This could be the best situation for Softbank. WeWork is obviously in desparate need of cash, no one is going to touch it with a ten foot pole. Softbank is too invested for it to fail. They can buy up 50% of the equity remaining for any sort of investment since they will have a gun to their head the company will have to accept or go bankrupt. Adam Neumann's shares will become worthless in the process and new shares will be issued for the new co-CEOs.
So with $11B in capital committed to WeWork at the end of the whole mess Softbank can end up with 90% ownership. Get the company on track financially and see if they can bring it to an IPO in the next 2-3 years when they have solved their financial issues. And hopefully realize some sort of return, or at the very least not leave a $9B hole in their vision fund.
Those stock sales weren't squeaky clean and there are numerous reports. Some have it as loans that are backed by stock, which means no stock was actually sold. Other accounts have it that he used some of the proceeds of the $700MM to actually buy even more WeWork shares which makes absolutely no sense as any financial advisor would tell you to diversify your holdings, not use borrowed money to leverage up on an investment that is 99.9999% of your net worth.
He's also bought personal and business properties and there are reports that he will have to sell some assets to close some financial holes that he is encountering.
I mean with the way WeWork was run, it's not surprising the his own personal finances are mimicing that of WeWork - a house of cards that needed to keep the merry go round working in order not to fall apart. He was definitely banking on a successful IPO, but looks like there maybe personal fallout from all of this for him as well.
Not to mention that now that they have new co-CEOs in there they will be looking through the books so if there are any financial irregularities, such as has been reported of potentially costs being booked as revenue (wtf?) - then there maybe further legal action against him.
I think this story will continue to unfold for some time.
You better hope he did that in a squeaky clean way - if there‘s just the slightest hint of embezzlement, you can be sure there‘s going to be an army of SoftBank lawyers trying to make a case.
That number is so misleading. I wish the media/prof Galloway would stop referencing it.
The $700M number is a mix of a $300M secondary sale to SoftBank and a $400M loan to purchase stock options.
We don't know enough to say how far ahead (or behind) he is. He likely exercised his stock options at a highly inflated value, which means his AMT bill must be huge. Not only that, he is sitting on stock that is rapidly diminishing in value, and there's a non-zero chance it could be worth 0.
So he has maybe $150M cash after the $300M sale + ??? value of stock from exercising $400M in options.
And his liability is his capital gains bill from the $300M sale + the $400M loan to pay back + AMT bill from the exercise of stock options.
I think this assumes there’s some inner core of WeWork that is worth saving. I mean, maybe Softbank will fall for a sunk cost fallacy and pursue it irrationally, but I don’t see why that would be useful instead of just founding a different company to do that small kernel of an idea at much lower scale.
It’s actually a big if to me whether there even is a kernel of a business idea. Even if there is, can it (assuming massive rehabilitation) generate profits of a sufficient level for Softbank to care?
There is a real business there if they can control the costs and get the revenue right and make sure there was no financial fraud.
Also, they can't shelve it easily because it's one of their largest investments so it would really destroy any chance of raising a second fund if they can't get this large investment to work.
From a customer perspective, while a lot of people on Hackernews do rag on WeWork as a product, personally I think what they have done is tremendous, because we used coworking early on and if you ever stepped foot into a Regus you would immediately understand the difference.
Now what they really need to do is clean the business up and see what's left, but there is a solid product there, and they should be able to make the revenue and cost side work.
There is a business. Long-term real estate leases that then sublease the space short term is an established business model. It just doesn't trade at the same multiples.
But does that make any sense if the attraction was that, run by Neumann, it was going to take over the world? Just because people lost faith in him doesn't mean there is a replacement for him that would justify putting more investment in. If it's just a real estate company, maybe it's not even worth close to $11B.
I don’t understand how this company employed 1500+ programmers, PMs and data science people. What did they do? I guess not much, as 500 of them got laid off recently.
My guess would be 'very little', though I have no facts to back that up. It's just a staggering number given what the company does.
