B1 Intermediate US 65 Folder Collection
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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 WeWork.
A tour of where WeWork, 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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The Spectacular Rise and Fall of WeWork

65 Folder Collection
Amy.Lin published on December 27, 2019
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