If you are someone that lives in a big city or have lived in a big city in recent past, or just someone that works in a big city or have worked in a big city in recent past, than it’s likely that you have stepped inside one of WeWork’s 562 locations. In case you have no idea what WeWork is, well, it’s a New-York based company whose core business is renting out shared workspaces for technology startup subculture communities, and services for entrepreneurs, freelancers, startups, small businesses and large enterprises.
I’m sure you have a lot of questions in your mind: What is WeWork? Who are the investors behind it? How does it make money? And so forth.
Let’s get down to the answers.
What is WeWork?
WeWork (or rather We Company, as it’s now called) was founded by Miguel McKelvey and Adam Neumann in New York in 2010. As mentioned above, its main goal was to offer coworking spaces to entrepreneurs, freelancers, startups, small businesses and large enterprises. The company started with just two locations but has grown rapidly since, making it one of the largest and most visible coworking chains in the world. It now has about ten-thousand employees and over five-hundred locations worldwide, including outposts in dozens of U.S. cities and twenty-nine countries, like Brazil, Israel, Germany, and China.
Originally called WeWork, the startup rebranded under the new name The We Company at the start of 2019 in order to make room for spin-off businesses WeLive, WeGrow, and Rise by We.
What are WeWork’s membership options?
One thing that I love the most in WeWork’s business model is that it’s very flexible, the clients can just choose from a number of membership options without having to worry about long-term leases.
As for what you should choose, well, if you are a single worker (that does not have a lot of money at hand), than I’ll suggest that you choose a hot desk. Once you’ve picked up a primary WeWork location, show up whenever they wish, pick any available seat in a common area and get down to work immediately. For those who have some cash at hand and wants a little more stability, this company offers dedicated desks, a step up from the hot desk they are leased to one client or one business only. It affords you a reserved desk where you may keep your belongings day after day and comes equipped with a chair, trashcan, and locked filing cabinet.
WeWork also offers private offices that are equipped with furniture and can accommodate dozens of workers as businesses grow. The options for private offices are:
- Standard private office: This includes lockable offices with filing desks, cabinets, and chairs. They’re best for companies with up to hundred workers looking to reserve a space together.
- Office suites: These include premium shared spaces and amenities like lounges, meeting rooms, and executive offices. They’re best for teams of twenty-five-plus.
- Headquarters: This layout includes private offices, which are completely closed off from any shared space, and basic amenities. WeWork recommends this for teams of 20-250.
- Custom buildout: As you may expect this most personalized option is the most premium. It gives your company an entire floor, and the configuration is completely customizable. It’s best for companies of 50-500. WeWork scouts buildings and then transforms them and has already done this for Facebook, Microsoft, HSBC and Deloitte.
Who are the investors behind WeWork?
WeWork’s investors include a number of global entities, including SoftBank (a Japanese multinational conglomerate holding, and WeWork’s most influential investor), Hony Capital (a Chinese private equity firm), and Greenland Holdings (a Chinese real estate developer). In August 2017, SoftBank and its founder, Masayoshi Son, poured a massive $4.4bn investment into WeWork. This included $3B for WeWork itself, a mix of equity buyouts ($1.3B) and new capital ($1.7B), and $1.4B dedicated to WeWork’s expansion into the Asian market (China, Japan and others). In August & November 2018, WeWork secured additional $1B & $3B respectively in funds from SoftBank.
As of 2019, WeWork had raised nearly $8.4 billion in private capital in the years since its founding. The immense interest by Asian companies (as mentioned above) represents WeWork’s promising expansion into Eastern markets. Apart from its Asian investors, Western companies like Goldman Sachs, J.P. Morgan and T. Rowe Price have also invested in the Manhattan-based WeWork.
How does it make money?
To put it in simple words, WeWork rents buildings at one price and then rents them out at a different (most probably higher) prices. Most of the locations under the company’s use are not priced similarly, for e.g. buying up real estate in Nashville is cheaper than San Francisco. These price discrepancies help keep the overhead of the company in the limits.
The company gives its spaces a face-lift before opening the doors, updating everything inside and adding features like offices, cafés, and community spaces. Apart from making money on rent, the company also provides additional services for a fee, such as partnerships with local businesses and car rentals.
Why do property owners decide to take rent their buildings to WeWork?
It may not be easy to understand at first, but think like a landlord and WeWork’s model starts to make more sense. It’s more easy and hassle-free to have one contract with a single big company for a certain period of time than to find & sublease to several different tenants for shorter periods (especially if the building is located in a not so less area). Also, it’s more beneficial to partner with an operator, rather than taking on the burden of workspace logistics and management. WeWork usually leases properties for ten years, this takes less time and resources away from the property owner.
WeWork changes the landscape of the submarket when it leases space in a building, adding young, innovative businesses and curating affluent clientele to buildings that would otherwise have one or two tenants leasing the entire space. The company’s model bolster’s the local economy by attracting professionals from a diverse range of industries to its ecosystem, and with that comes a higher property value (a building owner’s dream-come-true).
