Biggest Startup Failure in History
How WeWork lost more than 80% of its value in a few months, making it one of the biggest startup failures in history.
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In 2019, WeWork was considered one of the most valuable startups, with a price tag of $47B. To help you visualize that, it’s more than Airbnb, SpaceX, and Stripe.
If you have ever connected yourself to the internet in 2019, you’ve probably heard of something about or related to WeWork;
Their vision was not to be a commercial office leasing company; but to accelerate a new world where people work to make a life, not just a living.
It’s was all worth the hype because WeWork went from one of the most highly valued startups of history to only 1/4 of its value in a blink of an eye.
The drama didn’t stop there, they took out their CEO, and was desperately seeking a cash rescue.
You might now be wondering, what went wrong?
The short answer is that they got too much money, too fast with no active oversight on how to spend it.
Here is the longer answer
WeWork took off in 2017 when SoftBank invested in them.
That gave them a valuation of $20B, and the hype needed to get noticed by high ranks venture capital investors.
The SoftBank investment granted them the ability to expand throughout the world.
Softbank’s idea is that there’s a lot of money out there uninvested and waiting. Let’s make everything happen much quicker, with more money, and get companies with great ideas to be even more ambitious, bigger, and faster.
Part of the catch came when people started looking at a UK company called IWG (known as Regus) and started wondering why IWG is either higher or very similar in many measurable areas like members, locations, revenue, profit. Except for one thing. Valuation; where WeWork was valued at 130% higher then IWG.
When WeWork received their investments and permission to spend quickly, they began opening more and more buildings around the world.
And they even opened an elementary school in New York, which I am still trying to get my head around why a real estate company that provides shared workspaces would do that.
It’s no wonder that history will remember how recklessly WeWork spent its money.
An example of things they investing in; is a company that makes wave pools and another that makes superfoods? You might be thinking; how remarkably good these companies have to be to get noticed and invested in by WeWork.
But no, they were probably not; Adam Neumann, the CEO, and co-founder of WeWork met the guy that led these companies while he was busy on a surfing trip.
When you see a startup in the commercial real estate sector investing in a wave pool company and children schools, you know something has gone wrong.
But nobody noticed the real catch and how seriously wrong it was; until WeWork announced in August of 2019 that it would file for an Initial Public Offering.
That’s when investors were able to look into the company metrics, financial performance, and rate its growth.
Weird things appeared like the company founder and CEO Adam Neumann, have personally purchased the trademarks of the word, “We”, and sold it back to his own company for $5.9 million.
It turns out the company’s corporate leaders, including Adam Neumann, were looking for opportunities to enrich themselves, at the expense of the company.
And after seeing the $3B losses WeWork did in the past three years. Things started changing quickly.
Investors raised many red flags, and they started pulling back from investing in the company.
Which led to WeWork pulling back on its IPO at the beginning of September 2019.
And on September 24th, Adam Neumann resigned; when he realized that he was a distraction for the company and more of a heavy load than an asset.
After that, two co-CEOs came to replace Adam Neumann; formally two previous high executives at WeWork.
After getting new leadership into the company, many projects closed down and they went to layoff thousands of employees.
The problem with the new co-CEOs is that while laying off thousands of employees, they were securing themselves up with multimillion-dollar severance packages. At that time when the company didn’t even have enough cash to pay severance to its thousands of employees that it plans to lay off.
So technically, WeWork wasn’t able to afford to layoff their employees.
SoftBank went in and gave WeWork an emergency parachute by injecting the desperately needed $9.5B.
At that time, WeWork got valued at less than $8B.
Although WeWork is still fully operational, the leadership behavior and amount of money lost; is reasonable enough to consider it one of the most failed startups of 2019.
Conclusion
It’s entirely understandable for a startup to run in an unprofitable manner, for some time. But the lack of board oversight and no adults in the fancy corporate room saying hold on is risky business.
WeWork is the perfect example of the startup era we live in, easy money, no rules, make the CEO rich.
