The Spectacular Rise and Fall of WeWork

The Spectacular Rise and Fall of WeWork

I think when you cover IPOs
and high-flying startups you’re used to seeing dramatic changes over short periods of time. But nothing in my experience
has really compared to what WeWork has undergone. I think people felt like they blinked, and everything was different. At last reporting, they’re running out of
cash very quickly here. Sources have told Bloomberg that the company could run
out of cash by next month. I was surprised at the
vitriol and the speed with which investors apparently rejected what WeWork was trying to do. From the first day that we started WeWork it was about bringing people together. There’s an energy that you feel, that energy is something
that’s hard to explain, it’s something that either
you feel it or you don’t. We like to call it the We Generation. In less than one year, WeWork went from one of the most highly
valued startups of all time to losing more than 3/4 of its value. Ousting its rockstar CEO, and desperately needing a cash bailout from its biggest investor
just to keep the lights on. In order to understand how we got here, we need to take a look into the mistakes made along the way. The ambitious vision of WeWork is effectively dead, period. This is a case study of when a company got
too much money too fast with no effective oversight
on how to spend it. They are no longer the market leader, that company’s gonna get smaller, and it’s never gonna be 10 times bigger, I mean, the story is over. As late as summer 2019, the co-working company WeWork was considered one of the
most valuable startups with a $47 billion price tag, more than Airbnb, Stripe, and SpaceX. But in just a few months time
that valuation has vanished, and the very future of
the company is in doubt. To understand how this
happened, it all starts with the company’s now former
CEO and founder, Adam Neumann. Adam Neumann is the co-founder of WeWork, and was its CEO for a long time. He came over to New York for college after being in the Israeli Navy. And started a few businesses, including, my favorite example is a baby
clothes line with knee pads. His landlord was actually showing him another building in Brooklyn, when he came up with the idea of sort of subdividing that space, which Miguel McKelvey, his co-founder, who’s a trained architect,
sort of came up with the plans, and then boom, they were away. They started a company called
Greendesk which they sold, and that was the first iteration of WeWork which they started in 2010. WeWork is a new environment
for the workspace. So co-working was sort
of where it started. Today, there’s a movement in
changing the way people work. 2010 was a great time to be starting a co-working
company in New York City. There were a bunch of landlords with empty office buildings, vacancies, WeWork actually presented
a solution for them. The very first building
down in Grand Street in Downtown Manhattan was where WeWork launched its first co-working spot, and from there it was sort of boom. From 2010 to 2011, it doubled in size. And from then on the
growth was exponential. Some of their original investors were people who were involved
in commercial real estate. They got some early investment from a venture capital
firm called Benchmark, and eventually sort of kept growing, kept taking on new leases and
started to grow the business starting in New York City. Business grew quickly and by 2015, the company already
quadrupled its valuation to $10 billion, counting 23,000 customers, paying memberships in 32 locations, renting desks for as
little as $45 per month. WeWork’s whole idea was, let’s not just be a commercial
office leasing company, let us accelerate the new world of how people work and make it better. Community, being surrounded by a group of like-minded individuals, being part of something
bigger than yourself inspires people to work harder,
spend more time at work, and just have fun doing it. And initially, this
attracted the attention of young entrepreneurs looking
to expand their companies. We thought it’s about time to give you a tour of where we work. A tour of where we work,
a tour of where WeWork. You got your cokes,
you got your Red Bulls. Incredible group of people,
everyone that I’ve met through the WeWork community’s
been absolutely awesome, and all the staff here are incredible. It’s almost like a cult-like sensation that they created with
the very early employees, sort of realizing that WeWork
was more than a company. It was a bit of a family,
it was a community, and the members too sort of realized that, they realized they
could lean on each other in terms of networking, in terms of growing their own businesses. This excitement drew in even more investors to the company. Adams and his company,
it’s not 2.0 it’s 10.0. I mean, he’s taken it to
really the next level. And when you walk into their space, and you see the energy,
you see the excitement, you see the interaction. It’s a very, very powerful concept. And the most crucial investor would be SoftBank. I would say the time that I think WeWork
really started to take off was when SoftBank
invested in them in 2017, that gave them a valuation of $20 billion. And that’s really when you
start to get into the high ranks of other venture-backed private companies. With SoftBank’s investment, WeWork quickly expanded its
footprint throughout the world. And it’s the beginning
also of this partnership between Adam Neumann and Masayoshi Son, who’s the head of SoftBank. They have this meeting that
is often told again and again in the lore of WeWork, where Adam made this pitch, and Masa said, “That’s great, but let’s
make it even bigger.” WeWork is actually one
of over 80 companies that SoftBank Vision Fund has backed with its over $100 billion. SoftBank’s idea is, there’s
lots of money out there in this unique period of transformation, let’s make everything happen
faster with more money. And let’s enable companies
that have smart ideas to get even more ambitious,
bigger, and faster. Between 2017 and 2018, SoftBank would invest around
$8 billion into WeWork, doubling its valuation
to 20 billion in 2017. In 2019, SoftBank floated a potential $16 billion investment, which would give them a
controlling stake in the company. Ultimately, they would scale
back to just $2 billion, but it was enough to double WeWork’s valuation again to 47 billion. So at 47 billion, which is a little bit of an illusory number, it’s not real. But that put WeWork in the very top tier of high valued young startups. So the reaction from a lot
