Drug Smuggling, Tequila Shots and a failed IPO, from $47 billion to near bankrupt in less than six weeks, this is the story of WeWork.

In an age of increased entrepreneurial developments and a conducive environment for startups, there comes many critical needs. One such is office space, this is where WeWork originally came in.

WeWork rents out office spaces to freelancers and small business, eventually gaining clientele from giants of industry such as Microsoft, UBS, IBM and Facebook. Spurred on by the experiences of CEO Adam Neumann in communal living environments in his native Israel, WeWork sought to bring that casual, comforting vibe to working spaces, in the face of an ever growing millennial culture in the tech industry. Between 2014 and 2019, the company spread like wildfire throughout the United States and the World beyond. Their success led them to the inevitability of a planned IPO launch in September 2019 as the company was given a valuation of $47bn in April, making it at the time, the largest venture-driven company in the United States. This is where things begin to unravel for the once “next big thing” of the tech industry. From a failed IPO to a disgraced CEO, let’s take a look at the rise and phenomenal fall of WeWork.

The Rise

Launched in 2010, WeWork sought to be a vanguard of the rising trend of open working spaces, promoting cooperative work and office spaces that didn’t cling to the traditional rigidity of the cubicle mazes of the previous 30 years. They uplifted the idea of community within a working environment, not just embracing the change of focus the tech industry was having towards production but shaping it themselves. WeWork deploys data analytics for the purpose of marketing and constant improvement of the working spaces they rent out, this allowed them to peddle the idea of being a tech company.

As this new culture of work spread, WeWork thrived and secured $15bn in funding between 2014 and 2019 from the likes of Goldman Sachs, Amazon and most notably, Softbank. Masayoshi Son, CEO of SoftBank utilized the company’s $100bn 'Vision Fund' to pump billions into WeWork. More critically, Son himself, a man that once invested $20m into a young startup by Jack Ma known as Alibaba, doubled down by hailing WeWork CEO Adam Neumann as his next big success.

Catapulted by a growing market and generous investments, WeWork grew to have 847 spaces across 123 cities globally, even becoming central London’s biggest office occupier. WeWork was here. WeWork was dominating. However, Adam Neumann was not satisfied, he rebranded to the We Company and created two subsidiaries. WeLive provided furnished apartments and WeGrow served as a “conscientious entrepreneurial school for young children” which was “committed to elevating the collective consciousness of the world”. Basically a STEM Kindergarten that charged upwards of $40,000/year. With the We Company flexing its ideas and spreading its tentacles across the lifestyle industry, they were yet to make a profit.

The Shifting Tides

At the beginning of 2019, the We Company prepared for their IPO in September but many questions began to rise.

Firstly, SoftBank’s initial reported stake for 2019 of $16bn was reduced to just $2bn in January, which was blamed on a decrease in SoftBank stock value. However, many did not buy this rationale leading them to ponder the possibility of SoftBank themselves, the biggest investor to WeWork doubting the ability of the company going into the IPO.

Secondly, when a company begins their filing for Initial Public Offers, they are required to share information of most operations with potential investors, in the name of transparency and protection against fraud. This hot new tech kid on the block was being opened up to the public and what they found was appalling. Their internal financials revealed that the company was losing almost $5,200, per new customer. This subsequently plunged the company’s valuation from $47bn to $5bn by early September 2019.

You see, as much as WeWork sought the recognition of a tech company, they produced no data services for the public, sold no hardware and developed no software. They sold the dream of a tech company to investors when they were very much a real estate firm pandering to the 2010s’ rapidly expanding work culture.

There lies the first key issue, how does a landlord company return the remarkable profit on investments as expected for a tech giant? Their business model is seen as a creator of financial stability risk. They engage in 10–15 years leases with owners of land, they then rent out these spaces. The share volume of leases for their 800+ offices creates an inherent risk as if there is a decrease in property values and/or occupancies, WeWork still has a legal obligation to pay the fixed fees stipulated by the leases, which means they will be hemorrhaging money.

This really opens up a wider argument as to how broken the investment system might be. A company, with billions invested into it, was allowed to parade as a tech company and was hailed as a titan of industry with not a single cent in profit for nine years. WeWork was getting away with highway robbery and this enabled Adam Neumann to get high off his own supply, which played a key role in We Company’s eventual reality today.

The Man himself

We have arrived at the theatrical side of this story. Adam Neumann, the Israeli born founder and now former CEO of the We Company has been branded the new 'most hated man in America’. A confident, flamboyant, enigmatic business man took the world by storm and propelled the vision of WeWork. However, as the IPO drew closer, revelation after revelation came to life about the behaviour of the CEO. Many stories of drug use, alcohol abuse, poor temperament and unusual practices within the workplace became bigger than the company itself.

Neumann trademarked the word “We” and licensed it to WeWork for $5.9m. No, really.

He promoted a culture of drinking in the workplace, instilling a “free beer all-day” rule at WeWork HQ, encouraging heavy drinking at executive retreats and had cases of $110 bottles of tequila readily available at WeWork’s “Galactic Headquarters”.

In 2016, he called a company wide meeting a day after firing 7% of staff. After a short address about the retrenchment, they brought out tequila shots for everyone and a rapper from RUN DMC to perform. No, really.

He used $60m of company funds to purchase a private jet. He flew to his native Israel using said jet, carrying a cereal box with marijuana, a substance that is very much illegal in Israel. When the flight crew discovered the substance, making them accessories in international drug trafficking the pilot and crew immediately left, leaving Neumann stranded.

His office was large with a meditation room and a huge Photoshop portrait of him surfing. No, really.

Former employees testified about his tyrannical ways,

“No one wanted to get in his way; you would either get berated or humiliated or asked to do some impossible task”.

The uniqueness of Neumann’s fall due to his own hubris mixed with WeWork’s risky business model tells the most ridiculous IPO story of 2019.

The Fall

SoftBank has since taken over the We Company with an October 2019 investment of $5bn, ousting Adam Neumann with a ridiculous $1.7bn golden parachute.

The IPO has been out on hold indefinitely. The many thousands that are employed are at risk of being let go. Softbank themselves has lost most of the $15.4bn they have invested since 2013.

This Lehmann Brothersesque collapse means that WeWork is possibly heading to bankruptcy court which spells a disastrous end to an all-time destructive collapse of a company that didn’t even go public in the end.

What now?

With billions lost and the looming doom of bankruptcy, WeWork will serve as a cautionary tale of investing in Cinderella Startups.

Along with the likes of Lyft, Uber and Beyond Meat, tech and pseudo-tech startups are failing in public markets and in private. This will go a long way in how investors will view the hype IPOs in the coming years.