Why investors grew tired of the mistakes of WeWork’s founder, despite its massive growth.
Over the 2010s, as entrepreneurialism became more in vogue, remote working grew and employee flexibility increased in importance, WeWork seemed to be the perfect answer.
But, as a result of some crucial missteps, it went from a $47bn (£34.3bn) valuation to less than $10bn.
Co-founder Adam Neumann was born and raised in Israel and spent much of his childhood in a kibbutz agricultural community in which all labour and wealth is shared. After moving to New York, it’s likely the kibbutz lifestyle provided Neumann with the inspiration for what would become WeWork in 2010.
The business plan involved taking out long-term leases on office buildings – 15 years on average – and then sub-letting them to entrepreneurs and small businesses on a monthly basis. The first spaces were in SoHo in New York, and proved hugely popular, with rents high and workspaces at a premium. Investors piled in as WeWork opened more offices.
It first arrived in London in 2014, after raising $17m to expand internationally. As it grew, its customer profile shifted from 90% entrepreneurs and small businesses to providing workspace to 23% of Fortune 500 companies.
Neumann began to look at diversifying, launching WeLive in 2016, offering shared apartments and living space under the same communal principles of WeWork. Other proposals, including WeSleep, WeSail and WeBank were never realised. However, his charisma won over more investors, with SoftBank committing $18bn to WeWork over several years.
It was in 2019, and its application to list on the stock exchange, that saw WeWork unravel. At the time, it was the largest office occupier in both London and New York. It was only when it filed its S-1 form, a requirement for listing, that the extent of its losses became apparent. For every $1 in revenue, WeWork was losing $2. Part of the problem was its lengthy leases, while only charging customers on a monthly basis. This created a huge disparity between WeWork’s future obligations and its future income from tenants.
Another major issue was the behaviour of Neumann himself. Aside from gaining a reputation for regular parties in the office, he had taken out millions of dollars in loans from the company with interest rates as low as 0.2%. He also spent $60m on a company private jet and $80m on four personal properties around the US.
In December 2019, WeWork’s board asked Neumann to stand down, which he agreed to. SoftBank then agreed to inject $3bn to keep the company afloat, but withdrew the
offer in April 2020.
Perhaps the biggest lesson from WeWork’s troubles is that ambition can also overstretch a company. While WeWork’s bet made sense if you had absolute belief in its long-term viability, such a risk requires others to buy in. Neumann ultimately didn’t manage to take enough investors with him, as the failed IPO showed.
Calum Fuller Calum Fuller is editor of AT and 20 magazines. He's previously served as editor of Credit Strategy, assistant editor Accountancy and began his career at Accountancy Age..