of the real estate world was, “Wow, that’s crazy.” In part because there’s a company that trades in the UK, called IWG, used to be known as Regus. It trades at a fraction of that and people were looking at that company, which is profitable,
and WeWork which is not, and wondering what the geek is, why people didn’t understand what SoftBank maybe knew that they didn’t. And that’s because in
many measurable areas like global square footage,
members, locations, countries, revenue, and profit IWG is either similar or
much higher than WeWork, except, of course, for one area, valuation Where WeWork was valued nearly
13 times higher than IWG. We, of course, looked at that
every single day and said, “What are we missing? “Is there something that we’re not doing? “Is there something in that we’re missing? “Is there an ingredient,
that sort of there “that we are missing out on “that we can add into what we’re doing? But we never found it. After getting these
investments from SoftBank and license to spend quickly, that’s just what WeWork did. Opening more and more
offices around the world making investments in a
variety of different companies, and even opening an elementary
school in New York City. It’s almost stuff of legend right now, how recklessly WeWork spend its money on things from a company
that makes wave pools, to a company that makes super foods, led by a guy that Adam
met while he was surfing. When you see a startup, that’s in the commercial
real estate sector, investing in an indoor wave pool company, and in a children’s school, you know something has gone wrong. But just how wrong
wouldn’t be fully realized until WeWork announced in August of 2019, that it would file for a public offering. It was the first time since
a bond offering last year that investors were able
to peel back the curtain, and see into the company’s
financial performance, read its metrics, see its growth. And I got up really early, and I was reading it, and I remember on my way into the office, and it was still dark outside, and there was a small line,
and just a couple of lines about how Adam Neumann, the CEO, he had personally purchased
the trademark to the word, We. And had sold that back to his
own company for $5.9 million. And I looked at that, and I
thought, “That’s kind of weird.” This was just one of many examples of how the corporate leadership,
including Adam Neumann, seemed to find opportunities
to enrich themselves at the expense of shareholders and at the expense of the company. The filings also showed in just the first six months of 2019, WeWork last $690 million, bringing its total losses
to almost $3 billion in the past three years. Things start changing rapidly. Investors are telling
WeWork and it’s bankers, “You know what, this isn’t for us.” People are throwing out
numbers as low as 12, potentially even as low as 10 billion. And all these things that
raised a few red flags, just started, it kind of
added fuel to the fire of this discussion of is this
company ready to go public, it just doesn’t feel like
it has the controls in place that you would expect of a public company that needs to protect the
value for shareholders. On September 17th, WeWork officially pushed back it’s much awaited Initial Public Offering. We have decided to postpone our IPO to focus on our core business, the fundamentals of which remain strong. The board, and in particular SoftBank its biggest investor, decide that there needs to be a big change it needs to come from the top, and that Adam is now more of a liability toward the company than he is an asset. on September the 24th, he resigned saying, “Too much focus has been placed on me.” He realized he was a
distraction to the company, in a vote with all board
directors of which he was one, he actually voted against
himself remaining as CEO. Two senior WeWork executives, Sebastian Gunningham and Artie Minson were appointed as co-CEOs. Among their housekeeping items, sell Neumann’s $60 million private jet, put multiple WeWork
acquisitions up for sale, postpone the IPO indefinitely. Close down WeGrow, the company’s
private elementary school, and layoff thousands of employees. We reported that the co-CEOs Artie Minson and Sebastian Gunningham have secured themselves multimillion dollar
severance packages at a time when the company doesn’t
even have enough cash to pay severance to its thousands of rank-and-file employees
that it plans to lay off. Have you ever heard of anything like that before? A company not being able to
afford to fire their employees? I haven’t. Interesting. Have you? SoftBank would ultimately bail WeWork out, injecting a much needed 9.5
billion into the company, which now is valued at
less than $8 billion. Now that SoftBank has bailed out WeWork, I think the overarching
sense is one of uncertainty for everyone who’s
involved in this company. When I’ve talked to
ex-employees from WeWork, they often feel pretty
drained by the experience, they felt like they came
in drinking the Kool-Aid thinking WeWork was
gonna change the world, and make everyone more connected, and help people do what they love. And by the time they left, they felt like they hadn’t really been valued, and that the company was
kind of all over place, and they felt worn out. There are some cautionary notes for every other young company. The running the business in a completely unprofitable manner. The lack of board oversight, that there was no adults
in the room saying no. And so I think what
happened at WeWork is a sign that you can only run a company without guardrails for so long. I mean, I think it’s basically
a shocker for everyone. I don’t think anyone’s seen
anything quite this big, and this strange go down. But for those of us in tech,
there is great precedent for a transformational
change getting underway, and then a bunch of the
early folks sort of flopping. I mean, there was a time that eBay was 10 times bigger than Amazon, now Amazon’s 50 times bigger than eBay. There was a time that MySpace
was the only social network, now the only one is Facebook. Those kind of reversals
happen quite regularly, and so it’s not really a surprise that the first mouse to chase the cheese is the one that got caught in the trap. I think that’s roughly
what happened at WeWork. I think WeWork is sort of both,
a little bit of an outlier in this era of technology startups, but also kind of the perfect encapsulation of what this era of sort
of easy money and no rules, has delivered in startup land.


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