The story of WeWork, or rather, what happened to the company over the last few months could not be further from a poorly written script of a corporate movie flick gone bad. What initially promised to be the biggest initial public offering (IPO) of the year turned out to be a series of disasters - abandoned IPO, CEO forced to resign, and a company in crisis.
September was not particularly a good month for WeWork – an American real estate company that leases co-working spaces to entrepreneurs and companies – after its plans for an IPO collapsed due to intense scrutiny over its high valuation, business model, and the capacity of its co-founder and CEO Adam Neumann to lead the firm.
The real estate company, which posed for investor cameras as a tech firm, filed its prospectus in August with the aim of going public in September.
According to Dr Wealth, the real estate firm reached the $47 billion valuation after several rounds of funding, with the first one dating back in 2009 when the firm secured $97 million in Series A funding. The company has raised more than $12 billion since it was founded nine years ago.
Investors were left mulling over how the company had managed to achieve a high valuation at lightning speed. And they went into investigation mode as they sought to quench their curiosity.
The company’s prospectus filed with the US securities regulator, the Securities and Exchange Commission (SEC) revealed that the company was losing billions but still planned to continue spending aggressively.
WeWork parent company, the We Company, was in the red from 2016 to 2018 despite an increase in revenue. The company lost $429 million in 2016 against a revenue of $436 million while losses increased to $890 million as opposed to a growing revenue of $886 million in 2017.
Last year, WeWork lost $1.6 billion on revenue of $1.8 billion. The company lost $690 million in H1 this year after raising $1.5 billion in revenue.
WeWork loss and income comparison chart between 2016 and H1 2019. // Data source: Business Insider
The charismatic Neumann, who built the WeWork brand in his own image, became a liability for the company due to mismanagement. WeWork’s IPO filing showed that the former CEO hired numerous family members.
Neumann’s conflict of interest contributed to the spectacular fall from grace for the company after he made millions from leasing his own buildings in San Jose and New York to WeWork. The eccentric CEO, who threw parties at the company’s premises, made $5.9 million by charging WeWork for the trademark rights he holds to the word “We.”
Neumann did not do himself and the company a favor when he cashed nearly $700 million in stock options before the company planned to go public. This is a questionable move because founders usually wait after the IPO to sell their shares if they believe that the share price of their companies will increase in the future.
Neumann tried to consolidate his grip on the company even long after the IPO as his stock gave him 20 votes per share when other CEOs usually hold half of that (voting power per share).
The rescue deal will see Neumann walk away from the company with a sizable payout of nearly $1.7 billion through selling his stock in the company and a few other offers as well. However, Neuman will remain in the company but will only have an “observer” status in the company.
To keep the ship sailing, Artie Anson and Sebastian Gunningham – WeWork executives – were appointed as co-CEOs despite their little experience in the real estate industry. The job is to stabilize a company that has been rattled by the botched IPO.
Anson, a trained accountant, spent four years working closely with Neuman and is said to be the complete opposite of Neumann. Gunningham is the vice-chairman of the startup and worked for Amazon.com and Oracle Tech before settling at WeWork.
The two men will be assisted by Marcelo Claure, the chief operating officer of Softbank, who now takes over from Neumann as WeWork’s chairman.
As part of its restructuring plans, WeWork plans to cut 4,000 jobs from its workforce of nearly 15,000.
Coworking companies take long-term leases on buildings, refurbish them in a manner that appeals to companies or startups, and then lease them out piecemeal for profit.
It raises more questions than answers if a company that was once valued at $47 billion needed a rescue package when investors dug deeper, and you should wonder how investors perceive other companies in the same industry.
What makes things even worse is the possibility of a downturn in the global economy. This is hard to predict but economists suggest that recession may hit the world in the next two years or so. This will be a litmus test for the companies in the coworking space industry, and companies like WeWork will be under the spotlight, and their survival might even be harder.
WeWork has grown in size and this will likely work in its favor. However, the company hasn’t been profitable in the last few years in a bull market, and many will ask how it will likely perform in a bull market.
In the meantime, WeWork should work on a turnaround strategy and improve its financial figures before it can lure investors back to it again. For now, its back to the drawing board. And they should paint better pictures.
Read next: 8 Major Companies That Innovated Their Way Out Of Trouble [INFOGRAPHIC]
Featured Photo: Jason Alden/Bloomberg via Getty Images
September was not particularly a good month for WeWork – an American real estate company that leases co-working spaces to entrepreneurs and companies – after its plans for an IPO collapsed due to intense scrutiny over its high valuation, business model, and the capacity of its co-founder and CEO Adam Neumann to lead the firm.
