WeWork’s once robust cash reserves have dwindled, raising chances of default
wsj.com
wsj.com
WeWork has burned through nearly all of it. The company has $500 million in undrawn debt commitments from SoftBank and has said it expects to end 2022 with $300 million in cash, less than one-third of what it had at the end of 2021. Its debt contracts allow it to borrow another $500 million'.
Wikipedia: https://en.wikipedia.org/wiki/Adam_Neumann
As WeWork CEO, Neumann on multiple occasions purchased buildings and then leased the space back to WeWork.[56] Observers noted this as a potential conflict of interest and one that would not be allowed if WeWork were a public company.[57] During his tenure as CEO of WeWork, Neumann also purchased US$90 million worth of residences, including a 60-acre (24 ha) estate in Westchester County, New York, a 6,000-square-foot (560 m2) condominium near Gramercy Park, two homes in The Hamptons, and a US$21 million mansion in Corte Madera, California.[19]
Neumann has begun purchasing apartment buildings and, as of early 2022, owned some 4,000 apartments worth about US$1 billion, primarily located in the American South.[58]'
In 'Generation Hustle' someone is left holding the bag...
Overall though his contribution to massive capital mis-allocation is a huge net negative for my opinion of him.
Now I know that not everyone could be as convincing of a liar as Neumann, but most of us have the ethical boundaries to not really try. So all you can really say is that of the people who are morally bankrupt enough to try to steal as much money as possible, he seems better at it than average.
The bellyflop is probably the one that will be remembered the longest though.
But... as far as I'm aware he didn't hide any of this from his investors. They just handed over the cash no questions asked until the grift got too blatant (I think it was the trademark ownership/name change that was the straw that broke the camel's back.)
I find it interesting to try to derive rational explanations from seemingly irrational actions. If Softbank really are supposed to be some of the most sophisticated investors, did they get hoodwinked by an even more sophisticated conman or are they just colossally more stupid and failed to do basic due dilligence?
Though wildly speculative on my part, I can see a more cynical reason that would explain these seemingly incomprehensible actions. That is that Softbank knew Neumann was a conman from the start and they invested in him because he was conman. Why would they do that? Because the VC game has changed a lot in the 20 years since the first dotcom wave. Early stage VC firms no longer bet on making money from the long term health of the company. They can get their returns by selling to later stage VC firms. So it doesn't matter to them if the company's business model is bogus. They only need the company to generate enough activity and growth metrics to inflate the valuation into the stratospheric level and then dump it on late stage VC investors and then the public as the company makes its IPO. In this way it's not much different than a classic ponzi scheme. And in that case it's in Softbank's interest to find a conman who can pull off the charade long enough and well enough for them to make their exit.
The counter argument to that is Softbank didn't sell off a meaningful part of its position before WeWork filed its S-1. That's when everything really fell apart -- when the internal financials of the company were exposed and everyone could see what a house of cards the company was.
In that case maybe Softbank did get taken in just as everyone else did. Or maybe they just didn't expect Neumann to fumble the exit as badly as he did.
That's exactly the thing. He didn't ignore the rules. It's expected that founders lie, and the super-rich in charge of these giant investment funds are supposed to be the smartest people in the world, that's what entitles them to command the huge resources they do.
The game we agreed to was that these fund managers were supposed to efficiently allocate capital to worthy causes. Neumann made it extremely apparent that there's no guarantee that some rich banker will allocate anything efficiently at all. The bankers already skewed the system, Neumann beat them at their own game.
That doesn't make him a saint, it doesn't even may him "good", but I still think it's nice that SoftBank got fucked.
..Which makes me wonder if the 'super rich' were on some big money losing scheme that somehow made them money elsewhere, against taxes or similar?
The Producers (1967) Official Trailer
[1] Which are a real thing! Caused by a fungus: https://www.cell.com/current-biology/pdf/S0960-9822(18)31602...
You never expect a CEO to personally buy PPE (Plant, Production Equipment) and lease it back to his employer. But hey, if it's not against the rules, and the board is stacked in your favour, why not?
- The founders made money
- The employees made money
- The customers made money in the form of steeply discounted products and services
So really, the only people to lose out were VCs, especially since a lot of these startups haven't really had a chance to IPO and grift out the little guy (at least in my market).
and the teachers' pensions that went into funding those VCs
At this point I don't know what goes through the VCs heads. Are they just in denial about the previous failure, and they are doubling down like a degenerate gambler at the casino? Are they confident that if they get on early, they will be able to pass the bag to someone else, so they don't give a flying fuck? Or is Neumann able to create alternate reality force fields around him, like Steve Jobs? (Unlike Jobs, it seems Neumann doesn't transform anything but the numbers of zeros on his bank account, though)
I literally don't have the faintest idea of how these people think.
