Will WeWork go bankrupt?
A company with a stock price of around 20 cents/share.
At its peak, WeWork was once valued at $47 billion; today it’s down to less than $300 million. Is this the fault of the founders? Or is it the investors’ fault?
On August 8, WeWork said in its Q2 earnings announcement that there are significant questions about the company’s ability to continue as a going concern due to its losses and projected cash needs, as well as increased member churn.
It’s the first time I’ve seen a company that says it can’t do it alone, without the slightest struggle, like this.
Even more apparent is that on August 9, WeWork brought in a group of management to the board of directors experienced in dealing with bankruptcy and reorganization of troubled companies, in full cadence of preparing itself for the aftermath.
Affected by the news, the U.S. stock market after hours WeWork shares fell more than 38% to 13 cents, the total market capitalization of less than 300 million U.S. dollars. You know, WeWork peak market value is close to $50 billion, had driven a round of shared office investment boom in the world.
The turning point in WeWork’s fortunes occurred in 2019, with the failure of its first IPO, and after that, it was as if WeWork had been possessed by bad luck, with a steady stream of bad news, experiencing the firing of its founder, the refusal of its investor, SoftBank, to provide blood transfusions, infighting and litigation between management and SoftBank, the company’s constant receipt of warnings about delisting from the U.S. Stock Exchange, the departure of its CEO… …
In May 2023, Sandeep Mathrani, the company’s highly-anticipated CEO, announced his departure, which was followed by the company’s entire management beginning to self-doubt its ability to survive, leading to the earnings swinging behavior mentioned at the beginning.
This time, the doubts turned into action, is this once headline-sharing office company, coming to an end?
01 28 minutes, $4.4 billion
When Steve Jobs passed away in 2011, the world searched for the next messiah-like new generation of entrepreneurs, and Adam Neumann, the founder of WeWork, sees himself as Jobs’ successor.
“The last decade was ‘my’ decade,” Neumann says, “and this current decade, it’s ‘our’ decade. “ Neumann keeps telling people that in time, WeWork will be the business empire he built as big as Amazon.
The first key person to be impressed by his words was Dunlevie, a partner at Benchmark, a leading Silicon Valley VC.
Dunlevie is said to have initially missed WeWork, believing it to be a real estate business that lacked the network effect of the Internet. However, after meeting Neumann, Dunlevie was impressed by his ambition, and Benchmark eventually participated in WeWork’s Series A financing in July 2012, investing $16.5 million at a valuation of $100 million.
This was at a time when the sharing economy was on the rise and the model was gaining traction with venture capitalists.
In 2013, WeWork got $40 million in financing from DAG Ventures, which often follows Benchmark’s investments, at a valuation of $440 million.
In 2014, in a bid to compete for WeWork, a potentially hot IPO candidate, JP Morgan and several other investors invested another $150 million in WeWork at a $1.5 billion valuation.
Until SoftBank’s Masayoshi Sun appeared and completely took this company to the top.
In 2016, even Masayoshi reached the age of retirement, for the soft bank's first phase fund to raise 100 billion dollars, the soft bank vision fund has become the largest venture capital fund in the history of human business, equivalent to 30 times the size of the second biggest.
With $100 billion in “ammunition”, Masayoshi Son’s ambitions began to expand indefinitely. He needed a project that could change the world on a deeper level, and he wanted to find his next “Alibaba”.
So, one “madman” attracted another “madman”. 2017, Sun Masayoshi visited the headquarters of WeWork.
At the end of the tour, Sun asked Neumann to get into his car. It is said that the two talked for 28 minutes (some legends say 12 minutes), Sun was attracted by Neumann’s talk, and immediately on the iPad simply drafted an agreement for a $4.4 billion investment, and instructed Neumann: “In the battle, crazy is better than smart, WeWork is not crazy enough now, to make it crazier. “
In an earlier model of capitalism, the most efficient and capable companies succeeded. And Masayoshi Son came along and created this new model by pumping tons of cash into startups, fostering them to become unicorns, crushing competitors, and eventually becoming the dominant brand.
This set of play we are not strange nowadays, the TMT era, the dot com era, burns tens of billions of dollars, short-term rapid occupation of the market, in order to destroy the market rules of the way to become the final winner. And Masayoshi Sun is the king of the kings of this kind of play.
A former Softbank executive once said that Sun would find an entrepreneur and say to him, “Hey, either take a billion dollars from me right now, or I’ll give it to your competitor and you’ll go bankrupt.” Masayoshi Son’s commitment of $4.4 billion to WeWork in a 28-minute span exemplifies this approach.
At a later WeWork meeting, Sun advised Neumann to scale up without order, “You shouldn’t be proud of having a lean sales team; the sales team should start at 10,000 or more.” At the time, WeWork had less than 10,000 total employees company-wide.
In 2018 and 2019, SoftBank chased another $3 billion back and forth. Soon, a frantic WeWork was valued at $47 billion, fueled by Masayoshi Son’s push.
02 Burn the most money, fall the biggest steps
The endorsement of Masayoshi Son and SoftBank also made Neumann’s behavior more and more grotesque, feeling like he could do anything.
In a 2019 article, the Wall Street Journal noted that Adam Neumann’s lifelong wishes were to live forever, become the world’s first trillionaire, expand WeWork to Mars, and become prime minister of Israel and “prime minister of the world.”
What’s worse than Neumann’s pie-in-the-sky fantasies is the fact that Neuman has squandered and misappropriated his investors’ money for his own use, while his management of the company has been in shambles.
