'Crazy idea' to rent boardrooms turns Breather into startup star

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As he was getting his startup off the ground in early 2013, Julien Smith asked digital marketing expert Mitch Joel what he thought about his plan: to rent office meeting space by the hour over smartphones, like an Airbnb for boardrooms.

"I said, 'I have young kids, I can't invest in that,'" Mr. Joel said of his friend's idea. Mr. Joel thought the service would attract drug dealers and pornographers: "I thought it was a crazy idea, he'd never get insurance, what landlords would … want that type of potential client coming in and out by the hour? He proved me [wrong]."

On Wednesday, Montreal-based Breather Products Inc. established itself as one of Canada's pre-eminent startups, securing $40-million (U.S.) in a venture-capital financing led by Menlo Ventures, one of Silicon Valley's leading early-stage investors. Menlo's $25-million contribution represents its single largest investment since it backed Uber five years ago.

The funding will enable Breather to keep building its rapidly expanding network of about 290 professional meeting spaces in 10 cities across North America that it rents on-demand via a mobile app.

"When Breather first [launched] … people were giggling because predominantly when they think by-the-hour, they think motels," Menlo managing director Venky Ganesan said. "But what Breather has shown is some of the biggest companies in the world are using them" for meetings, including repeat customers Royal Bank of Canada, IBM, Apple and Google.

"It's offering a new alternative to people between their home and their work. Instead of going to a coffee shop or hotel lounge they can have a third comfortable space to have a professional meeting."

Mr. Ganesan added Breather's "net promoter score" ratings, reflecting customer satisfaction, are on par with those of Costco, Amazon and Apple.

But Breather faces hurdles not faced by other sharing-economy services, raising questions about just how big its potential market could be.

Unlike Uber or Airbnb, which don't own or operate the cars and homes used by customers, Breather leases most of its spaces. That suggests the company will likely require continued heavy investment as it scales up, accumulating the kinds of costs that don't typically weigh on other software-based firms. In addition, the company cleans rooms after each use, amounting to an added staff expense.

It typically selects smaller spaces than standard corporate offices that are harder for commercial landlords to lease. "We just make them more rentable and way more efficient," Mr. Smith said.

Breather designs its spaces to look bright and contemporary, equipping them with standard features such as Wi-Fi, whiteboards and projectors. Customers get into the electronically locked spaces with unique access codes sent when they order. Space in Toronto – where Breather has 15 downtown locations after entering the market in April – rents for an average of $60 to $65 an hour. Most Breather locations are in New York and San Francisico.

Despite the high sunk costs to build out its network, Mr. Smith said Breather can break even at occupancy rates well below 50 per cent. "It looks like a joke if I were to write it down" because that rate is so low, he said. He declined to share specifics other than to say the company is earning "a material number of millions" of dollars in revenue.

Before starting Breather, Mr. Smith, 37, was a self-styled trendspotter who had built an unlikely career as a podcaster, tech writer and business book author. "I was basically faking it til I made it," he wrote in a 2014 blog post.

His early expertise in social-media marketing made him a rising star on the corporate circuit, where the tattoo-covered, brashly confident Mr. Smith charged Fortune 500 clients $10,000-plus for speeches after the 2010 publication of the bestselling Trust Agents: Using the Web to Build Influence, Improve Reputation and Earn Trust, which he co-authored.

While travelling, Mr. Smith often found he had nowhere to go other than downtown Starbucks. "Sometimes, I wanted to be out of my home but not in a coffee shop," he said. "I wanted that [other] space to be wherever I am." Thus, the idea behind Breather was born.

He co-founded Breather with Caterina Rizzi, a friend and professional designer who developed the look of the spaces. Breather tested its concept in Montreal before opening in New York in 2013 and raised $33-million in venture backing prior to Wednesday's announcement from investors including Real Ventures, RRE Ventures and Peter Thiel's Valar Ventures.

Other startups in the on-demand meeting-room-rental business have emulated Airbnb by getting existing office leaseholders to let out unused meeting rooms. Mr. Smith said he shunned that approach as Breather would be constrained by the tenants' own needs for its meeting spaces. Breather also competes against publicly traded meeting-room rental firm Regus Group PLC.

Breather has 150 employees, including cleaners. Spaces range from a 100-square-foot room in SoHo to spacious conference areas that can accommodate dozens. While Breather uses a range of marketing tools, "by far the most powerful driver is word of mouth," Mr. Smith said.