The Spectacular Rise and Fall of WeWork

The Spectacular Rise and Fall of WeWork

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


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    Quinn P

    I've really liked this simple line to sum things up "WeWork was a real estate company being valued as if it were a tech company". Expecting exponential growth with software isn't too crazy; expecting exponential growth from real estate is.

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    Suyash J

    So basically a glorified office space rental company wanting to emulate the culture and returns of Silicon Valley companies

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    WeWork was pretty much a ponzi scheme and a lot of these so called tech companies are very over valued.
    The only company on the graph that actually is worth billions is Spacex.

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    James OKeefe

    Great deep dive and choice of contributers, excellent presentation and exceptional production. Very well done. Thank you!

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    Wayne C.

    Wait, he registered the trademark personally and then sold it back to his company and then board is like, 👌. and no one asked any questions?

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    um why bother setting up nice shots for people talking if you're just going to CONSTANTLY cut to the ugly background from the side?!

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    Jason Bourne

    It just goes to show: The so-called "experts" in the media are nothing more than carnival hucksters shilling these fake/scam/zombie companies.

    Everyone thought Theranos was legitimate too.

    And it was heavily presented and promoted as such. As a "safe bet" – the exact opposite of what it truly was.

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    paul boh

    wewoke was a pipe dream for all the posers who have big dream but no substance. these people gather up and think they will suddenly become rich because they have positive energy…

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    Fernando Paredes

    I'm 46 years old and I use a WeWork space because the company I work with uses it. I always felt sort of like a millenial vibe to their offices, and to me it wasn't a very comfortable place to work. Also, all their employees are real young, have all kinds of stickers on the back of their laptops and most are WeWork logos and slogans. Seemed to me like a very silicon valley-like cult. Not enough to say it was a failing company, but the feeling was really weird. After all..this is office space for rent, for crying out loud.

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    Maira Bay

    Can someone tell me where this easy money (13:15) for startups is hiding (outside of silicon valley or post-seed phase)?

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    Akasha Exp

    If it’s some new age hipster stuff and not about profit but people….dude it’s not business it’s charity work LOL

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    Despite of high literacy rate, fair system of law and justice…. bad Governance and fraudulent issues do occur in first world countries very often.

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    Is this similar to Startup Incubators? A few of my friends go to these Incubator centres in Sydney, which are partly owned by Universities and can work on their "Startup" Projects; almost like a shared office-space.

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    it was all just a scam for the profit of owners… the employees are hipsters who don't create much of value and yet "don't feel like they are valued" ..proper hipster shittttshow :))

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    These "coworking" spaces are like the promised land to all those a-holes wearing airpods that won't shut up on the train. Also, is Bloomberg trying to subliminally control our minds using clicking noises in the background? What the hell was that?

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    This reminds me of the Frye Festival. Pure hedonism among the burning man crowd which is easily seduced into believing anything if you wrap it up in the right fluggy words. fluggy? I meant fluggy. where's the jkifhekf ff ff ff there it is! Fulufy I mean flugy. Fuck! Fulf…..nOOOOOO fluffy. There, I did it.
    It's like solar roadways, food scanners that tell you how fresh produce is and if it's gmo, water from air. It's like gurus and the worship of narcissists, the Law of Attraction. It's all BS pushed by con men. What you seem to be is all that matters. Just use the right happy cartoons and make sure there's lots of green color, expensive coffee and microbrews.

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    Joseph Parker

    I would never rent anything like WeWork has to offer. I believe strongly in security which would only make me consider a private office space.

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    Every day, thousands of students browse the internet looking for lessons and courses like yours. But having great teachers is not enough to grow your business.
    They must be able to find you.

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    vee tour

    Too much money, emphasis on getting rich quick, lack of oversight are some of the reasons this blew up. If SoftBank didn’t inject all this capital into the company it wouldn’t have been such a colossal failure.

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    What are you nimrods at Bloomberg talking about? WeWork didn't fall. The CEOs saw large piles of money from investors and pocketed ~80% to go to private island and sniff coke and bang hookers and used the other 10% to pay its employees followed by 10% for "operations". That doesn't constitute "falling". These cock sucking CEOs knew exactly what they were doing and didn't care about anybody else's well being. It's that simple. There's no need for a 13 minutes video.

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    The Dude Lives

    1800's business model – "Rent a desk." That is their entire business model. Next they should use horses for transportation.

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    Rachel Ka

    It is a fraud because of non-disclosure of related party transactions. It is a white collar crime. FBI & SEC should be involved investigation.

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    Alan Smith-Emerson

    Neumann: We like to call it the "We Generation".
    Madison Ave: I'm about to end this man's whole career. "Millennial". I have spoken.

    It basically sounds like Fivver, but in real space. It failed mainly because it relied on empty silicon-speak rhetoric to entice normal investors and entrepreneurs into thinking it was more focused and bigger than it could ever be, with its founders spending like they're living in the 80s. It's the .com bust all over again. Beware of evaluations and third-party appraisers.

    4:08 WeWork's target audience.

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    Kevin Thomson

    WeWork was neither groundbreaking nor a new idea, coworking, office rental types like Wework have been around for years. It was destined to fail.

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    Soft Bank investment seems to have been both the blessing and the downfall of the company. We Work seem to have forgotten why the company had been started which in turn killed it after the large investment from Soft Bank. Two opposite beliefs and no middle ground kill the company We Work. They should have stayed the course.

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    anyone else bothered by the side angle filming of the people being filmed facing forward? Not sure what that's bringing to the table exactly? lol

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    His the only education is abstract 'business school' what did you
    expected him to do. The only he can do is to do abstract 'business'.

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    ".. to focus on our core business, the fundamentals of which remain strong." …When is society going to see through this Tony Robins style bullshit? Will this be a fad of speech one day in the future, maybe destined to become a meme?

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    Камилла Аильчиева

    In China from my point of view, we work didn’t work because 1) the office wasn’t private 2) they didn’t provide the registration addresses for the company registration. So as a stray up I still would prefer to rent a regular office even though it’s more expensive , twice expensive, because it gives me these two things

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    When a guy who hasn't worked a day in a desk job saying small business owners and employees would be "happy" working in a desk with a bunch of other strangers.

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    luis martinez

    estoy trabajando para Wework desde 2010 soho hasta esta semana no se por que pagar mas a otra empresa si esta esta quebradas

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    Quick Turtle

    The mother of fraud and scam. A. Neuman is a con who uses the internet's platforms and different media outlets and advertizers thru hype and sensationalism, in order to entice investors.

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    Susan Emberley

    Why are young techies so gullible to these stupid company speeches, the ceos are narcissistic con men(women) I guess young techies are in dire need to believe they are something special.

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    Capitalism makes Peoples or Companies rich to richer but at end collapse , one day world will think to replace this system

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    Positivexpert AmB Solutions

    What is the core business and do these people take even an online business course and why are so many VCs throwing money and unknown and unproving entities.

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