I've worked at a place like this. The job was as easy as it was cushy. Two week sprint plans could be completed in literally 3-4 days... but they just kept on hiring. I often heard the word "growth", but I have no idea as to why their interpretation of the word was desirable.
In contrast, I have also worked at two sucessful biotech companies. At the first we developed automated microscopy systems used by pathologists, as well as image viewing/analysis applications and your typical data management type interfaces. I worked on the scanner/image processing team. We were a team of six, three of which were software devs. The other software team (the data management / viewing stuff) had about eleven people. We were the most successful company in our domain, and our competition was the likes of Zeiss and Hamamatsu (one of which later purchased us.)
At my next company we successfully released a prognostic test for late stage colon cancer using CTC's found in the blood stream. In the course of doing so we had to write all sorts of integrations on top of an image viewing application, reporting systems, and the core bits (scanning + image analysis + local data management + R&D tooling.) We had a team of ~4 devs over a three year period.
When I read about stuff like this I'm just mystified.
> My guess would be 'very little', though I have no facts to back that up
Almost exactly 2 years back, when interviewing around for a position, I talked with WeWork (along with several other firms). I attempted to ask their recruiters on the phone about how they use computers. I didn't walk away with a very strong understanding of how they used computers, but what I did manage to take away was that they wanted to be a software provider for firms that used their office space.
With broad ambitions like that, I am not confident that they had enough focus to deliver meaningful software products without them being a massive drain on their resources. I will also note that this was months before they bought Teem in 2018.
Hey, I work on automated microscopy systems too! I'm the only dev though, rest of the team is optics/biologists. It's surprising how few solutions there are for incubated microscopes.
Analytics, logging, "Artificial Intelligence", the latest Fad in devops/application development, System administration duties, help desk duties, hiring/interviewing duties (you don't get to 1500+ without A LOT of this!), the refactoring after the clusterf* of using the latest Fad in devops/application development.
"BIG" data pipelines, managing an Elasticsearch cluster, PM for the design of app 1, PM for the design of App 2, (for probably dozens of apps), QA teams, Design teams, Localization teams, Accessibility teams, SEO and marketing automation teams, teams to build out their CRM, and the all important management layer to interface all these teams together!
This, this ladies and gentlemen, is how Silicon Valley changes the world.
A small team could have written all the software for WeWork to do what it actually does. Each location could run it on an Intel NUC or similar. Central cloud could be moderately sized, maybe a dozen instances.
That would be efficient, but ironically it would not have attracted so much investment because fewer buzzwords. It would have been a better way to run a business that sells office space but a less effective way to run a business that sells its stock.
In a top heavy severely demand constrained economy it is far more profitable to sell stock than goods or services.
The comical thing is how often their systems are down. When I was in a WeWork we used to get free coffee all the time because they couldn't accept payments at the moment.
When I was at a WeWork last year, kombucha and cold brew on tap was out of service at least 50% of the time. I took this as mismanagement then, now I wonder if it was simply cost-cutting.
What's more amazing is that as far as I could observe, the software that they had was terrible. As one example, in order to use a printer, you had to install this enormous, incredibly slow and invasive java program on your computer, which was very difficult to use.
They could have put a couple of developers on something that allowed you to upload a PDF to their website and have it be printed, and it would have improved the experience of their core product significantly.
It's been like 3 years since I worked in a WeWork location but it seemed like they were doing a lot of wheel reinventing, they had their own social network site, their own room reservation system (actually something that makes sense, but it sucked), probably their own printer manager, chat app, mobile app, billing system and who knows what else. I could believe they employed a hundred programmers to just clone popular apps, and thinking they were "providing value" but the actual software was classic shovelware.
I am even more baffled that 1500 engineers accepted an offer at a company that's clearly a fraud. And it would have taken one Google search about their prospective employer to have seen this.
If you work at or did work at We, what was your reasoning? Did you have any?