The real estate company, which posed for investor cameras as a tech firm, filed its prospectus in August with the aim of going public in September.
According to Dr Wealth, the real estate firm reached the $47 billion valuation after several rounds of funding, with the first one dating back in 2009 when the firm secured $97 million in Series A funding. The company has raised more than $12 billion since it was founded nine years ago.
Investors were left mulling over how the company had managed to achieve a high valuation at lightning speed. And they went into investigation mode as they sought to quench their curiosity.
There is no smoke without fire
The lack of investor interest in the company may have led to the collapse of the IPO and resignation of the CEO but the red flags were there for a long time, with Neumann being the chief culprit.The company’s prospectus filed with the US securities regulator, the Securities and Exchange Commission (SEC) revealed that the company was losing billions but still planned to continue spending aggressively.
WeWork parent company, the We Company, was in the red from 2016 to 2018 despite an increase in revenue. The company lost $429 million in 2016 against a revenue of $436 million while losses increased to $890 million as opposed to a growing revenue of $886 million in 2017.
Last year, WeWork lost $1.6 billion on revenue of $1.8 billion. The company lost $690 million in H1 this year after raising $1.5 billion in revenue.
WeWork loss and income comparison chart between 2016 and H1 2019. // Data source: Business Insider
The charismatic Neumann, who built the WeWork brand in his own image, became a liability for the company due to mismanagement. WeWork’s IPO filing showed that the former CEO hired numerous family members.
Neumann’s conflict of interest contributed to the spectacular fall from grace for the company after he made millions from leasing his own buildings in San Jose and New York to WeWork. The eccentric CEO, who threw parties at the company’s premises, made $5.9 million by charging WeWork for the trademark rights he holds to the word “We.”
Neumann did not do himself and the company a favor when he cashed nearly $700 million in stock options before the company planned to go public. This is a questionable move because founders usually wait after the IPO to sell their shares if they believe that the share price of their companies will increase in the future.
Neumann tried to consolidate his grip on the company even long after the IPO as his stock gave him 20 votes per share when other CEOs usually hold half of that (voting power per share).
Damage control
The company, at the brink of imploding, accepted a rescue package from the Japanese company Softbank in a deal worth $5 billion. Through the deal, Softbank will increase its stake in the troubled co-working company from about a third to roughly 80 percent.The rescue deal will see Neumann walk away from the company with a sizable payout of nearly $1.7 billion through selling his stock in the company and a few other offers as well. However, Neuman will remain in the company but will only have an “observer” status in the company.
To keep the ship sailing, Artie Anson and Sebastian Gunningham – WeWork executives – were appointed as co-CEOs despite their little experience in the real estate industry. The job is to stabilize a company that has been rattled by the botched IPO.
Anson, a trained accountant, spent four years working closely with Neuman and is said to be the complete opposite of Neumann. Gunningham is the vice-chairman of the startup and worked for Amazon.com and Oracle Tech before settling at WeWork.
The two men will be assisted by Marcelo Claure, the chief operating officer of Softbank, who now takes over from Neumann as WeWork’s chairman.
As part of its restructuring plans, WeWork plans to cut 4,000 jobs from its workforce of nearly 15,000.
Co-working industry under the microscope
While the recent IPO fallout with the investors left the company exposed and it’s future uncertain, it also put the whole industry under the spotlight and questions will be asked about the profitability of the co-working industry.Coworking companies take long-term leases on buildings, refurbish them in a manner that appeals to companies or startups, and then lease them out piecemeal for profit.
It raises more questions than answers if a company that was once valued at $47 billion needed a rescue package when investors dug deeper, and you should wonder how investors perceive other companies in the same industry.
What makes things even worse is the possibility of a downturn in the global economy. This is hard to predict but economists suggest that recession may hit the world in the next two years or so. This will be a litmus test for the companies in the coworking space industry, and companies like WeWork will be under the spotlight, and their survival might even be harder.
Final thoughts
WeWork has to work very hard to rebuild its image, for its own sake and the sake of the industry. The firm has been growing rapidly over the last few years, and its number of locations has grown more than four-fold from 2016 to 528 in 2019.WeWork has grown in size and this will likely work in its favor. However, the company hasn’t been profitable in the last few years in a bull market, and many will ask how it will likely perform in a bull market.
In the meantime, WeWork should work on a turnaround strategy and improve its financial figures before it can lure investors back to it again. For now, its back to the drawing board. And they should paint better pictures.
Read next: 8 Major Companies That Innovated Their Way Out Of Trouble [INFOGRAPHIC]
Featured Photo: Jason Alden/Bloomberg via Getty Images
