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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About the Author: Oren Garnes

100 Comments

  1. It’s a tech company
    the same way your mom is a tech worker

    because I found her on tinder giving away bjs at a discount

  2. As a web designer here in Phoenix, the reason why Regus is profitable is simple. They are affordable. You can get a stand alone isolated office in downtown phoenix for half of what the wework people want for their shared spaces.

  3. WeWork is just SUCH A STUPID IDEA…it just Doesn’t make sense…a bunch of naive young folks who thought they were such genius’ that didn’t realize that just expanding rapidly without having any hope of turning a profit IS A PONZI SCHEME!

  4. the world can be super retarded… but, it's just annoying that it's retarded to some dumb ideas while skipping over some genuinely awesome people trying to get their balls rolling.

  5. whenever someone boasts about "work" and "inclusivity" (we), run!
    i would never trust something called "wework". others talk about the QUALITY of their work, but if you have to convince everyone that you work, you're definitely not working.

  6. How weWork ? We work by transforming the very meaning of work.
    We interact, we influence, we get together.
    Thats how new generation work doing ABSOLUTELY nothing.
    This was a financial pyramid. Someone laundered allot of money with this.

  7. i am not a fan of wework. but at 1:45 the y axis is misrepresented intentionally. this shows opinion-making and not objective journalism.

  8. How can you make a 13 minute video about wework and miss out the fact that Adam Neumann is walking away with $1.7bn?!?!?

  9. Make me the CEO of any company in any sector. I guarantee that I can personally run the whole company into bankruptcy in less than three years. Through a mix of personalk greed and financial mismanagement I can help you turn a large fortune into a small fortune. Contact me now. I need money but don't know how to run a business and don't care. Just look at history and you will see that there are loads of people just like me. If you prefer I can start my own business and use your money to make a huge loss. I am waiting.

  10. VC is going to be the next ‘08 housing crash. People just throwing money around and funding any thing.

    How do you go from $47B to under $10B!? Plenty of entrepreneurs out here with great ideas who don’t get any funding.

  11. couldn't manage the rental cash flow and infinite annual returns for investors. spending big on fancy gigs to attract more investors but not realizing, professional investors network on a global scale.

  12. HAHAHAHA…. oh wait, let me say that again HAHAHAHA. If you sell people on feelings… Fuck you, you're a scam artist.

  13. Ahaha, seriously? The whole idea of the coworking is so stupid itself that there is no doubt on why investors cut funding and withdrawn their money. Why would someone invest in this stupid idea? this is money from nothing, this business neither produces any product nor new technologies. It only provides services to which there is a huge amount of even better alternatives. Why would then someone wanted to continue investing? Its a bubble, a hype showed its uselessness at the end. Never understood these business models based on money out of nothing. Look, this is how real coworking works, and worked all the time: You have a garage, a couple of friends sharing a unique idea with you… I don't have to continue, you know how Apple, IdSoftware, and thousands of other successfull businesses started.

  14. "Oh man, I lost 3bn… better cash out and vote myself out as CEO so someone else can handle this pile of turds"

  15. A private jet, a $700 share sale before the aborted IPO and a $1.7bn pay off deal. Adam Neumann certainly made sure 'WeWork' worked for him!

  16. The real problem was believing an office rental business is some high-flying software tech startup with low overhead and huge growth potential.

  17. hands-down the biggest problem in Silicon valley and VC investment: Focus on making a profit immediately. It is harder to predict future vs. the near future. If you do not show a plan to have profit right out the bat, do not invest. A lot of times VC will invest in people/stories, and this is cool and all but a cool story is not a guarantee to make $. Simply put, they expanded too fast, and they spent too much on their lavish buildings, that their supply/demand doesn't fit the market, they over-shot.

  18. What is the plan for new money from SoftBank? Are they going finally merge with IWG? Purchasing the benchmark and cutting cost this is my recipe for We company.

  19. So now we are psychics: the company will get 10x smaller? How do you know that? You have no clue who they will put in charge and how that person could turn around the company? I think you guys are speaking too fast! That’s like trying to call a recession or saying amazon in its early days was doomed! You have no clue what will happen! This is all foolish speculation.

  20. Wework is great but because they greed to take investor they put them self into ruble. Think twice if you really need an investor. They might get you in trouble.

