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The Spectacular Rise and Fall of WeWork - YouTube
Channel: Bloomberg Quicktake: Originals
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I think when you cover IPOs
and high-flying startups
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you're used to seeing dramatic changes
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over short periods of time.
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But nothing in my experience
has really compared
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to what WeWork has undergone.
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I think people felt like they blinked,
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and everything was different.
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At last reporting,
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they're running out of
cash very quickly here.
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Sources have told Bloomberg
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that the company could run
out of cash by next month.
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I was surprised at the
vitriol and the speed
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with which investors apparently rejected
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what WeWork was trying to do.
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From the first day that we started WeWork
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it was about bringing people together.
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There's an energy that you feel,
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that energy is something
that's hard to explain,
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it's something that either
you feel it or you don't.
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We like to call it the We Generation.
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In less than one year, WeWork went from
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one of the most highly
valued startups of all time
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to losing more than 3/4 of its value.
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Ousting its rockstar CEO,
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and desperately needing a cash bailout
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from its biggest investor
just to keep the lights on.
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In order to understand how we got here,
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we need to take a look
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into the mistakes made along the way.
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The ambitious vision of WeWork
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is effectively dead, period.
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This is a case study
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of when a company got
too much money too fast
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with no effective oversight
on how to spend it.
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They are no longer the market leader,
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that company's gonna get smaller,
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and it's never gonna be 10 times bigger,
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I mean, the story is over.
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As late as summer 2019,
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the co-working company WeWork
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was considered one of the
most valuable startups
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with a $47 billion price tag,
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more than Airbnb, Stripe, and SpaceX.
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But in just a few months time
that valuation has vanished,
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and the very future of
the company is in doubt.
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To understand how this
happened, it all starts
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with the company's now former
CEO and founder, Adam Neumann.
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Adam Neumann is the co-founder of WeWork,
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and was its CEO for a long time.
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He came over to New York for college
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after being in the Israeli Navy.
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And started a few businesses, including,
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my favorite example is a baby
clothes line with knee pads.
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His landlord was actually showing him
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another building in Brooklyn,
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when he came up with the idea
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of sort of subdividing that space,
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which Miguel McKelvey, his co-founder,
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who's a trained architect,
sort of came up with the plans,
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and then boom, they were away.
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They started a company called
Greendesk which they sold,
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and that was the first iteration of WeWork
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which they started in 2010.
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WeWork is a new environment
for the workspace.
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So co-working was sort
of where it started.
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Today, there's a movement in
changing the way people work.
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2010 was a great time
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to be starting a co-working
company in New York City.
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There were a bunch of landlords
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with empty office buildings, vacancies,
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WeWork actually presented
a solution for them.
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The very first building
down in Grand Street
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in Downtown Manhattan was where WeWork
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launched its first co-working spot,
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and from there it was sort of boom.
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From 2010 to 2011, it doubled in size.
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And from then on the
growth was exponential.
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Some of their original investors
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were people who were involved
in commercial real estate.
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They got some early investment
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from a venture capital
firm called Benchmark,
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and eventually sort of kept growing,
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kept taking on new leases and
started to grow the business
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starting in New York City.
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Business grew quickly and by 2015,
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the company already
quadrupled its valuation
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to $10 billion, counting 23,000 customers,
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paying memberships in 32 locations,
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renting desks for as
little as $45 per month.
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WeWork's whole idea was,
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let's not just be a commercial
office leasing company,
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let us accelerate the new world
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of how people work and make it better.
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Community, being surrounded
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by a group of like-minded individuals,
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being part of something
bigger than yourself
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inspires people to work harder,
spend more time at work,
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and just have fun doing it.
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And initially, this
attracted the attention
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of young entrepreneurs looking
to expand their companies.
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We thought it's about time
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to give you a tour of where we work.
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A tour of where we work,
a tour of where WeWork.
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You got your cokes,
you got your Red Bulls.
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Incredible group of people,
everyone that I've met
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through the WeWork community's
been absolutely awesome,
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and all the staff here are incredible.
