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The Rise and Fall of WeWork: How the $47 Billion Startup Crumbled

Business
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WeWork, once the most valuable startup in the United States with a peak valuation of $47 billion, filed for bankruptcy protection this week – a stunning collapse for a company that was the posterchild of the shared workspace industry.

Founded in 2010 by Adam Neumann and Miguel McKelvey, WeWork grew at breakneck speed by offering flexible office spaces for freelancers, startups and enterprises. At its peak in 2019, WeWork had 528 locations in 111 cities across 29 countries with 527,000 members.

The company was initially successful at attracting both customers and investors with its vision of creating communal workspaces. SoftBank, its biggest backer, poured in billions having bought into Neumann’s grand ambitions to revolutionize commercial real estate. WeWork was the cornerstone of SoftBank’s $100 billion Vision Fund aimed at taking big bets on tech companies that could be mold-breakers.

However, WeWork’s model of taking long-term leases and renting out spaces short-term led to persistent losses. The company lost $219,000 an hour in the 12 months prior to June 2023. Occupancy rates are down to 67% from 90% in late 2020. Yet WeWork had $4.1 billion in future lease payment obligations as of June.

Problematic corporate governance and mismanagement under Neumann also came under fire. Eyebrow-raising revelations around Neumann such as infusing the company with a hard-partying culture and cashing out over $700 million ahead of the planned IPO while retaining majority control further eroded confidence.

The lack of a path to profitability finally derailed the company’s prospects when it failed to launch its Initial Public Offering in 2019. The IPO was expected to raise $3 billion at a $47 billion valuation but got postponed after investors balked at buying shares. Neumann was forced to step down as CEO.

Since the failed IPO, WeWork has tried multiple strategies to right the ship. It has attempted to renegotiate leases, cut thousands of jobs, sold off non-core businesses, and reduced operating expenses significantly. For example, it got $1.5 billion in financing in exchange for control of its China unit in 2022.

WeWork also tried changing leadership to infuse more financial discipline. It brought in real estate veteran Sandeep Mathrani as CEO in 2020. Mathrani helped cut costs but could not fix the underlying business model. He was replaced in 2022 by David Tolley, an investment banker and private equity executive.

Additionally, WeWork tried merging with a special purpose acquisition company (SPAC) in 2021 that valued the company at $9 billion. But the co-working space leader continued struggling with low demand and high costs.

Commercial real estate landlords also pose an existential threat by offering their own flexible workspaces. Large property owners like CBRE and JLL now provide custom office spaces. With recession looming, demand for flexible office space has waned further.

As part of the Chapter 11 bankruptcy filing, WeWork aims to restructure its debt and shed expensive leases. However, it faces an uphill battle to rebuild its brand and regain customers’ trust. The flexible workspace model also faces an uncertain future given hybrid work arrangements are becoming permanent for many companies.

WeWork upended the commercial real estate industry and had a meteoric rise fueled by stellar growth and lofty ambitions. But poor management and lack of profitability finally brought down a quintessential startup unicorn valued at $47 billion at its peak. The dramatic saga serves as a cautionary tale for unproven, cash-burning companies and overzealous investors fueling their growth.

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