How The Hell Did This Company Just Raise $20 Million From Peter Thiel?

img.png

That must have been the question on some of your minds when the news broke last month that Breather had just raised a $20 million Series B led by Peter Thiel’s Valar Ventures.

It might seem odd at first glance that a company offering “private space on demand” would be taken seriously by one of Silicon Valley’s most legendary investors.  However, I would argue that Valar saw the same incredibly powerful thing in Breather that I saw when I invested in their seed round in 2013: companies like Breather are completely changing the way that “space” or “real estate” is consumed throughout the globe. 

In the past I have blogged extensively about the best way to start a real estate technology company.  In summary, I believe that you need to work with industry veterans to identify specific pain points and build technology to solve those pain points.  Well, some ideas just seem SO insane at the time of conception that it takes someone with very little knowledge of the space to come in and create an entire new paradigm.  Back in 2013, Julien Smith was that person, an unconventional professional author who just had a hunch that private space on demand needed to work.  Most people in the real estate industry almost immediately dismissed the idea as too batshit crazy to ever work in the real world.  Then again, founders like Julien don’t back down from a bunch of people telling them their idea won’t work; it just pushes them to work harder and prove everyone wrong.

I first came across Breather and Julien in 2013 on Angel List.  I don’t remember what initially drew me to the company’s profile page, but I do remember that it had a certain mystique.  There was very little information about the company available (I think it was just a photo of a sleeping dog) but I asked for an introduction and Julien was kind enough to respond.  We were able to schedule a call for an afternoon later that week. 

I decided to take the call in between meetings in the Union Square area of NYC.  I didn’t have an office nearby so I took the call from my cell phone.  I spent the entirety of the call walking around Union Square Park looking for a quiet place to take the call.  I remember saying to Julien, “You wouldn’t believe what I’m doing right now but I’m living the pain point your company is trying to solve right this instant!  I can’t find a quiet place to take this call!”

Julien laughed and explained to me that he came up with the idea for Breather working as a freelance author constantly traveling.  He was sick of working in random cafes with bad Wi-Fi and wanted something different.  He also mentioned that he was excited to chat with me because I was the first real estate person he had talked to about the concept and he wanted my help working with landlords so that he could obtain space.  At this point he had no proof of concept, no app, and no spaces; he just had an idea and a will to make it happen.

After the call Julien had not yet committed to inviting me into the funding round, so I knew that I would need to prove myself worthy, and do it quickly.  So, I decided to start reaching out to friends of mine in the real estate community to see what they thought about the concept, and if they would be willing to either co-invest with me, or lease some of their commercial space to Julien to open up one of his first ever Breathers.  I was not surprised when my enthusiasm for the Breather concept was met with quizzical looks from some, and outright derision from others.

In fact, I brought the Breather concept up in a meeting with one of the most innovative and creative real estate minds of all time.  This was one of the people who invented the concept of urban mixed-use buildings, something considered pretty radical at the time in the early 90’s when he first started building them.  He told me that Breather had no shot, and that’s when I knew I had to invest.  Nowadays, my father is pretty excited to have Breather in our portfolio!

There are a few of reasons why Breather is simultaneously so radical and so obvious.  As I have mentioned in the past, commercial real estate is a fundamentally inefficient asset.  Tenants only occupy office buildings during the day (investment banks excluded here) and hotels during the night.  Landlords however have to pay to operate these buildings all day long: they have to pay utilities, taxes, maintenance, and management expenses all day long.  The innovation of mixed-use buildings in the early 90’s, pioneered by our company, Millennium Partners, helped to defray some of these costs as a combination of residential, hotel, office, sports club, and retail uses ensured that some portion of the building was occupied 24 hours per day, 365 days per year.  

Nonetheless, Breather takes the mixed-use model even further, by creating flexible space modules that can be used 24 hours per day, 365 days per year for different purposes, matching tenant demand at any given time to landlord supply.  Breather effectively matches tenant demand with landlord supply in real time, and pushes the envelope even further with a dynamic pricing model.  Now, landlords are not only ensured to have commercial space occupied 100% of the time; they also will know how much each time of day is worth to tenants in a particular building.  For some buildings 2 PM is the most desirable hour of the day and for other buildings it’s 10 AM.  Prices can thus change dynamically to accommodate this phenomenon.

Once demand and supply are perfectly matched, and price elasticity becomes transparent, landlords know exactly how much their space is actually worth.  They will make more informed decisions about their buildings because of this additional knowledge.  Also, since the spaces will always be occupied, landlords can afford to charge tenants less on a per hour basis because they know that the space will be more valuable on a per square foot basis than had they leased the space under a traditional ten year commercial lease.  Everybody wins: landlords charge less and make more money and tenants pay less and only use the space when they actually need it.

As more and more people move into cities across the globe, urban real estate becomes ever more precious.  54% of people globally now lives in cities and population growth in cities is expected to accelerate over the next ten years.  I believe that concepts like Breather will be essential as space becomes scarce and citizens require greater efficiency of space within their cities.  Eventually, real estate developers will begin to build completely flexible modular commercial spaces within their buildings, satisfying more types of use than a current Breather location can handle.  What will buildings look like when there are Breather conference rooms, Breather kitchens, Breather bedrooms, Breather dining rooms, and Breather bathrooms?  People will conceive of how they live completely differently.  They will only pay to use their bathroom when they actually use it.   They will only pay to use their dining room during dinnertime.  They will only pay to use their conference room during a meeting, and so on.  This way of living will drastically reduce costs for urban residents because they won’t ever pay for space they don’t actually use.  Landlords will be happy because all their space will be occupied and leased 100% of the time.

Thus, Breather is the future of conceptual commercial real estate, and that’s why Peter Thiel just gave them $20 million.  Now, the company that was dismissed a few years ago by our industry as a gimmick that would never work could just be the company that completely disrupts our industry and improves urban quality of life around the globe.  I am thrilled to be along for the ride!