How did WeWork get a $47 Billion valuation and still fail: Adam Neumann

by birtanpublished on August 21, 2020

If you're in the startup world you must know about we work chances are you're actually sitting in one right now officially the we company was founded in 2010 and very quickly expanded to 836 locations as of this recording 15,000 employees and over half a million

Members it's the bright and classic startup unicorn story except it isn't in mid-2000 19 the company filed the documentation to prepare for an IPO that's an initial public offering or to begin trading in the stock market this

Required them to publish their so-far secret financials once the world had a look at their numbers everyone quickly realized that the company founder and CEO Adam Newman had been selling smoke and mirrors the company was not only far

Far from being profitable but Adam had been living an eccentric executive life that was costing the company Millions the CEO was ousted the valuation of the company went from a shocking 47 billion dollars to an estimated 80 billion

Dollars or less and soft bagged their lead investor is preparing to rescue / acquire / take control of the company to save it from oblivion in this video we're gonna dig into the week company's story the rise and downfall and of

Course what lessons we can learn from them this is a new series we call startup forensics push it aside notice anything strange stomach liver lungs this gory story

Started in 2008 when Adam Newman and Miguel McClellan established a co-working space in DUMBO they called it green desk they laid out around 100 spaces and rented them from 350 to $2,400 a month and the business boomed

They quickly sold green desks to the landlord of the building and used the seven figure acquisition money to start a new space in Soho that's 2010 under the name we work this is when Adams fundraising abilities started shining

That year Manhattan property owner Joel Schreiber invested 15 million dollars in the company for a reported 33% stake that means that the post-money valuation of we work at this point was already at 45 million dollars it's unclear how much

Traction they had at this point but needless to say this is already a pretty high valuation for such an early company mr. Schreiber Scott's on that was I didn't negotiate I said yes I loved Adams energy the new unicorn on the

Block fast forward to 2014 we were cross already the fastest growing lease company space in New York according to Forbes the company expected to make 150 million dollars that year and 400 million the year after new locations

Were launching with 80% occupancy they bragged to the press about their operation margin 30% this will be important later JP Morgan the Harvard Corp and billionaire Mort Zuckerman joined as investors in a massive 150

Million dollar round of funding which closed in February 2014 it effectively valued the company at 1.5 billion dollars let's stop for a second now to talk about the why we work was charging 350 bucks per month or so for a

Shared desk or around 650 bucks a month per person for a dedicated desk this is crazy expensive if you think about it on a pair square foot basis however when you factor in the cost of actually renting an office in New York City at

Two three four five or ten person team can still save money by going with a we workspace we have one we see the savings think about it negotiating a three-year lease and doing the deposit office furniture decorations

Internet utilities phone systems compliance and other paperwork required to operate an office in the city office manager mail handling if you're focused on building a business trust me you don't want the distraction of having to

Run an office or figuring out how to make it look good plus there's the intangible value of people a community I truly believe that surrounding yourself with other entrepreneurs creators and brilliant

Minds have echoes in your own performance we work was all about the happy hours and the community events to bring in like-minded people together desk mag comm a site dedicated to tracking co-working trends estimated

That around fifty nine hundred shared office spaces had launched in 2014 astronomical increase over the three hundred that were tracked by 2009 fewer than 10,000 people working in co-working locations back then that number had

Turned to 260,000 people by 2014 it's the perfect mix fast growth a fast growing market a good chance of becoming a market leader and the founder that can raise money tech companies versus non tech companies

Let's get back to that 1.5 billion dollar valuation the valuations of tech companies and tech startups are very different from traditional businesses mostly because of potential traditional businesses can be valued based on the

Assets that they own based on their revenue and their profits also known as evita you can look into the valuations of some traditional companies that trade publicly and see how these numbers are more or less correlated but then take a

Look at Amazon Amazon reported two hundred and thirty two billion dollars in revenue in 2018 with a net income of ten billion dollars just ten billion dollars of net income profits its market cap when the results were published