Neumann used SoftBank money to open a private school for his wife Rebekah (Rebekah doesn’t have a teaching credential), buy a software company for the construction industry, and to invest in an app to help veterans connect with psychiatric hospitals. At the same time, Neumann played the left-pocket-in, right-pocket-out game, buying real estate while leasing his own properties to WeWork; on the one hand, he recruited all his relatives into the company to take up important positions, while on the other hand, he frequently laid off employees; even WeWork renamed itself as The We Company, and had to pay Neumann $6 million in trademark fees.
On the eve of the IPO, the Wall Street Journal revealed that Neumann had cashed out $700 million by selling shares and mortgaging equity, and used the funds to buy five properties and invest in commercial real estate and a number of start-ups.
Soon after, WeWork’s funds saw low and Neumann decided to go public early.
On August 14, 2019, WeWork released its prospectus, and the company’s history of questionable management decisions and poor financials were made public. WeWork began to rapidly crumble, and in a matter of days, the valuation plummeted from a peak of $47 billion to $7.8 billion, and the IPO had to be delayed, which was a serious threat to investors.
In October 2019, the board reached an agreement with SoftBank’s Masayoshi Son, who took over WeWork on the condition that he commit to loaning money to the company and spend $3 billion to buy out the shares of Newman, venture capitalists, and other investors.
The proposal passed unanimously. SoftBank renewed WeWork a couple of times, still delusional enough to speculate on its valuation again by raising capital, but it was the same choice that made WeWork SoftBank’s biggest losing investment to date, with SoftBank being heavily dragged down to a massive $18 billion loss.
In March 2020, Masayoshi Son, the founder of SoftBank Group who spearheaded the investment in WeWork, bowed and apologized to LPs at a press conference in Tokyo.
“You meet a seemingly brilliant entrepreneur and find him inspiring, but he doesn’t necessarily deliver great returns.” That’s what Masayoshi Son later said about Adam Neumann. It’s a gut-wrenching statement to hear, but perhaps, it would have been more appropriate to comment Masayoshi Son as an investor.
03 A company that prepares its own “coffin board”
After the failure of the IPO, WeWork once again suffered a shortage of funds. In order to reduce operating costs, WeWork began massive layoffs, the total number of employees from a maximum of 14,000 in 2019 to 5,600 people.
The whole dramatic event has put an unpleasant color on the shared office industry. In the post-epidemic period, as uncertainty about economic development grows, flexible office space, which allows small companies to pull back on their rent payments more quickly despite a premium compared to traditional office leases, has allowed shared offices to show particular value. But WeWork’s performance scared off potential investors, and no investor dared to invest in other shared space projects.
On the other hand, by selling shares to other investors before the IPO, Neumann and many venture capitalists have gotten hundreds of millions of dollars, earning a return on investment of more than 10 times.
The New Yorker wrote in its story that Neumann at the time considered himself a victim. He complained that those venture capitalists made a lot of money, “Everyone made what, 20 times, 30 times, 40 times?”
It has to be said that since the creation of the venture capital industry, venture capitalists have managed to define themselves as judgmental elites who invest their money in those who can best utilize it to create value for society in that way. But examples like WeWork cast doubt on the ability of investors to balance human greed with sane justice.
Neumann acknowledges that thousands of WeWork employees have lost their jobs, billions of dollars have been recklessly squandered, and landlords and tenants around the world don’t know if their leases will be honored. But he also deserves sympathy compared to the investors who made a fortune.
This allowed the general public finally see Neumann for what he really is. Despite the fact that he’s done so many things wrong and overbaked all the cakes he’s pictured, he seems like the protagonist of a Shakespearean play, even in the final act, when he’s blown out of the party he’s thrown himself by the crowd, and is left to walk the streets of New York in his bare feet. It’s at this point that you realize he still has the hundreds of millions of dollars he cashed out of the company in his pocket and has moved with his wife and kids to a mansion on the beach in Israel, and is living it up.
Back to WeWork’s languishing. To the surprise of investors and Neumann, who fantasized about continuing to cash out, Masayoshi Son did not agree to act on his earlier offer. In April 2020, Masayoshi Son and SoftBank said they would continue to control WeWork but, after much deliberation, would not pay out $3 billion to Neumann and the other investors and shareholders.
In response, a special committee of WeWork’s board of directors filed a lawsuit against SoftBank, and Neumann himself filed a lawsuit. The committee issued a statement accusing SoftBank of being “completely unethical”. A SoftBank spokesperson denied all allegations.
By 2020, the epidemic had swept across the globe, affecting all office leasing, not to mention shared offices and WeWork’s management and board of directors were still at each other’s throats in a lawsuit to get the money, so the company’s business situation was predictable.
Miraculously, in October 2021, WeWork relaunched its IPO by merging with BowX Acquisition Corp, a blank check company, and successfully went public at a valuation of about $9 billion.
The IPO didn’t save WeWork either. in April 2023, the company received a delisting warning from the NYSE for having its stock price below $1 for 30 consecutive trading days.
In May, Sandeep Mathrani, the company’s highly touted CEO, announced his departure.
In August, WeWork’s stock price plummeted after a going concern warning was issued on Tuesday of this week, and continued to fall to 13 cents per share on Wednesday. Everything seems to be marching toward a predictable end.
WeWork said board members Daniel Hurwitz, Vivek Ranadivé, and Véronique Laury had resigned last week amid significant disagreements over board governance and the company’s strategic and tactical direction. WeWork appointed four new independent directors to replace them, all of whom have experience in guiding complex corporate defaults and bankruptcies.
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