I don’t think it was as obvious as it is now. Plus a lot of engineers work at companies which are blatant VC plays with little chance of viability, outside of acquisition. Those companies just don’t burn as hot or as fast as WeWork.
I'm sure they worked for a paycheck, providing the critical infrastructure needed to property manage that many office spaces and customers.
WeWork has tens of thousands of customers who for the most part are able to seamlessly come and go, check out conference rooms, pay for various one-offs, and their membership fees.
Did they need 1500 engineers to build all of that, no. But when you take venture capital in the expectation of growth, you have to grow.
Interesting that Goldman Sachs pumped up their valuation to $60-90 billion at one point, but now won’t give them a lifeline:
“ Goldman Sachs, one of WeWork’s investors, advisers and customers, had been among a consortium of banks willing to lend $6bn had the IPO succeeded but has so far sat out the new financing discussions out of concern about the level of uncertainty surrounding the company, one person said.”
Matt Levine at Bloomberg had an excellent explanation of the dynamics at play in his newsletter recently [1]. The bankers are incentivized to inflate the valuation in order to win the IPO mandate and all the fees that come with it. They then run into the awkward step of walking back that number to something that the market might accept.
My first thought was related to this: hhow is it possible that one moment the company is ready for an IPO, with all the due diligence that comes with it and backing of financial giants, and then next month be desperate for cash? Isn’t there some sort of fraud going on in this situation?
The company believed it was ready for an IPO, but all the potential IPO investors disagreed after reading the S-1 and doing some diligence. In a sense the system worked well in that regard.
The big issue was with the private investors letting the CEO do whatever he wanted and pushing the valuation up very high.
It's clear that investment banks are incentivized to maximally value a company. Valuing a company is pretty simple, in that you can tweak certain values in, say cash flow analyses and depreciation projections to literally make billions of dollars appear on paper. They have complete deniability in that, at whatever moment, their proprietary analyses and due diligence appears in a prospectus that public markets are supposed to just trust in good faith.
That way, when the banks capture the spread on an IPO (difference in price guaranteed to a firm vs IPO price), the banks can offload shares en masse to investors and gain the spread, only paying capital gains taxes. It's pretty much theft, unless you are a very very early investor, to sell stock in something like WeWork as an investment bank. Financial giants aren't like other companies. If they don't make deals every single day, they will die. They have no product, nothing to offer that improves and compounds upon previous products (save, perhaps, for algorithmic trading software). Are we really surprised that this bloated corpse of an industry known for churn, extreme burnout, and grift would overvalue an IPO when it serves them?
Perhaps someone in the property business can illuminate something for me.
I read somewhere that WeWork runs each site as a separate business. Can this really be true? It would seem to allow them to let each entity go bankrupt, which doesn't seem to be a sensible thing for the landlord to want to expose himself to. Sure he gets the building back, but you'd think there's then no advantage to renting it out to WeWork, since despite being a large entity they can just default on you anyway?
I did some consulting once for a company that managed rooftop space for building operators to lease to telcos and what not and it was totally normal one company to "own" multiple buildings but for each building to be its own LLC.
This seems to be a common practice. My parents live in a highrise that has construction defects and it took years to extract money to repair the building because the LLC that sold the building to the condo association had no cash or assets anymore.
Don't know for sure but they might run each one as a separate business but have the parent company guarantee the rent. I don't think many landlords would sign long expensive leases otherwise.
[Edit] Actually looks like the parent company only guarantees a small percentage of leases:
It’s pretty standard to stand up a shell corp for each piece of real estate you own/manage to take advantage of tax laws and protect yourself from property liability.
It's been fantastic for our fast-growing SaaS startup. We've been able to spin up offices in 4 international cities in the last 18 months with very few issues, and our teams are productive and happy with the spaces.
I manage one of the new offices and have LOVED the responsiveness of the local WeWork team, the facilities, the infrastructure, and it's lightyears better than the previous office we were occupying. I don't have to worry about office-related issues any longer.
