It does not seem to be a viable business so this makes sense.
I think that there was some type of hope that access to IPO funding will allow it to continue to search for a viable business model. This path to possible success seems to be dwindling.
If WeWork needs to have a self-sustaining business model in the near term, it could quickly collapse.
I am not sure but will SoftBank and other wealthy investors continue to fund it in its current state?
How much money does WeWork have in the bank? What is its burn rate? Could its loans get called?
Could WeWork have just months or even weeks to live? Will this failure cause investors to get spooked? They already are somewhat spooked because of Uber and Lyft post IPO performance. Thus we may be on the verge of a shift here.
I wonder what they sold their initial investors on?
I've heard a lot of theories (cornering the market, the future of remote work) but I don't quite get what WeWork was selling folks on when it came to investing and evaluations that were so high in the first place.
My guess is that initially they focused on a market that was underserved by tech (short-term real estate). That by itself is probably enough to get some initial funding.
Then you show that you're actually executing, at least as far as being able to grow and manage a real business with real revenues, which can easily get you another round.
From there they did two things. The first was to start to securitize the business. You can see this with things like their ARK spinoff, which allowed them to start raising money from real estate investors. Sure, real estate is a slow growth business, but it's backed by real assets, and it allowed them to start pitching to a new kind of investor while they left the equity investors in the original WeWork.
The second thing was what you mentioned, their pivot to "cornering the market". If you view VC investing, and especially SoftBank, as an attempt to find businesses that are going to eat the world with software, then you can see where WeWork's seemingly random pivot to "We" came from. You pitch the business is a fully vertically-integrated lifestyle where people live, work and send their kids to school. The potential returns on something like that would be insane, so if you can sell even a 1% chance of success you can see how it would be alluring.
It's also possible that "eat the world" was the pitch all along. I could see a world where Adam Neumann was smart enough to see the wholly integrated We as the end game from the beginning and pitch the real estate stuff as a path to getting there. The revenue and growth would be more predictable than something like a software product. The losses would obviously be more predictable too but predictable losses with a clear path to growth might not be such a bad thing if your end goal has a necessary condition of "be as big as possible".
You pitch the business is a fully vertically-integrated lifestyle where people live, work and send their kids to school
I can see how this would seem compelling to a 22-year-old Google employee of the sort that gave us Google Glass and Google Plus, but was there any research done that this was a thing that normal people would want?
It kind of describes the Google extended-university-experience thing though. Google employees live in a social ecosystem; you don’t just do Yoga, you do Google Yoga. And so on.
Some subset of people find this gross and creepy but it’s something a lot of young people demonstrably go for.
If you make it attractive enough I can see people doing it. Use synergy/vertical integration/economies of scale to give people discounts and make their lives more convenient and they'll be willing to give up a lot in terms of things like privacy.
In my opinion the real risk would be the antitrust regulators.
The key here is that it success doesn't even have to be likely for VCs to jump in on something that everyone/everyone from a very large category (workers) might end up using e.g. Uber, WeWork, electric scooter sharing. That is, the demand is clearly already there. Rather than working from profit and trying to scale demand they are working on profitability of a huge market as the technical problem.
They have more money than investment targets, so they basically fund a few moonshot projects that look like they have a 1%+ chance rather than a 0% chance.
I suppose the thesis is that once one of these eventually wins, the losses on the rest will be more than recovered. You just have to do enough 1 out of 100 projects.
>It is rare for Son, who casts a wide net with his startup investments, to commit so much resources to a single company. But he said WeWork is more than just a renter of office space: it is "something completely new that uses technology to build and network communities."
>"WeWork is the next Alibaba," Son said, referring to SoftBank's early investment in the e-commerce company, which enjoyed meteoric growth as the internet took off in China.
There's not as much efficiency as with a cloud provider or something. But there's a level of scale where people switch from thinking "I could use a bit of temporary office space, I wonder where I can get it" to "where's the closest WeWork". I buy that there's some value there.
> It does not seem to be a viable business so this makes sense.
Many businesses that IPO aren't viable, the problem is when the general public figures that out. For instance, snap chat. In no way a viable business, but has plenty of investors thanks to the wall street scam of institutional investors (401ks, etc) buying entire sectors of an exchange. It's a nice scheme to ensure you bail out your 'venture capitalist' friends.
Those Vanguard holdings were purchased in the secondary market after SNAP market cap reached certain thresholds. Vanguard bought little or nothing in the IPO.
It doesn't matter if they buy during or shortly after an IPO, the fact of the matter is that there's some value there just by virtue of being listed because you will most definitely get institutional investors based on that fact alone. Institutional investors set the market, everyone else is playing the spread.
Can you give me an example of a company that IPO'd profitless and the largest shareholders aren't institutional investors that do broad-index-based purchases?
I think that there was some type of hope that access to IPO funding will allow it to continue to search for a viable business model. This path to possible success seems to be dwindling.
If WeWork needs to have a self-sustaining business model in the near term, it could quickly collapse.
I am not sure but will SoftBank and other wealthy investors continue to fund it in its current state?
How much money does WeWork have in the bank? What is its burn rate? Could its loans get called?
Could WeWork have just months or even weeks to live? Will this failure cause investors to get spooked? They already are somewhat spooked because of Uber and Lyft post IPO performance. Thus we may be on the verge of a shift here.
I think WeWork could be the Lehman Brothers of profitless, over-funded unicorns (see: https://en.wikipedia.org/wiki/Lehman_Brothers )