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It's almost like a cult-like sensation
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that they created with
the very early employees,
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sort of realizing that WeWork
was more than a company.
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It was a bit of a family,
it was a community,
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and the members too sort of realized that,
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they realized they
could lean on each other
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in terms of networking,
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in terms of growing their own businesses.
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This excitement drew in
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even more investors to the company.
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Adams and his company,
it's not 2.0 it's 10.0.
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I mean, he's taken it to
really the next level.
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And when you walk into their space,
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and you see the energy,
you see the excitement,
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you see the interaction.
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It's a very, very powerful concept.
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And the most crucial investor
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would be SoftBank.
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I would say the time
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that I think WeWork
really started to take off
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was when SoftBank
invested in them in 2017,
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that gave them a valuation of $20 billion.
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And that's really when you
start to get into the high ranks
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of other venture-backed private companies.
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With SoftBank's investment,
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WeWork quickly expanded its
footprint throughout the world.
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And it's the beginning
also of this partnership
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between Adam Neumann and Masayoshi Son,
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who's the head of SoftBank.
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They have this meeting that
is often told again and again
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in the lore of WeWork,
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where Adam made this pitch, and Masa said,
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"That's great, but let's
make it even bigger."
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WeWork is actually one
of over 80 companies
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that SoftBank Vision Fund has backed
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with its over $100 billion.
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SoftBank's idea is, there's
lots of money out there
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in this unique period of transformation,
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let's make everything happen
faster with more money.
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And let's enable companies
that have smart ideas
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to get even more ambitious,
bigger, and faster.
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Between 2017 and 2018,
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SoftBank would invest around
$8 billion into WeWork,
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doubling its valuation
to 20 billion in 2017.
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In 2019, SoftBank floated
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a potential $16 billion investment,
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which would give them a
controlling stake in the company.
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Ultimately, they would scale
back to just $2 billion,
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but it was enough to double
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WeWork's valuation again to 47 billion.
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So at 47 billion, which is a little bit
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of an illusory number, it's not real.
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But that put WeWork in the very top tier
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of high valued young startups.
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So the reaction from a lot
of the real estate world
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was, "Wow, that's crazy."
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In part because there's a company
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that trades in the UK, called IWG,
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used to be known as Regus.
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It trades at a fraction of that
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and people were looking at that company,
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which is profitable,
and WeWork which is not,
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and wondering what the geek is,
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why people didn't understand
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what SoftBank maybe knew that they didn't.
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And that's because in
many measurable areas
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like global square footage,
members, locations,
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countries, revenue, and profit
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IWG is either similar or
much higher than WeWork,
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except, of course, for one area, valuation
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Where WeWork was valued nearly
13 times higher than IWG.
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We, of course, looked at that
every single day and said,
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"What are we missing?
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"Is there something that we're not doing?
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"Is there something in that we're missing?
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"Is there an ingredient,
that sort of there
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"that we are missing out on
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"that we can add into what we're doing?
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But we never found it.
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After getting these
investments from SoftBank
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and license to spend quickly,
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that's just what WeWork did.
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Opening more and more
offices around the world
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making investments in a
variety of different companies,
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and even opening an elementary
school in New York City.
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It's almost stuff of legend right now,
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how recklessly WeWork spend its money
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on things from a company
that makes wave pools,
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to a company that makes super foods,
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led by a guy that Adam
met while he was surfing.
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When you see a startup,
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that's in the commercial
real estate sector,
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investing in an indoor wave pool company,
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and in a children's school,
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you know something has gone wrong.
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But just how wrong
wouldn't be fully realized
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until WeWork announced in August of 2019,
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that it would file for a public offering.
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It was the first time since
a bond offering last year
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that investors were able
to peel back the curtain,
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and see into the company's
financial performance,
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read its metrics, see its growth.
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And I got up really early,
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and I was reading it,
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and I remember on my way into the office,
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and it was still dark outside,
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and there was a small line,
and just a couple of lines
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about how Adam Neumann, the CEO,
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he had personally purchased
the trademark to the word, We.
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And had sold that back to his
own company for $5.9 million.