That is, if WeWork stays solvent and doesn't go bankrupt.
It's really too bad because their core business (renting office space) is done really well. Maybe a bankruptcy and restructuring would be good for their business, or maybe it will cause them to explode.
It seems like the value that they are offering is just outsourced-office-management then. Am I wrong in thinking that? It's hard for me to parse what WeWork was "trying" to become. A real estate company that manages offices? An office management company that also does real estate?
Typing this from my desk in a WW. The location is great, building is good, the facilities are good, there's quite a nice dynamic about the place. No complaints, it's very smooth and well-organized. Lots of staff to run the place too.
I just visited my boss in a WeWork space in San Jose, and it is the closest thing I've found so far to my idea of hell. The offices there have a unique combination of feeling exposed (from all the glass everywhere) and claustrophobic (from the tiny offices everywhere).
Turns out most of us enjoy any exchange in which we receive goods whose value far exceeds what we pay for them.
Same reason I love cheap ride share trips[1] and NYC ferry rides[2]. I'd probably really enjoy winning the mega millions jackpot with a $5 ticket too (though perhaps not? [3]).
Side note, I miss the East River ferry. It made my commute 100x more enjoyable than the subway (except when the ferries would leave my dock early and then yell at me for it).
Fancy space, lots of perks, terrible place to get stuff done. Glass walls mean everywhere is loud, you can hear everyone's phone calls on the entire floor. Desks were wobbly, offices cramped.
Once they hired a steel band to play in the reception area for most of Summer (as part of a branded event(?) called 'The Endless Summer of We'...). Bonkers.
I have used WeWorks on occasion when traveling and was always happy with the offering. Currently I use the major local coworking space when I need one or a coffee shop. If there were a WeWork in my city, I would consider it again.
There aren't tons of them, but I really prefer the Galvanize coworking spaces [1] -- the crowd is a more diverse mix of people, and they feel more laid back to me.
I just started working out of a space in Boston last month and it's been sublime. There's always a WeWork in whatever city I'm traveling to and at 25$ per day (beyond my usual credits), it's really affordable to have an office while traveling to both work and host clients.
Before we sold, we had WeWork offices in Denver and NY and used a similar competitor in Austin. They worked great and we were happy with them. But they were also a commodity and we chose based on price and lack of lock-in.
I'm currently typing this message from a WeWork. I've been at 3 different locations so far and this one is the nicest, overlooking Tower Bridge and Tower Hill in London. Absolutely stunning office, not as dull and dark as the other WeWorks I was before and nice community here and as always great free coffee, but apart from that, there's nothing unique about WeWork. It's just a nice office, and unless the space is in a stunning location like the one at Tower Hill in London, it's actually wearing off very very quickly.
Quite love the space but it suffers from the too-little-too-much paradox. It costs too much for casual use (compared to like a starbucks) but costs reasonable amounts for hardcore use (compared to say, getting a larger apartment) and the gains in QOL are massive over working from home. It's a pretty great place to work..that likely costs more to run than they charge.
Our company has a 9 and 6 person office in NYC. The space is clean, there are conference rooms available when we need them, and mostly everything works well enough. We mostly don't care about any of the community stuff, just that it is an effective way to get space without a long term lease or the need to worry about an office build out.
I used to work for a company that rented a WeWork space to meet with clients in NYC. I only opted to work out of it once or twice, for a change of scenery from my typical office. I think the location was the main perk, since I then got to spend a day in NYC.
Working fully remote now and I enjoy that much more than being in any office setting.
I don’t work in one but have visited three of them here in Berlin quite recently for meetings. The one in Friedrichshafen on the Spree is pretty nice. Great view.
The other ones more in Mitte had way too much of a semi hipster hotel lobby feel. Everyone was just too fashionable and cool for my taste.
We have a small office for up to 12 people in Atlanta and it's great. Super easy to work with, spaces are top notch, you get larger office amenities without a large office. I can easily see this growing massively in future for distributed teams.
