In 2010, Adam Neumann started office-rental company WeWork in New York City on the idea of community. With shared workspaces now throughout America, the concept gives small businesses and startups a coworking space to bring their ideas to fruition. Basically, it’s an elevated office space that’s private, but not too private, with communal areas supplied with “free” micro-roasted coffee, Foosball tables and state-of-the-art printers, and it costs a lot of money to rent (a single desk in Downtown L.A. averages $450 a month and an office is about $850).
In August of this year, the company publicly filed its IPO paperwork with a private valuation of $47 billion. Since its initial announcement about going public, the company has started to unravel. In its attempt at expansion, the company has lost a lot. For the six months prior to June 2019, the company reported a revenue of $1.54 billion but with net income loss of $900 million. In addition, Neumann has been criticized harshly for how he has run the company and how he treated WeWork as his “personal ATM.” For example, he trademarked “We Company” and as he expanded its brands to WeLive, WeGrow and WeMRKT, convinced his company to pay him $6 million for the privilege of using the name (he gave it back eventually and reluctantly after).
Only a month after its initial IPO filing, the company announced it would withdraw from its IPO. Neumann has since stepped down as CEO, remaining involved as chairman, renaming new co-CEOs and leaving the company in the hands of SoftBank, one of WeWork’s biggest investors to bail out the company. And they paid Neumann $1.7 billion to leave.
It’s a strange case and one that many are still trying to figure out. The Atlantic commented that “WeWork’s free fall from a projected valuation of nearly $50 billion to just $5 billion will likely be taught in business school, immortalized in best-selling books, and debated among analysts for years.”
Just last Thursday, the company announced it would be laying off 2,400 employees, 20 percent of its workforce, with an expectation of laying off another 1,000 more. Those whose jobs don’t transfer will lose them and won’t be paid severance or benefits. This has sparked outrage, especially because Neumann has pocketed over $1 billion and has left WeWork relatively scot-free, probably to vacation in one of his five homes (which has totaled to $80 million).
The future of the company is hazy. SoftBank has revealed no concrete plan other than the new $1.5 billion it has invested to bailout WeWork and a vague outline of selling another $3 billion in bonds to investors, which may not be enough to save the spiraling company. While many blame Neumann, the fault also lies in the hands of SoftBank, which grossly overvalued WeWork and invested $14 billion at the start. Zealously pouring money into startups can be a dangerous gamble (re: the infamous Elizabeth Holmes’ Theranos) leading to overvaluation, and it’s unclear as to how WeWork will pull itself up from the ashes.
Sources:
https://www.nytimes.com/2019/11/21/business/wework-layoffs.html
https://www.investopedia.com/articles/investing/082415/how-wework-works-and-makes-money.asp
https://www.businessinsider.com/the-founding-story-of-wework-2015-10
https://www.sec.gov/Archives/edgar/data/1533523/000119312519220499/d781982ds1.htm