[1] https://www.forbes.com/sites/iainmartin/2022/08/23/adam-neum...
This is... not saying much.
The FTX collapse has been eye-opening on this front. FTX was a less serious business than the coffee shop your neighbor opened in 2018, in terms of the books it was keeping. The IRS will be up that coffee shop's ass at the drop of a hat if they claim a bedroom at home as an office, and your neighbor's coffee shop will have a thick packet of receipts and books accounting for every penny spent, at least after they learn their lesson after the first year. FTX could literally not answer the most basic of business questions with any specificity. I'm not talking projections, I'm talking past history. FTX's books were basically a one page napkin scrawl in Excel.
And the list of venture capital was not just long, but prestigious.
Jeepers, Sequoia, give me a billion dollars as an "investment" and I'll personally guarantee you that you'll lose no more than half of it. I've got a napkin right here that says "cryptocurrency" on it. Apparently that's enough for you; where lambo?
When the rumors first broke out that 3AC was toast, no one believed it. Zhu Su was perceived as the smart, wise man of crypto. No way HE would be so reckless.
Then when FTX rumors broke out, no one believed it, again. He was on the cover of magazines, hanging out with Tom Brady, writing these thoughtful pieces about crypto, and was our torchbearer in Washington...
Ironically, the folks with the scammiest public reputation (Justin Sun, Tether folks, even CZ/Binance) are still standing.
VCs are notorious for being herd animals. We've been in (and are hopefully leaving) an era of easy money. I think people don't generally question what they're doing as long as it's working, and easy money plus a bubbly tech sector means that investing hasn't been particularly challenging.
So I suspect a lot of them have just been uncritically doing what worked for them in the past. And "worked" here isn't defined by building successful businesses, because that's a very long feedback loop, but by more immediate proxies like praise from bosses/colleagues, chasing clout in the industry, getting more money from LPs, getting paid themselves, and feeling smart when people listen carefully to what they think is wisdom.
All that is hopefully about to change. As Buffett says, "Only when the tide goes out do you see who has been swimming naked."
s/VCs/humans/
Social proof is a thing wherever you go, whatever you do?
So to answer your question, I think this is way they think: "If this goes wrong, I don't have any real personal skin in the game, and there are a bunch of smart people at other firms that are putting their money in. I better be in because if I don't allocate this capital it goes away. And if I miss a big one, that's worse than losing."
Add the complexities of timing. In fact, even if you thought crypto (or various stocks) was bullocks, you could have made a whole lot of money if you got in and out at the right time.
Amazing to see how efficiently some of the biggest grifters exploited this dynamic to funnel money straight from investors and into their own personal net worth, while building businesses that couldn't have possibly been profitable. It didn't matter, though, because they needed the sense of scale and growth to continue grifting investors.
WeWork, Theranos, and FTX are widely known examples. Two of those founders acted criminally and have been arrested. Neumann was shockingly good at perform open-book grifts that benefited himself, but investors looked the other way.
One of my favorite stories from this era is Pipe, a fintech company with a business model that didn't really make sense to anyone familiar with their industry. They raised hundreds of millions at multi-billion dollar valuations, then the entire founding team of 3 people just stepped down: https://techcrunch.com/2022/11/22/pipes-founding-team-steppi...
They're trying to spin it as a narrative about being 0-1 builders, but it's hard to take them seriously when 3 people are stepping down simultaneously right after getting a huge bump to their personal wealth. Raising money was their goal, building a perception of a successful business was only useful as far as it supported transfers from investors to their bank accounts. Would be fun to see how much they sold in secondaries.
I disagree with this characterization of WeWork. Were they extravagantly blowing money on stupid things? Yes. Was the CEO directly enriching himself through his leadership? Yes. However, the business of being a landlord and renting office space is a pedestrian and profitable venture. It’s just not a sexy startup idea worth billions.
The food delivery startups accept payments, take their cut, and pay out to restaurants & drivers. From a purely financial viewpoint they're paying out a lot of money, perfectly normal in VC land. But they are also taking in an absolute mountain of money, and if you squint, can all look quite a bit like top-line revenue. If you then slice open the business operating costs, and look at how much it costs them internally (accounting only for salaries, rents and operating costs) to service a delivery, the per-unit revenue/cost figures are off the charts.
Physical retail intake, and virtual goods unit production costs. What's not to drool over?