Unlike other Asian markets such as China and Japan, We Co. operates on a revenue and profit-sharing model with its Indian partner...3 years ago it entered the country through a brand franchise agreement.
Readit News
So with $11B in capital committed to WeWork at the end of the whole mess Softbank can end up with 90% ownership. Get the company on track financially and see if they can bring it to an IPO in the next 2-3 years when they have solved their financial issues. And hopefully realize some sort of return, or at the very least not leave a $9B hole in their vision fund.
He's also bought personal and business properties and there are reports that he will have to sell some assets to close some financial holes that he is encountering.
I mean with the way WeWork was run, it's not surprising the his own personal finances are mimicing that of WeWork - a house of cards that needed to keep the merry go round working in order not to fall apart. He was definitely banking on a successful IPO, but looks like there maybe personal fallout from all of this for him as well.
Not to mention that now that they have new co-CEOs in there they will be looking through the books so if there are any financial irregularities, such as has been reported of potentially costs being booked as revenue (wtf?) - then there maybe further legal action against him.
I think this story will continue to unfold for some time.
The $700M number is a mix of a $300M secondary sale to SoftBank and a $400M loan to purchase stock options.
We don't know enough to say how far ahead (or behind) he is. He likely exercised his stock options at a highly inflated value, which means his AMT bill must be huge. Not only that, he is sitting on stock that is rapidly diminishing in value, and there's a non-zero chance it could be worth 0.
So he has maybe $150M cash after the $300M sale + ??? value of stock from exercising $400M in options.
And his liability is his capital gains bill from the $300M sale + the $400M loan to pay back + AMT bill from the exercise of stock options.
It’s actually a big if to me whether there even is a kernel of a business idea. Even if there is, can it (assuming massive rehabilitation) generate profits of a sufficient level for Softbank to care?
Also, they can't shelve it easily because it's one of their largest investments so it would really destroy any chance of raising a second fund if they can't get this large investment to work.
From a customer perspective, while a lot of people on Hackernews do rag on WeWork as a product, personally I think what they have done is tremendous, because we used coworking early on and if you ever stepped foot into a Regus you would immediately understand the difference.
Now what they really need to do is clean the business up and see what's left, but there is a solid product there, and they should be able to make the revenue and cost side work.
Deleted Comment
My guess would be 'very little', though I have no facts to back that up. It's just a staggering number given what the company does.
I've worked at a place like this. The job was as easy as it was cushy. Two week sprint plans could be completed in literally 3-4 days... but they just kept on hiring. I often heard the word "growth", but I have no idea as to why their interpretation of the word was desirable.
In contrast, I have also worked at two sucessful biotech companies. At the first we developed automated microscopy systems used by pathologists, as well as image viewing/analysis applications and your typical data management type interfaces. I worked on the scanner/image processing team. We were a team of six, three of which were software devs. The other software team (the data management / viewing stuff) had about eleven people. We were the most successful company in our domain, and our competition was the likes of Zeiss and Hamamatsu (one of which later purchased us.)
At my next company we successfully released a prognostic test for late stage colon cancer using CTC's found in the blood stream. In the course of doing so we had to write all sorts of integrations on top of an image viewing application, reporting systems, and the core bits (scanning + image analysis + local data management + R&D tooling.) We had a team of ~4 devs over a three year period.
When I read about stuff like this I'm just mystified.
Almost exactly 2 years back, when interviewing around for a position, I talked with WeWork (along with several other firms). I attempted to ask their recruiters on the phone about how they use computers. I didn't walk away with a very strong understanding of how they used computers, but what I did manage to take away was that they wanted to be a software provider for firms that used their office space.
With broad ambitions like that, I am not confident that they had enough focus to deliver meaningful software products without them being a massive drain on their resources. I will also note that this was months before they bought Teem in 2018.
How many of us are currently working at """tech""" companies right now?