  21. Very very creepy. I waved them goodbye in Berlin 6 weeks ago soon as I heard of this horror show. Clearly the tip of the IPO iceberg! Stayed tuned as this sort of money burning unfolds
    around the world

  22. buying a trademark of "we" ? Hell, I'm gonna buy a trademark of all the rest of the words in the english language, now you b*tches owe me some bling !!

  23. when will people start using the hype owrds of tech start ups, sounds just like the tech bubble that popped and lost so much money, when will people ever learn, oh ya never. doesnt take much to relsze all these stupid companies out there

  24. As someone from Europe, to me the overall problem seems to be that in the US the culture of bullshit is much bigger than anywhere in the world… it's even taboo to call people on their bullshit… you are flagged as a problem person if you do.

  25. Can we just call it for what it is? A fraud.

    This whole thing needs investigating. It shouldn't be shrugged off as "a young company going off the rails".

  26. The physiognomy. The twang. The buzzwords. The all black apparel. The blasted hoodies and T-shirt's. The tall bar stools. The easy money through connections and media blowjobs. The MacBooks It's all the same self replicating millennial busting fungus.

  27. Oh your company has a "family atmosphere"? It's "fun" and "friendly". But you can't say how what you do is different from your competitors. And you can't endure "skepticism".

    I can't see you for all the red flags.

  28. So the guy that started "Fyre Festival" went to jail, but this guy walks away with a BILLION dollars? Tell me whats different here?

  29. I can't get a homeloan when I can afford the repayments but yet these idiots write checks for billions on a whim and without any financials?

  30. I just realized how easy it is to get rich. All you need is to be a millennial with the right attitude; that of a cocky, self-assured, greedy asshole. How else do you explain that other company, with a stellar track record, not getting any of the "just take my fucking money" investment dollars?

  31. probably one of the easier business to manage – it's just property management people. you have tenants and then you have property costs and the net of that is your profit/loss. pretty simple.

  32. Why do I get the feeling BEYOND MEAT is going to be the next WeWork/Theranos/Enron/Etc. There's something unEasy here.

  33. 3:25 WeWork's $10B valuation happened when it had 23,000 customers paying as little as $45/month.

    Can investors not do basic math?! That's about $12M/year. Assume the average is 5X higher by magic, that's only $60M/year. Even at this crazy level, revenue of $60M/year would imply a 166X valuation.

    Further, if an investor puts money into a startup for some post money valuation, said investor hopes it'll go up 3-10X depending on stage, so they were implicitly saying, "Oh, don't worry. WeWork's gonna grow their revenue 500X to 1660X." Ignoring all this craziness and investing anyway shows how out of touch with reality private startups & investors have become.

    The great thing about WeWork is it was a vigorous reminder to investors that growth isn't everything, and that sound underlying economics are King. Hopefully we'll start to see companies that have given their business models more than a glance.

  34. Amazon is next. Valuation based on increase revenue and low profit. Isn't that called socialism. SpaceX is already there. The Earth is flat and there is no way to get out. So IDK what they are making at SpaceX. Uber and Lyft is in trouble. Your talking about an on demand taxi company with a valuation larger than a real blue collar company. Unicorn is right. The greatest bust ever in human history when all the so-called smart people were just following orders to sustain their lazy lifestyle.

  35. Adam was shady and when it came out he was shady, the ball rolled down the cliff. He sold the "We" to WeWork for $6M. WTF is that? A guy trying to STEAL MONEY.

  36. The purpose of investing in elementary school and artificial waves is obvious. You have to get a part of investors money in your pockets. Neumann is far from dumb…

  37. This whole business concept sounded sketchy. LOL Muse sent me openings at their pretty office last year….it looked like a hotel designed by a group of gay guys with ponytails.

  38. What do you get when you cross Bernie Madoff and Uri Geller= Adam Neumann (Adam New Man= Adam old man pulling the same old schtick)

  39. 2:19 "sort of subdividing that space" YEAH IT'S CALLED SUBLETTING. Now tell me how someone in a position of reporting company startups and business ideas DOESN'T UNDERSTAND SUBLETTING. My brother in law does it ffs….

  40. Funny that whoever made this chose to have on the Knotel guy. His company is basically the exact same as WeWork… just with less funding. How can he even call himself a "tech" person? Loved the rest of the reporting.

  41. Well, even idiots know a tiny company renting out little desk to people for sitting and working doesn't worth 5 billion dollars, let alone 47 billion dollars. The world has gone insane for all those ivy league finance genius not figuring this out.

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