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Celebrity-backed firm allows small businesses to own instead of rent their buildings

Posted by Shivali Anand

April 7, 2022    |     3-minute read (549 words)

New York-based Withco was co-founded in 2019 by Kevin Song and Taylor Savage with a mission to help small businesses being forced out by expensive rent to acquire their property. Song was motivated to create the company when his own parents were forced to hand over the keys to their Brooklyn grocery shop, which they had owned for 20 years, after the landlord quadrupled their rent.

"My parents created so much value for their neighborhood but didn't get to keep their business," Song told TechCrunch. "It felt like an illogical indecency."

Raising funds

Withco has attracted $30 million in venture capital from businesses such as Founders Fund, NFX, Initialized Capital and Canaan Partners, along with luminaries such as tennis player Venus Williams, NBA star Kevin Durant and former Housing and Urban Development Secretary Julián Castro.

Other notable investors include Danny Meyer's Enlightened Hospitality Investments, Will Smith's Dreamers VC, Lennar's venture arm LENX and the founders and CEOs of Affirm, DoorDash, Carta, Invitation Homes and Opendoor.

The basic concept

Many small company owners lack both the funds to make a down payment and the knowledge to manage the difficulties of a commercial real estate transaction. Withco's lease-to-own business strategy allows such tenants to acquire equity in the building they rent.

Withco specializes in small, single-tenant companies for sale for less than $5 million. The organization buys commercial premises on behalf of potential business owners, who pay a monthly rent used as a down payment. They will ultimately be able to buy the building for a set price.

How it can help

Rent is the second most-expensive expense for most small business owners, second only to labor costs. While small company owners may be able to qualify for a lease, few have the funds to put a down payment on a favorable mortgage.

Meanwhile, when a new landlord raises the rent, it's not unusual for popular local businesses to close. Withco's goal is to assist such small companies in becoming their own landlords by purchasing the properties they presently rent to avoid being priced out.

How does it work?

Withco determines whether a company is a good fit for the rent-to-own model by examining the financial data of companies it may collaborate with. The platform purchases commercial real estate that costs less than $5 million, in partnership with renting small business owners across the U.S. It aims to transition them to full ownership over the entire life of the lease-to-own cycle, acting as a financial business consultant.

For the time being, the startup is primarily focused on the Midwest, Southeast and Texas. These are the areas of the country with a high density of small company owners, a large number of single-tenant commercial properties in the $5 million price range and excellent real estate fundamentals – all of which Withco seeks. While the lease-to-own strategy can also operate in more costly real estate markets, it can accommodate more small enterprises by focusing on lower-cost buildings.

"Every business owner that we support and every property that we buy, we're putting a new business owner on his or her path to ownership making a huge impact," Song told Forbes. "So now we're trying to scale this into a platform that can do hundreds of thousands of deals every single year," he said. 

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