"BIG" data pipelines, managing an Elasticsearch cluster, PM for the design of app 1, PM for the design of App 2, (for probably dozens of apps), QA teams, Design teams, Localization teams, Accessibility teams, SEO and marketing automation teams, teams to build out their CRM, and the all important management layer to interface all these teams together!
This, this ladies and gentlemen, is how Silicon Valley changes the world.
That would be efficient, but ironically it would not have attracted so much investment because fewer buzzwords. It would have been a better way to run a business that sells office space but a less effective way to run a business that sells its stock.
In a top heavy severely demand constrained economy it is far more profitable to sell stock than goods or services.
They could have put a couple of developers on something that allowed you to upload a PDF to their website and have it be printed, and it would have improved the experience of their core product significantly.
If you work at or did work at We, what was your reasoning? Did you have any?
WeWork has tens of thousands of customers who for the most part are able to seamlessly come and go, check out conference rooms, pay for various one-offs, and their membership fees.
Did they need 1500 engineers to build all of that, no. But when you take venture capital in the expectation of growth, you have to grow.
“ Goldman Sachs, one of WeWork’s investors, advisers and customers, had been among a consortium of banks willing to lend $6bn had the IPO succeeded but has so far sat out the new financing discussions out of concern about the level of uncertainty surrounding the company, one person said.”
[1]: https://www.bloomberg.com/opinion/articles/2019-09-09/we-mig...
The big issue was with the private investors letting the CEO do whatever he wanted and pushing the valuation up very high.
An IPO is fundamentally a fundraising event, so it makes some sense.
The harder question would be why is some successful, well-funded company looking do dilute shareholders for even more funding.
I read somewhere that WeWork runs each site as a separate business. Can this really be true? It would seem to allow them to let each entity go bankrupt, which doesn't seem to be a sensible thing for the landlord to want to expose himself to. Sure he gets the building back, but you'd think there's then no advantage to renting it out to WeWork, since despite being a large entity they can just default on you anyway?
[Edit] Actually looks like the parent company only guarantees a small percentage of leases:
https://allwork.space/2019/08/wework-guarantees-a-small-port...
Ignoring the business model, the CEO, the failed IPO, do YOU or do you not enjoy that actual offering of WeWork?
I manage one of the new offices and have LOVED the responsiveness of the local WeWork team, the facilities, the infrastructure, and it's lightyears better than the previous office we were occupying. I don't have to worry about office-related issues any longer.
That is, if WeWork stays solvent and doesn't go bankrupt.
It's really too bad because their core business (renting office space) is done really well. Maybe a bankruptcy and restructuring would be good for their business, or maybe it will cause them to explode.
Same reason I love cheap ride share trips[1] and NYC ferry rides[2]. I'd probably really enjoy winning the mega millions jackpot with a $5 ticket too (though perhaps not? [3]).
[1] https://www.vice.com/en_us/article/zmjew8/were-all-killing-u...
[2] https://ny.curbed.com/2019/3/28/18285731/nyc-ferry-swimming-...
[3] https://time.com/4176128/powerball-jackpot-lottery-winners/
Once they hired a steel band to play in the reception area for most of Summer (as part of a branded event(?) called 'The Endless Summer of We'...). Bonkers.
There aren't tons of them, but I really prefer the Galvanize coworking spaces [1] -- the crowd is a more diverse mix of people, and they feel more laid back to me.
[1]: https://www.galvanize.com/entrepreneur#campuses
Working fully remote now and I enjoy that much more than being in any office setting.
The other ones more in Mitte had way too much of a semi hipster hotel lobby feel. Everyone was just too fashionable and cool for my taste.
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WeWork India looks to raise $200 million
https://www.livemint.com/companies/news/wework-india-to-rais...
Unlike other Asian markets such as China and Japan, We Co. operates on a revenue and profit-sharing model with its Indian partner...3 years ago it entered the country through a brand franchise agreement.