From a $47 billion start-up to bankruptcy: WeWork's dramatic decline explained
The article outlines WeWork's decline from a once highly valued start-up to filing for bankruptcy, emphasizing key factors such as failed IPO, management controversies, and the impact of the pandemic.
WeWork, once a highly valued start-up at $47 billion, has faced a steep decline, now seeking bankruptcy protection in a US court, signaling significant changes for the co-working and shared offices company. This decision is coupled with an aim to trim "non-operational" leases after striking agreements with the majority of its secured noteholders. The bankruptcy filing specifically targets WeWork's US and Canada locations, revealing liabilities ranging between $10 billion to $50 billion, as detailed in the company's court filing.
What went wrong for WeWork?
Initially valued at $47 billion after a 2019 funding round led by Masayoshi Son's SoftBank, the company suffered a colossal corporate downfall, catalyzed by a failed initial public offering (IPO). Documents filed for the IPO in August 2019 exposed the company's unprofitable business model, conflicts of interest, and unconventional management style, a CNBC report highlighted.
CEO Adam Neumann faced accusations of conflicts of interest, like renting company space to his own ventures and selling WeWork stocks at inflated prices to SoftBank, according to Business Insider.
Neumann's reputation for being an eccentric and demanding CEO was further highlighted by his extravagant lifestyle, which included substantial spending on a private jet and yacht.
The revelation of these conflicts and controversies spooked investors, leading to the eventual cancellation of the IPO.
Neumann was ousted as CEO, and the company had to implement substantial cutbacks. However, the damage had been done—WeWork faced a severe cash crunch and insufficient revenue to sustain its operations.
In October 2019, the company had to accept a bailout from SoftBank. Subsequently, the Covid-19 pandemic in the following year exacerbated the situation, with several companies terminating their leases due to the rise of the work-from-home (WFH) trend. The ensuing economic downturn prompted even more clients to close their doors.
While debuting through a special purpose acquisition company in 2021, the company has witnessed a staggering loss of about 98 percent of its value since. In an attempt to retain its New York Stock Exchange listing, WeWork announced a 1-for-40 reverse stock split in mid-August to ensure its shares traded above $1.
The warning signs for WeWork's potential bankruptcy were revealed in an August regulatory filing, underlining the pitfalls of hype and overvaluation for startups. It stands as a cautionary tale, emphasizing the importance of a solid business model and effective management, even for seemingly successful companies.