How WeWork Went From $47B Startup to Bankrupt Penny Stock | WSJ What Went Wrong

We work once a venture capital darling has filed for chapter 11 bankruptcy. The filing marks a stunning reversal for the desk rental giant that was once valued at $47 billion. Wework was the poster child of the unsustainable start up frenzy of the 2010 s rise and fall so dramatic. It was characterized in an Apple TV series who is in a fight, the smart guy or the crazy guy. Are you crazy enough? I may be, I may be, here's how we work went from being one of the country's most valuable start ups to a bankrupt penny stock now worth a fraction of its peak value. We work co founded by Adam Newman specialized in leasing shared workspaces in metropolitan areas around the world. We're a company that builds communities. We have our mission. Our main thing that we do is curate and create culture. Wework was founded in 2010 right after the global financial crisis and it basically seized on this casualization of the workforce that was emerging after that, we work raked in funding from a roster of major investors from venture capital firm, benchmark capital to banks like JP Morgan and Goldman Sachs, the founder, Adam Newman was able to convince all of these people that, that we work was a disruptive tech company that that was going to do to the office market. What, what Facebook did to sort of social media and, and, and what Uber did to, to uh transportation, they ended up raising over $10 billion for what was effectively a real estate company worth a lot less than $10 billion. In 2019. Wework hit a peak valuation of $47 billion and took steps towards an initial public offering. At the time, the private tech start ups were seen as this really sort of powerful engine of the future economy. And there was a lot of optimism about them. So they get ready to go public and sort of reveal their numbers to the world and people kind of wake up while we worked revenue was growing. So were its expenses despite raking in billions in funding, we were yet to announce a profit since its founding in 2010. There were also all of these, these conflicts of interest and related party transactions that are really concerning for investors in the IPO documents. So Adam Newman owns stakes in four buildings that he leased to Wework. And so he's on both sides of those deals on top of concerns about wework from public market investors. Questions over Newman's leadership style also threatened the company, Adam Newman had this a chaotic approach to management. One day, he would decide that 20% of the staff, the bottom 20% needed to be fired every year. Adam was really into spending in all these eclectic ways. They had a small unit and we work that was making self driving robots to go around and drop mail off at people. They bought a $63 million jet that Adam directed and was a huge fan of it is just like one excess after the other at its peak, we work ultimately their 2019 IPO and shortly after Newman resigned as CEO walking away with more than $1 billion from Softbank, a tech investor that acquired Wework. It was such an extraordinary amount of money for someone who had actually really destroyed so much value after creating it. I think that's a stain that still stays with him. When you sort of mention Adam Newman and we work, people often say like, isn't that the guy who got really rich while investors lost everything? And that's accurate. Not long after Newman's departure, COVID-19 spread across the globe. Demand for office space decreased rent dropped and we work's entire business model became its own Achilles Heel. So they just have these rents that are from a different era that they're paying while their tenants are paying them a lot less. They have been burning through $300 million a quarter of cash. Four years after pledging to restructure to rationalize. It's just completely untenable. We filed for bankruptcy barely four years after the company reached its peak valuation and more than two years after it went public under new leadership in 2021 the tank of cash that once overflowed ran out, they were never able to make a profitable business. It's an extraordinary tale in that they raised over 16 billion of equity and debt over 13 years, but this may not be the end of wework story. The business will likely go on. They're going to need to cancel a ton of leases, cancel their debt and presumably can come out of this a real business that can make money. They have some locations where it's profitable, but it's going to need a lot of work in bankruptcy court to get there.

Channel: The Wall Street Journal

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Id: p3q5m0ILTfk

Length: 5min 0sec (300 seconds)

Published: Tue Nov 07 2023