What is WeWork? Its a co-working space startup started back in 2010 by Adam Neumann and Miguel McKelvey. What it does? It provides fully furnished office spaces for freelancers and entrepreneurs. The company had a valuation of about $47 billion dollars at its peak. WeWork was seen as the next Tech unicorn on the lines of Facebook and Uber. A lot of companies wanted a share of the pie and one such company was Softbank. Softbank invested close to $10 billion dollars into WeWork only to find WeWork using that money extremely carelessly. WeWork started buying startups left and right to expand its operations and to make itself more profitable. Some of these acquisitions made sense, but of a lot of them didn’t. For instance, WeWork bought a Spanish company that creates pools and surfing waves artificially. An investment like these Made WeWork burn out cash very very quickly.
WeWork again needed a lot of money, so this time it decided to file for an IPO. What is an IPO? An IPO (initial public offering) happens when the company finally decided to list itself on the stock market. This allows the company to raise a ton of money from people like you and me instead of venture capitalists. But the IPO never took place? Why? Because there were concerns about WeWork's path to profitability and its leader, CEO and co-founder Adam Neumann. Adam was asked to step down as the CEO because Investors didn’t have confidence in him running the company. The antics that led to Neumann stepping down from his CEO role included reports of him smoking weed on a private jet, serving employees tequila shots after discussing layoffs, and trademarking the term "We" and then forcing WeWork to buy it for $5.9 million.
WeWork was close to bankruptcy. It needed a lot of money quickly and IPO was not an option. SoftBank could not allow WeWork to go bust and file for bankruptcy because then It would loose all its initially invested money. So, to save the initially $10 Billion dollars, SoftBank has decided to put another $9.5 billion dollars into the company and has taken full control of it. Adam was asked to step down but in return, he was a golden parachute of nearly $1.7 billion dollars. His successors, Artie Minson and Sebastian Gunningham, have stepped into the role of co-CEOs of WeWork as it attempts to navigate its future and come out at least breaking it even for the investors.
Long story short, SoftBank controls nearly 80% stake at WeWork and is taking all efforts to justify this to its investors. For Softbank to break even on its investment, WeWork would need to command a $24 billion valuation, and it is nowhere even close. The funny thing is, despite owning around 80% of the shares, SoftBank still doesn’t own WeWork, thanks to some very neat accounting tricks. But why would anyone do that in spite of putting so much money into that company? If soft banks own WeWork, then It’ll have to show the WeWork’s losses as its own in its balance sheets. SoftBank obviously doesn’t want to do that so they are letting it be.
WeWork somehow manages to get a lifeline. What it does now is something that a lot of people have their eyes on. So, irrespective of where it succeeds to fly or just goes bust, it sure would be an interesting story to follow.
Nikhil Mudholkar
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