WeWork is a startup that’s changing the way people work and live. They have locations all around the world, including one right down the street from you!
Founded in 2010, the We Company quickly expanded to 836 locations and 15k employees. It’s a story of an unicorn startup called “We.” Except it isn’t quite that either…
The We Company story is a cautionary tale for anyone who aspires to be successful in business. The company founder and CEO, Adam Newman had been living an eccentric executive life that was costing the firm millions of dollars while failing to achieve profitability – until he was finally exposed by his own numbers which showed just how far from reality their claims about being profitable were! The company was preparing for an IPO (Initial Public Offering), or to begin trading in the stock market. This required them publish so-far secret financials that have not yet been announced publicly.
This story starts in 2008 when Adam Newmann and Miguel McKelvey established a coworking space called GreenDesk. They laid out 100 spaces rented them for $350-$2,400/month: the business boomed!
They quickly sold this successful enterprise to landlord from DUMBO building who then renamed it WeWork – now with over 750 memberships per day you can see why they were able buy another location soon after?
WeWork’s fundraising prowess was already shining bright at this point, and that year they closed a $15MM investment from Manhattan property owner Joel Schreiber for 33% of the company. This means We Works post-money valuation before it even opened its doors? 45 Millon dollars!
“We’re changing the way people work and stay productive.” That’s what Mr Schreiber said about his quote on 2015, when discussing WeWorks success to date with Forbes magazine at that time – they expected $150 million in revenue for that year alone! This company had already become “the fastest growing lease company space” according Banker Jams. During February there were 80%+ occupied locations all across New York City.
Let’s stop for a second and talk about WeWork. WeWork was charging $350/mo or so for a shared desk, and around $650/mo per person for a dedicated desk. This is crazy-expensive if you think of it on a per squared foot basis. However, when you factor in the cost of actually renting an office in New York, a 2-3-4-5 or ten-person team can still SAVE money by going with a WeWork space. We have one, and we do see the savings.
3-year lease and deposit. Office furniture and decor, Internet access (and other utilities). Phone systems that require compliance paperwork to open an office–that is if you want the distraction of running one or making it look good!
WeWork is a great place to work because it’s not just about the space. There are so many things that you can do, from happy hours and events for your community of people who share similar interests as well!
Picking up on the valuation point, it’s important to note that while a $1.5B net worth isn’t small by any means for most companies in this industry – and especially those with potential like Facebook or Uber-it still only translates into about 15%-20% equity when you’re talkingVC money (versus more typical 50%). This might not seem incredibly significant until your startup is already established and generating solid revenue; at which point raising capital will become increasingly difficult if not impossible without diluting existing shareholders.”
Tech companies are cool, and more importantly they have access to cheap capital. That’s why WeWork did everything it could in order for people not only see them as a tech company but also one with big profits ahead of time.
The point here being that if you’re an entrepreneur without any fancy buzzwords or artificial intelligence skills then your margins will be unlikely grow at the rate desired by investors who sooner rather than later want their investment back plus some extra.
SoftBank is the Japanese multinational company that owns a stake in many different enterprises, including Alibaba and Yahoo Japan. SoftBank is serious about investing in artificial intelligence. The Vision Fund, their $93 billion private equity fund announced last year with an aim to invest into companies developing technologies related or centered around AI trends including sectors like finance and transportation has already committed 3% of its capital on WeWork as part one commitment – making it all worth 7500%. The Public Investment Fund of Saudi Arabia and companies like Apple, Qualcomm Foxconn Sharp furnished the money that made this venture possible.
SoftBank is WeWork’s most crucial investor and has doubled down round after round, leading new funds for the company. TheJapanese telecom giant pushed their valuation up to $47 billion with this easy capital management that allowed it run initiatives like Rise by We a Wellness luxury gym concept whose founder Adam Neuman’s wife heads up operations in New York City.
The document leak revealed that WeLive was projected to make up 21% of revenue by 2018, but it never happened. All three initiatives were mostly failed and phased out since then — before an IPO company releases public filings with the purpose for getting investors excited and interested in joining them during this transaction; which is why we have seen so many ambitious startups go public recently!
The company seeks to raise additional funding from new investors and the shares are offered publicly. WeWork released its S-1 Filings on August 14th, 2019. The moment the world had a chance to look at these numbers, everyone started realizing how much of a bubble this was.
WeWork was NOT a tech company. It was a Real Estate company with some tech, and for a Real Estate company, these numbers don’t make any sense:
In 2018, it generated $1.8B in revenue but spent a total of $3.7B, which resulted in net losses of $1.9B. It had losses of $900MM+ for the first half of 2019, so there was no path to profitability. Moreover, it needed the money from this IPO to continue operating or it would be bankrupt in a matter of months.
The news that has been spreading around the industry is definitely not good. In a case like this, it’s important to make sure you know what exactly is going on so we can take action and stop any harmful practices before they happen again!
It turns out that Adam borrowed money against his stock and used it to purchase properties which he then leases back at a higher price. With his goal to become a trillionaire, Adam convinced the board that he needed an expensive private jet. He used money from stock sales and loans against it as well! That’s some serious ambition you’ve got there. In all fairness though – this was very rare for someone who wasn’t even CEO material yet.
When new scandals came to light, Newmann was forced out and major layoffs announced. 4,000 employees expected cuts which represents over a quarter of the workforce.
CEO steps down after 10 years at his post due in part from scandalous allegations that cause him trouble with investors who were already unhappy before these newest developments became public knowledge – this is an example for others struggling within their company’s image while trying not lose sight on what matters most: providing quality products/services!
WeWork has always been a company with the goal of creating an office in every space they occupy. But as their cash reserves shrink and investor trust flees from them, there is no other option left but for We Work to seek profitability- because it’s clear this real estate giant cannot continue like this forever!
Two new co-CEOs were brought in, the company jet was sold, and the company is seeking to get rid of some of their ‘unrelated’ acquisitions, such as Meetup.
The future for WeWork is certainly uncertain. While we can’t call it dead yet, the clock is ticking for them to get back on track.
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