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WeWork And The IPO Drama

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WeWork is one of the world’s most valuable startups, valued at $47 billion during its last round of funding in early 2019. The We Company, WeWork’s parent company, filed for IPO mid-August, and since then, things have never been the same for the real-estate startup. The process for going public requires the organization to disclose its earnings, assets, revenue and cash flow(if any). While it was pretty well-perceived by investors that WeWork was burning cash month after month, chasing growth as opposed to profits, but the IPO filing reveals how staggering the numbers truly are! Several of its top executives resigned, including its “star” CEO Adam Neumann, who quit after he was pressurized from the board and external investors, including SoftBank CEO Masayoshi Son, WeWork’s biggest backer. How did the startup lose almost $30 billion in valuation and its CEO in less than two months?

The Ascent

WeWork
Photo by Eloise Ambursley on Unsplash

Miguel McKelvey and Adam Newmann, both design students, sold their small-time real estate venture Green Desk and started WeWork in 2010. Their new venture quickly gained traction and in less than three years they ended up raising north of $50 million from various investors, most notably SoftBank. They become an early and integral part of SoftBank’s vision fund, Masa Son calling WeWork their next Alibaba. Neumann portrayed WeWork as a tech company to investors in search of higher valuation(which he got), while really it’s just a real estate company, leasing office spaces to other organizations. No matter, WeWork soon became one of the most valued startups in the world and started generating substantial revenue. Even companies like Amazon, Uber and IBM started renting WeWork office spaces. They’ve come pretty far in these nine years, in terms of global outreach with offices in 32 countries. Although they still haven’t profited a penny.

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In the midst of all the scrutiny, due credit should be given to WeWork’s minimalistic and distinctive design. Their co-working spaces are simply beautiful.

WeWork
Photo by Austin Distel on Unsplash

The Competitive Advantage(?)

WeWork

Even before WeWork, there were other companies already operating in this space, then what is so special about WeWork? Basically the fact that Neumann sold it as a tech play rather than a real estate play gave them a massive competitive advantage. But is it really a tech company? Sure, they have loads of data on how and when do employees like to work. They know when the employees are most productive and what is the best place to keep the coffee maker, but that’s basically it. They are just a real estate company, leasing office spaces, turning it around in a month and then renting it to other startups or companies. They are a real estate company with some pretty sophisticated tech incorporated into it.

The Eccentric CEO

We can’t really talk about WeWork without talking about its (former) eccentric CEO Adam Neumann. Legend has it that Neumann always wanted to “change the world” and believed WeWork was the next Google. It’s believed that Neumann took only 28 minutes to convince Masa Son to invest in WeWork. And looking bad, one could really say that Neumann had all the “star qualities” for a tech CEO. Then what went wrong all of a sudden?

Neumann has been a controversial figure from the start. He’s been quoted saying he “wants to be the world’s first trillionaire”. Neumann is WeWork’s largest single shareholder. Neumann is WeWork’s largest single shareholder. However, he’s cashed out his stake and also taken out loans lately, sales and debt transactions totaling $700 million. Cashing out that many shares just before your company’s IPO does sound suspicious, to say the least. Apart from that, he has privately trademarked “We” and had WeWork pay him around $6 million for using the trademark.

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What About The IPO

The We Company is considering a significant drop in valuation to take the company public, but it has a plethora of challenges ahead. Now that Neumann has stepped down and the board has appointed two co-CEOs, WeWork’s IPO looks a far shot in the near future. Having said that, they require an influx of cash to keep growing at their current rate. And it seems they might have to turn to private investors again and concede a down round in order to secure fresh funding. Although nothing can be said for sure, we all would have to just wait and watch where the WeWork story goes from here.

1 COMMENT

  1. Adi, great article.

    In my view, WeWork’s failed IPO was largely due to bad corporate governance.

    In 2019, how could a soon-to-be-public company CEO also be Chairman? And also grant its founder super-voting rights? And also enable the founder to sell IP rights to the company for $5.9 million, without stronger conflict of interest controls?

    For a closer look at WeWork’s corporate governance, see https://finance.yahoo.com/news/cambridge-capital-gordon-wework-debacle-090636205.html.

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