WeWork's dramatic decline: From $47 billion valuation to almost nothing

Not long ago, WeWork was flying high as one of the most valuable startups, valued at $47 billion. But today, it is facing bankruptcy and desperately trying to restructure its massive debts. 

This is an incredible fall from grace for the co-working trailblazer. You might be wondering how exactly WeWork unravel so quickly. There are multiple reasons for the co-working space giant failure. We'll be talking about some of the most important ones in this article. 

WeWork's Global Impact

WeWork, founded in 2010, wasn’t the first company to rent out co-working spaces, but it soon became the dominant one, capitalizing on the changes to work in the years following the Great Recession.

These shared spaces were perfect for booming tech companies and the growing part-time and gig-based economy. WeWork solicited and received huge sums of venture capital that catapulted it to a multibillion-dollar valuation, and soon, it was opening facilities around the world.

In 2019, it was, for a time, the most valuable startup in America and was hiring 100 new employees a week. Then came management issues, followed by the pandemic.

The impact of WeWork's potential bankruptcy is not limited to the United States. WeWork occupies a significant amount of office space in various countries, and its financial troubles could have a ripple effect, affecting landlords and commercial real estate markets across the globe.

The role of Adam Neumann in WeWork's fall

A key factor in WeWork's problems was the oversized role of co-founder Adam Neumann. His uncontrolled power and questionable dealings went unchecked for too long.

Neumann had set up a corporate structure that gave him total control and oversight of decisions. He engaged in self-dealing, like buying properties where he had an interest. This raised alarms but got ignored amidst WeWork's growth spurt.

It was only after WeWork’s failed 2019 IPO that Neumann finally faced pressure from investors to step down as CEO. He exited but walked away with a huge payout, leaving the company to deal with the mess.  

Getting cold feet, investors slashed WeWork's valuation from $47 billion to $10 billion. The IPO was shelved. Facing a cash crunch, WeWork found itself on the brink of bankruptcy. It turned to SoftBank for a bailout to stay afloat.

This meant massive layoffs and selling off assets to cut costs. Neumann was forced out, too, taking a huge payout along with him. From being the poster child of innovation, WeWork had become a symbol of mismanagement.

Executives from SoftBank, the Japanese company responsible for propping up some of the most overhyped start-ups of the past decade and a major investor in WeWork, installed a new CEO in February 2020.

Warning signs were ignored

A big reason WeWork continued skyrocketing was that investors turned a blind eye to warning signs. They were distracted by the hype and growth story.

For example, Neumann had created a risky corporate structure that gave him total control. This let him make questionable decisions without oversight, like buying properties he had a stake in. But nobody seemed to care as long as WeWork kept expanding.

Money flowed in fast from investors like SoftBank, allowing WeWork to burn through cash without making any profit. Losses kept piling up year after year, reaching over $1 billion. But its backers didn't seem worried. The fundamentals of its business model were shaky.

WeWork's financial troubles had been brewing for years before reaching this breaking point. 

The New York-based firm has struggled since its initial attempt to sell shares on the stock market collapsed in 2019 due to concerns about its debts, losses and management. This led investors to slash its valuation from $47 billion to just $10 billion. 

WeWork had expanded too fast without proving it could be profitable. It was signing long-term leases and then offering short-term rentals. However, the core business model was unsteady.

Then the pandemic hit in 2020. With co-working spaces empty, WeWork's main revenue stream dried up. Financial pressure kept building. WeWork was finally listed on the New York Stock Exchange in 2021 with a much lower valuation.

The Japanese conglomerate SoftBank has pumped tens of billions of dollars into WeWork as it continued to lose money.

By mid-2022, WeWork had a massive $13 billion in lease commitments and nearly $3 billion in debt. Servicing this debt load became very burdensome as interest rates rose. WeWork just kept sinking deeper into debt. But WeWork crawled into 2023 so loaded with debt that it couldn't find its footing and declared bankruptcy.

The tipping point 

WeWork eventually became the largest corporate tenant in New York and London, with a staggering 777 locations in 39 countries. However, with the onset of the pandemic, the dynamics of the commercial real estate market shifted dramatically.

Companies reduced their office space requirements as employees embraced remote work, resulting in one of the most significant contractions in the commercial real estate industry in decades.

Speculation of a possible bankruptcy filing intensified in August 2023 when WeWork warned that it might not be in business much longer. WeWork's initial shares were priced at $392 in 2020, but as of today, November 6, 2023, the stock price is trading at $0.84. This represents a significant decline of over 99% in just three years.

Bankruptcy 

Reports emerged that WeWork was urgently looking to finalize a restructuring agreement and could file for bankruptcy as soon as the second week of November 2023. This would involve a complex debt rearrangement to avoid complete collapse. 

Now, investors were forced to confront what they had been ignoring. WeWork wasn't a tech business but a flimsy real estate company losing tons of money. And it had little oversight on how it was being run.  

If you had invested $10,000 in WeWork $WE when the company went public via SPAC, you’d have $23 today. pic.twitter.com/2sO17CO2U8

— carbonfinance (@carbonfinancex) October 31, 2023

Conclusion 

The sudden downfall of WeWork took many by surprise but holds crucial lessons for other startups.

First, build a solid business model, not just hype. WeWork showed that grow-at-all-costs models eventually hit a wall. Operating sustainably matters more than size or speed.

Second, ensure strong corporate governance. WeWork allowed Neumann too much control for too long. Lack of accountability is a recipe for disaster.

Third, remain financially disciplined. Blindly burning investors' cash will catch up to you. Profitability should be a priority, not optional.

The WeWork story is a reminder that high valuations and hypergrowth can mask underlying weaknesses. Without solid foundations, even the hottest startups can come crashing down. WeWork is learning this lesson the hard way.

The story of WeWork is equal parts sensational and cautionary. It reminds us that all the glitz in the world can't mask poor business fundamentals forever. For startups aiming high, it's wise to keep your feet on the ground.