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And I looked at that, and I
thought, "That's kind of weird."
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This was just one of many examples
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of how the corporate leadership,
including Adam Neumann,
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seemed to find opportunities
to enrich themselves
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at the expense of shareholders
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and at the expense of the company.
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The filings also showed
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in just the first six months of 2019,
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WeWork last $690 million,
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bringing its total losses
to almost $3 billion
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in the past three years.
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Things start changing rapidly.
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Investors are telling
WeWork and it's bankers,
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"You know what, this isn't for us."
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People are throwing out
numbers as low as 12,
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potentially even as low as 10 billion.
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And all these things that
raised a few red flags,
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just started, it kind of
added fuel to the fire
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of this discussion of is this
company ready to go public,
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it just doesn't feel like
it has the controls in place
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that you would expect of a public company
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that needs to protect the
value for shareholders.
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On September 17th,
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WeWork officially pushed back
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it's much awaited Initial Public Offering.
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We have decided to postpone our IPO
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to focus on our core business,
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the fundamentals of which remain strong.
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The board, and in particular SoftBank
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its biggest investor, decide that
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there needs to be a big change
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it needs to come from the top,
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and that Adam is now more of a liability
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toward the company than he is an asset.
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on September the 24th, he resigned saying,
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"Too much focus has been placed on me."
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He realized he was a
distraction to the company,
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in a vote with all board
directors of which he was one,
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he actually voted against
himself remaining as CEO.
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Two senior WeWork executives,
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Sebastian Gunningham and Artie Minson
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were appointed as co-CEOs.
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Among their housekeeping items,
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sell Neumann's $60 million private jet,
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put multiple WeWork
acquisitions up for sale,
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postpone the IPO indefinitely.
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Close down WeGrow, the company's
private elementary school,
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and layoff thousands of employees.
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We reported that the co-CEOs
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Artie Minson and Sebastian Gunningham
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have secured themselves
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multimillion dollar
severance packages at a time
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when the company doesn't
even have enough cash
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to pay severance to its thousands
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of rank-and-file employees
that it plans to lay off.
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Have you ever heard
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of anything like that before?
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A company not being able to
afford to fire their employees?
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I haven't.
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Interesting.
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Have you?
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SoftBank would ultimately bail WeWork out,
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injecting a much needed 9.5
billion into the company,
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which now is valued at
less than $8 billion.
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Now that SoftBank has bailed out WeWork,
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I think the overarching
sense is one of uncertainty
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for everyone who's
involved in this company.
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When I've talked to
ex-employees from WeWork,
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they often feel pretty
drained by the experience,
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they felt like they came
in drinking the Kool-Aid
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thinking WeWork was
gonna change the world,
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and make everyone more connected,
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and help people do what they love.
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And by the time they left, they felt like
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they hadn't really been valued,
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and that the company was
kind of all over place,
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and they felt worn out.
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There are some cautionary notes
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for every other young company.
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The running the business
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in a completely unprofitable manner.
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The lack of board oversight,
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that there was no adults
in the room saying no.
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And so I think what
happened at WeWork is a sign
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that you can only run a company
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without guardrails for so long.
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I mean, I think it's basically
a shocker for everyone.
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I don't think anyone's seen
anything quite this big,
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and this strange go down.
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But for those of us in tech,
there is great precedent
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for a transformational
change getting underway,
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and then a bunch of the
early folks sort of flopping.
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I mean, there was a time that eBay
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was 10 times bigger than Amazon,
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now Amazon's 50 times bigger than eBay.
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There was a time that MySpace
was the only social network,
[768]
now the only one is Facebook.
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Those kind of reversals
happen quite regularly,
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and so it's not really a surprise
[773]
that the first mouse to chase the cheese
[775]
is the one that got caught in the trap.
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I think that's roughly
what happened at WeWork.
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I think WeWork is sort of both,
a little bit of an outlier
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in this era of technology startups,
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but also kind of the perfect encapsulation
[788]
of what this era of sort
of easy money and no rules,
[792]
has delivered in startup land.
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