It is one of the most stunning corporate collapses seen in recent history. WeWork, a co-working and lifestyle brand pretending to be a tech company, went from a nearly $50 billion valuation and having the most anticipated IPO of 2019 to needing emergency resuscitation funds just so that severance payments could begin. The company now has a value of $8 billion and that could be further reduced before long.
SoftBank has come in with the funding to prop the company up and minimize damage suffered during the fall, which is still not over. One of the most high-profile changes is that founder Adam Neumann has been forced out and has relinquished control in exchange for a $1.7 billion buyout. Although Newmann’s ouster was an absolute necessity, the amount of his severance has done nothing to boost morale.
We Work had been on the brink of its IPO when a last minute postponement followed investors’ concerns about the business model and the leadership structure. Thereafter the S-1 was withdrawn. Instead of celebrating an IPO, WeWork will now undergo massive layoffs.
After the removal of Newmann, WeWork announced that co-president and CFO Artie Minson and vice chairman Sebastian Gunningham would serve as co-CEOs. Both were initially optimistic about moving toward another date for the ICO.
WeWork experienced a meteoric rise in value that was accompanied by hemorrhaging cash, specious claims about actually being a tech company, and a hard charging, hard partying culture that took its toll on employees. Many stayed just because their stock options were so valuable. Now that value and WeWork’s messiah-like founder are both gone.
The question is no longer whether this will take down WeWork. That seems all but assured. The question is whether this will take down SoftBank, which facilitated much of the overfunding while under Neumann’s spell. SoftBank CEO Masayoshi Son had even said that he wanted the bank to be the majority stakeholder in WeWork and that it would be his next Alibaba (wildly valuable Chinese tech concern). Now Masayoshi has a monstrous mess to clean up.
Will the downfall of WeWork signal a tipping point for excessive capital sunk into unicorn mirages? It seems that the investment community is finally starting to wake up.