 square meters (322,917 square feet) according to local press accounts.
New Strategy on the Way
While acknowledging in interviews that, “We did make some mistakes,” Kr Space’s Liu says that the company’s new emphasis on acting as a service provider will allow it to trim its capital expenditures and avoid further trouble.
To enact the new strategy, Liu had launched two new initiatives — a unit to provide customised office for large customers, complete with service staff; and partnership business where it teams with developers to launch co-working centres on a joint venture basis, rather than leasing space.
The company cited outdoor advertising firm Focus Media, news provider Chinese Business Network, ecommerce brand Daling Family, and online community Xcar as the kind of corporate clients that have enjoyed the all-in-one office management services that Kr Space is introducing in its new approach.
Minsheng Investment Collapse Led to Kr Crisis
Kr Space’s financial woes are said to have been triggered by a major funding round which never happened. The startup, which reached a total of just over $137 million in funding when it won RMB 600 million in investment from existing backers in January 2018, had in May last year announced plans to raise an additional $200 million at a valuation of over $1 billion.
However, the company never have closed on that unicorn round as its lead investor China Minsheng Investment Group was gripped with a financial crisis itself and defaulted on a RMB 3 billion bond obligation.