WeWork is a company that provides both physical and virtual shared offices and services for entrepreneurs and companies. This project headed by Adam Neumann was recently on top of the world, rapidly growing with venture capitalists paving the way for more, more, more. In 2018, the company was in charge of over 46 million square feet of space that provides shared workspaces for technology startups. It had employed up to 12,500 people, and some of the company’s executives were pulling down $300,000 salaries.
Sadly, the company dubbed as the US’s number one tech startup now struggles to make ends meet. In August of 2019, the company started going downhill after its registration papers went live on the Securities and Exchange Commission’s (SEC) website. At the same time, this wasn’t a surprise as many people were aware of the filing. The entire thing started when WeWork made its first steps to join the public market, turning WeWork, unfortunately, into “WeFail.”
Now, I’ll step back and explain the whole thing from the ground up.
WeWork was formed by two partners; an Israeli Navy veteran, Adam Neumann, and Miguel McKelvey raised on an Oregon commune. They started with the idea of renting space in large buildings by breaking them into smaller rental offices, and soon after, the concept gained traction. WeWork grew from strength to strength and took on a life of its own off to a great start.
2016 was a great year for the company as they managed to rope in their most prominent backer, Masayoshi Son, the CEO of the Japanese conglomerate SoftBank who pledged almost $11 billion. In January of 2016, SoftBank’s investment had managed to push WeWork to have its $47 billion valuations. Masayoshi Son was, at the time, looking to get a win from WeWork after losing his expectations for massive success in companies like Uber. All the news surrounding the company went to Neumann’s head. Reports were saying he would become the world’s first trillionaire. His aspirations, however, were short-lived. He had his so-called ‘arrogant’ bubble burst in the weeks that followed.
The company’s red light started coming into view on August 14, when WeWork’s S-1 filing with the SEC went live. The filing had over 350 pages and within them was a mountain of evidence of potential conflicts between Neumann and the company. Some of these “conflicts” highlighted that Neumann had bought the trademark to the “We” name through a holding company, and WeWork paid him $5.9 million to license it. The filing also mentioned many “Related party” citations, meaning disclosures that the company was doing business that could enrich an employee, director, or officer. This citation numbered more than 100 within the filing.
Despite having its revenue doubled, the company was amassing more losses, and the filing didn’t explain how the company would ever become profitable. For Forever dollar the company earned, they had to pay back two. Presumably, one of the most crucial parts of the filing was the section that disclosed risks to investors, and it was almost 30 pages long. After the filing was released, the news helped bash the company even more.
Less than a day after the SEC released the filing, financial news sources were calling for WeWork to reduce its valuation to attract interest. The company’s ratings on Fitch also plummeted that same day because of its spending. Weeks later, WeWork went ahead to find more investors to find support for the IPO, but the response they got wasn’t warm at all. Neumann took the company’s private jet to speak with SoftBank investors in Tokyo about the state of the IPO on August 14. From the meeting in Tokyo, WeWork was able to get a $9 million check from their investors in Softbank. They took it gracefully as they desperately needed it, and both Neumann and Son needed a win. This money didn’t save the company as by early September, WeWork’s bankers couldn’t garner enough support for the IPO. There were signs of Neumann’s self-dealing that made many investors skeptical and have doubts about the flimsy business model.
By. September 4th, the company had been cornered. Neumann was forced to agree to return the $5.9 million WeWork had paid him for the rights to use the trademarked term “We.” reports were sure that the company was planning a kick-off of its IPO as soon as the following week. However, the very next day, another issue came up. There were reports that the company was considering selling its potential shares at 50% of the most recent private valuation. The company was hoping to sell shares at 20 to 30 billion US dollars, a far cry from the original $47 billion figure. By Sunday of that week, WeWork was speculated to be considering a valuation below the $20 billion that had been floated just days before.
The numbers kept dropping, and on Friday the 13th, the company was faced with a valuation between $10 billion to $12 billion. The company was seeing frightening numbers lower than the $12.8 billion in total equity WeWork had raised since it started. By Monday, the company said publicly that it would postpone the IPO until after the Jewish holidays, stating that it looked forward to finishing the listing by year’s end. It wasn’t that easy, however as shortly after, they received a fatal blow. An article was released by the Wall Street Journal that explicitly stated Neumann’s frequent use of marijuana and shelling out $150 for a bottle of tequila. In the report, there were mentions of a WeWorks layoff discussion meeting followed by “tequila shots and a performance by a member of Run-DMC.”
That was obviously the last straw as SoftBank, the company’s number one backer had lost their enduring faith and pushed to unseat Neumann. On September 24, the company’s board of directors gathered, and Neumann had been voted out. Apparently, he had voted for himself as well.
Today, WeWork has plans of slowing its growth and refocusing on its core business of renting office space through employee cuts dissolution of side businesses. With this bid, they hope to restore investor confidence. No one can be sure of what the company will face; we do know that the road ahead won’t be easy or short by any means. We can only wait and watch to see if WeWork is indeed WeFail, or whether it reworks itself into a viable business.