Eight hundred and twenty billion dollars why because Amazon is a tech company it's not making any profit now because it's focused on owning the world literally ecommerce grocery streaming web services over 50% of the internet

Runs on Amazon and it's continuing to grow investors are betting on Amazon because of the tech nature of the business tech products have high margins amazon's business and market share will allow to generate massive margins when

It chooses to do so but for now the focus is on expansion and investors want to buy in on that future bet so the point here is tech companies with the premise of these large profits have easier access to

Capital certainly compared to boring non tech companies whose margins aren't unlikely to grow this is why we work did everything it could to position itself as a tech company because tech companies are cool and more importantly they have

Access to cheap capital buzzwords like physical social network or artificial intelligence to glean insights about buildings these are the keywords that we were used to throw around we'll get back to this in a second investors this is

Where Softbank comes in South Bank is a Japanese multinational conglomerate that owns massive stake in companies like Alibaba Yahoo Japan uber slack compass among many many others in 2017 Softbank announced the vision fund the world's

Largest private equity fund with a capital of 93 billion dollars Softbank first committed 3.1 billion dollars in new funding to we work in 2017 they intended to invest this money in companies developing technologies in

Line with the global artificial intelligence trends including sectors as finance and transportation money for the fund came from sources such as the public investment fund of Saudi Arabia that's the kingdom's leading sovereign

Wealth fund and companies such as Apple Qualcomm Foxconn and sharp soft bank became weworks most crucial investor and DoubleDown round after round leading me around some funding leveraging and convincing other investors to join and

Pushing weworks valuation up to 47 billion dollars for their last 2019 round this easy capital allowed we work to run initiatives such as rise by we wellness luxury gem concept that's run by Adam Newman's wife we grow a private

School for kids three to ten years old and we live a khole living concept in high rent areas leaked internal documents from 2014 stated that we live was projected to make up to 21% of weworks revenue by 2018 but of course it

Didn't and all three initiatives mostly failed and have been phased out the downfall prior to an IPO companies release public filings with the purpose of getting investors excited and interested in joining and purchasing

Company stock as part of this transaction and I in the end is our round of funding the company seeks to raise additional funding from new investors and the shares are offered publicly we weren't

Released it's s1 filings on August 14th 2019 the moment the world had a chance to look at these numbers everyone started realizing how much of a bubble this was we work was not a tech company it was a real estate company with some

Tech and for a real estate company these numbers don't make sense in 2018 it generated 1.8 billion dollars in revenue but spent a total of 3.7 billion that's the losses of 1.9 billion it had losses of 900 million for the first time of

2019 and there was no path to profitability moreover it needed the money from the IPO to continue operating or it would be bankrupt in a matter of months there was no investor interest a couple of weeks after their financials

Were made public pressure started building on top of Adams role some disturbing news came to light fact the fact that adam borrowed money against his own stock and used it to purchase properties that he would then lease to

The company what the fuck or that he registered the name we under his name to then sell it to the company for 6 million dollars also in 2014 when investor demand was high he managed to negotiate shares with

10 times the voting shares of other investors with a disclosed personal goal that he wanted to become the world's first trillionaire Adam convinced the board to buy a private debt that he would use to travel in total he borrowed

Over 740 million dollars against his own stock and sold a tremendous amount of his shares in the company a very rare and suspicious activity of course with new revelations coming to light Newman was forced to step down and he did so on

September 25th the IPO intention was withdrawn by the company and major layoffs were announced by October 3rd 4,000 employees were expected to be cut which represents over a quarter of the company's staff having lost investor

Trust interest and with fast shrinking cash reserves the company had no choice but to seek profitability as the real estate company that they always were – Niqo CEOs were brought in the company jet was sold and the company's seeking

To get rid of some of their unrelated acquisitions such as the company meet up the future of rework is certainly certain well we can't call it debt yet the clock is ticking for them to get back on track

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