If you came to this article directly, consider going through the series of articles it is a part of. Please find the link to the other articles in the Coliving fundraising and investment series here:
- The Rise of Coliving Investments
- What Makes Coliving a Profitable Investment?
- Types of Coliving Business Models Investors Should Know
- Securing Capital: Fundraising Strategies for Coliving Businesses
- Key Factors to Consider Before Investing in Coliving Space
- How Legal and Regulatory Aspects Can Impact Coliving Investment
- Case Studies: Successful Coliving Ventures and What Investors Can Learn
- Opportunities and Risks: Is Coliving a Safe Investment?
- How to Get Started with Coliving Investment Today
- Why Coliving Investment is the Future of Real Estate
- Ready to Invest? Start Your Coliving Journey with Us
Raising capital for coliving ventures is a critical step in launching and scaling operations. The right funding strategy not only ensures sufficient capital to get started but also provides the flexibility to grow sustainably. Whether through personal investment, private equity, venture capital, or creative partnerships, coliving operators can leverage multiple funding sources to build profitable businesses. This section covers the best fundraising strategies for coliving businesses and offers actionable insights for investors and founders.
“The key to unlocking capital is aligning your vision with your investors—demonstrate not just potential profits but the impact your venture will have on people, cities, and society.”
Self-Investment: Laying the Foundation
- Why it’s essential: Self-investment demonstrates commitment and builds trust with outside investors. If founders are willing to risk their own money, it signals confidence in the venture.
- Establishing Proof of Concept: Early capital from personal savings can cover the development of a prototype or a pilot property, showcasing the operator’s capabilities.
- How it Helps Secure Future Funding: Investors are more likely to fund a business when they see evidence of personal investment and early operational success.
Tip: Use personal funds strategically to refine your business model, explore target markets, and demonstrate initial tenant interest.
Revenue-Sharing Models with Property Owners
- What it is: Operators negotiate a revenue-sharing agreement with landlords or developers, aligning rent payments with occupancy levels. This reduces the financial burden during the early stages.
- How it Works: Instead of paying a fixed rent, operators share a percentage of the rental income generated by the coliving property.
- Advantages:
- Lower initial expenses make it easier to manage cash flow.
- Property owners become partners in the business, reducing rent pressure during low-occupancy periods.
- Promotes long-term collaboration with landlords and developers.
Example: Operators working with developers on under-construction projects can offer guaranteed occupancy, helping them negotiate favorable lease terms or delayed payments.
Private Equity: Accessing Growth Capital
- Why Private Equity is Ideal for Coliving: Private equity investors are drawn to coliving for its high growth potential and stable income streams.
- How it Works: Operators exchange equity in the business for capital to expand operations or develop new properties.
- Advantages:
- Access to large pools of capital enables rapid scaling.
- Investors often provide strategic advice and connections, supporting long-term growth.
- This works well if the operator starts owning the real estate, and hence the investment is backed by an asset, which can lead to easier exits for investors.
- Challenges:
- Equity dilution means founders may give up a portion of ownership and decision-making control.
- The return expectations in this case is higher in a shorter time frame. This pushes the operators for higher growth and can lead to problems in profitability if not executed properly.
Example: Cohabs secured $450 million from institutional investors like Ivanhoé Cambridge, allowing them to scale across multiple markets.
Venture Capital: Fueling Rapid Expansion
- When to Use Venture Capital: VC funding is best suited for established operators with a proven business model ready to scale rapidly.
- How it Works: Venture capitalists invest large sums in return for equity and high growth potential within a short period.
- Advantages:
- Helps operators enter new markets quickly and gain market share.
- Provides access to expert guidance and resources for scaling.
- Challenges:
- VC investors expect fast returns and may push for rapid expansion, which can increase operational risk.
Example: Adam Neumann’s Flow received $350 million from a16z, highlighting the growing VC interest in coliving as a scalable model.
Bank Loans and Government Programs
- Bank Loans as a Traditional Option: While loans may not offer the flexibility of equity funding, they provide predictable repayment terms and allow operators to retain full ownership.
- Types of Loans:
- Personal loans: Useful during the early stages when business loans may not be available.
- Business loans: Suitable for operators with established revenue streams and a track record of profitability.
- Access to Government Incentives: Many governments offer grants, subsidies, or tax breaks for sustainable housing projects or those focused on community building.
Tip: Use loans to cover initial operating expenses or develop properties, and explore government grants to reduce costs. For example, coliving can help in building affordable housing in a lot of regions struggling with housing crises, and governments are giving grants to operators to build such spaces in Canada.
Partnerships with Developers and Service Providers
- Strategic Partnerships: Collaborating with property developers and service providers can help operators reduce initial costs.
- How it Works: Operators can negotiate exclusive service agreements (e.g., with interior designers or maintenance companies) to extend payment timelines or reduce costs.
- Advantages:
- Developers benefit from occupancy guarantees, while operators reduce rent or lease costs.
- Service providers get long-term contracts, and operators improve cash flow by spreading payments over time.
Example: Some operators offer exclusive service agreements to interior designers, securing favorable payment terms across multiple properties.
Crowdfunding and Impact Investing
- Crowdfunding for Coliving Ventures: Some operators use crowdfunding platforms to attract small-scale investors interested in community-driven real estate projects. Operators like circles house did this in their initial phase.
- Impact Investing: Coliving aligns with ESG goals, making it attractive to impact investors seeking financial returns alongside social and environmental benefits.
- Advantages:
- Crowdfunding builds a community of backers who can become early tenants or brand ambassadors.
- Impact investors often provide patient capital, focusing on long-term value rather than quick profits.
Example: The Social Hub raised €145 million to support impact-focused projects, showing the potential of aligning coliving with ESG principles.
Build-to-Rent (BTR) and Institutional Investment
- What it is: Build-to-rent involves developing properties specifically designed for rental purposes, including coliving spaces.
- How it Works: Institutional investors partner with developers to finance large-scale coliving projects.
- Advantages:
- Access to long-term capital and lower borrowing costs through institutional partners.
- Allows operators to expand quickly and benefit from the growing demand for rental housing.
Example: Ivanhoé Cambridge, Bouwinvest, and Greystar launched a €1 billion joint venture to invest in coliving developments across Europe.
Selecting the Right Funding Strategy for Your Coliving Business
Securing capital is essential for coliving operators aiming to scale quickly and maintain profitability. From self-investment and revenue-sharing models to private equity, venture capital, and strategic partnerships, each fundraising strategy offers unique advantages. Operators should carefully consider their business model, market conditions, and long-term goals when choosing a funding strategy. Coliving businesses that successfully align financial goals with community-building initiatives are well-positioned to attract investors, reduce risk, and build sustainable operations. Whether through equity funding, loans, or creative partnerships, there are ample opportunities for operators to secure the capital needed to thrive in this growing sector.