The link between coworking space demand and venture capital financing: Empirical evidence from European office market

Abstract

Flexible office space is a game-changer in the real estate industry, forecasting a rapid growth over the next years up to 30.000 flexible offices in 2020 (Gcuc, 2017). Specifically, emerging coworking spaces build a growing field for individuals, entrepreneurs, start-ups, and corporations. The agglomeration of coworking spaces resembles entrepreneurship in incubation centers, but the community aspect among involved firms is strong and invaluable (Bouncken et al. 2018). One of the main reasons to work in coworking spaces is the collaboration and sharing of knowledge, resources, and ideas (Spinuzzi, 2012). This can breed new venture concepts, support the growth in an early start-up stage, and accelerate successful business models. However, entrepreneurs require capital, which is a challenge to obtain. Venture Capital (VC) is considered as a fundamental source of finance for entrepreneurial firms (Colombo et al. 2018). So far, there has been no research on the relationship between venture capital investments in firms using coworking spaces. Previous literature lacks the understanding of how coworking spaces support entrepreneurial activities and how this affects the raise of external equity. Our study aims at understanding the connection between coworking spaces with venture capital investments and spatial founding activities.Our research focuses on addressing the question of whether there is a substitutional or complementary relation between firms’ funding by venture capitalists and their use of coworking spaces?We examine the relationship between the existence of coworking spaces with VC investments and founding activities in the European Union to illuminate the macroeconomic impact of this recently emerged form of business model, transforming the real estate office market. First, we employed a webcrawler identifying coworking spaces throughout the big cities in Europe to generate data for the study. We then determined the size and founding date of each space and aggregated the data per city in order to conduct a panel over 9 years. Furthermore, we compiled VC data via the platform crunchbase. Using the crunchbase API we were able to obtain and compile global investments and funding information. Applying econometric methods, we identified the relation of VC and coworking spaces at a global and country-specific level using a regression analysis and addressing the endogeneity problem. The novelty of our research provides a new spatial component to the venture capital and innovation literature by showing how the physical organization of work affects entrepreneurial activities.The results are threefold. First, VC investors get guidance on where to supply venture capital, as venture capitalists tend to invest within a spatial proximity to the venue. Second, coworking operators can benefit from this analysis in order to attract venture capital and provide an ideal entrepreneurial environment. Third, from an urban perspective, the results influence cities and policy-makers. We show the impact of flexible office space and accelerators for entrepreneurial activities and the determining factors for capital inflow into a city, which is an important variable for economic growth.