It was an interesting point - and being thoroughly cynical, likely based in reality.
In a recession a real commercial landlord has existing tenants on long-term leases, limiting their downside. But WeWork's big selling poing was flexibility, so even if the pandemic hadn't happened I think the next recession would have wrecked them. And that's before we get to how it was basically a giant bet against remote work.
I put that as the CEO self dealing. He purchased buildings and rented them out to WeWork. Had WeWork purchased the buildings themselves, the model would have been on far firmer footing. Again, I agree there was too much glamorous spending and living in the limelight, but landlords can obviously turn a profit if they keep the expenses reasonable.
While they'd avoid having to pay rent in empty units, they'd still not any leases
WeWork was not operated in a way to succeed. I am only taking issue with the notion that the core business model (renting real estate) is flawed. Had there been a willingness for modest, organic expansion and not jet-fueled-VC-hypergrowth, the company could have succeeded.
Right, but that’s what Adam Neumann did for himself, then made WeWork his tenant.
Neumann is collecting the rent. WeWork is paying rent.
He took the profitable part out of the company and gave it to himself (for a subset of properties, at least).
That’s the scandal.
And for the VCs it has often worked out. If you're fast enough to get something IPOed before the bubble pops, who cares if there's a real business model?
Personally, as somebody who thinks actually delivering value is important, I'm delighted that this era of easy money and massive hype might be ending. Hopefully companies soon will have to be able to actually turn a sustained profit before IPO.
And I don't know about you, but I'm immensely enjoying WeWork's fall. It never made any sense, and since the wheels came off before the IPO, it's not retail investors who are taking the loss here.
I agree with everything else, but I'm not a fan of this modern era of schadenfreude that seems to be ever present on tech sites. Theranos and WeWork were certainly fraudulent enough to laugh at, but it's created this effect of fraud-voyeurism that feels more tabloid than news; more celebrity gossip than business news. It also encourages shallow misunderstandings. Real estate can be a profitable business, and certainly many developers turn a profit by reasonably financing and pricing their offerings. But a lot of people are opining about WeWork being unprofitable. Unprofitability is not the same as an exaggerated market cap.
Still, I hope Theranos and WeWork are good, cautionary tales of the downsides of easy money.
I have spent years having to endure the horseshit from places like Theranos, WeWork, and the entire cryptocurrency industry. I knew it was horseshit. The people spouting it could have known it was horseshit if they had bothered, but they did what was in their short-term interests without regard to harm to others.
I am going to enjoy seeing them get whatever paltry and belated comeuppance that karma visits upon them. If they ever suffer as much pain as they've inflicted, I might change my tune, so feel free to come back to me then. But in the meantime, I will enjoy whatever sense of justice served I can extract.
[1] https://knowyourmeme.com/memes/we-should-improve-society-som...
You don't need to read the articles. Your sense of mistreatment seems out of proportion.
WeWork is unprofitable, but mostly because we’ve known for hundreds of years that paying long term liabilities (e.g. leases) with short term funding is a model that quickly goes belly up.
It was fairly obvious the musical chairs had stopped, and yet he managed to sell his standing-only-spot at chair-valuation.
SoftBank should be sued by its investors over that farce.
https://nypost.com/2022/08/15/wework-founder-adam-neumann-sc...
I equally don't like the schadenfreude as you, but I also equally don't like the propping up of ridiculous business models like WeWork and Juiceros of the world that the media does.
Live by the sword, die by the sword.
Publicity giveth, publicity taketh away.
The schadenfreude does not happen in a vaccuum. Silicon Valley is addicted to the Steve Jobs messiah narrative, which is why they constantly deify 'personality' CEOs like Holmes, Neumann, Kalanick, Musk, even out and out frauds like SBF.
You do not see gloating about people getting busted for PPP fraud, because those are anonymous nobodies, that have not had a PR machine behind them pushing Galt-esque tales about their exploits and soapboxing their bizarre ideas about the future of millions, dreamed up from their NYC penthouse bubble.
If you dress someone up as Superman, there will be chuckles when he's found out to be a guy in muscle suit wearing his underwear on the outside.
There's not a lot of clarity about what value they bring to the table (since the companies that pay their salaries are often unprofitable) and it's not always obvious what work they actually do (hence the prevailing meme that no one works at FAANG).
Of course, the reality is that numerically, most tech workers don't work for FAANG or hot startups, but public perceptions are usually colored by the most visible subgroup, which happens to be overpaid startup bros.
forgive the link, i guess the original tiktok was deleted.
The period of exuberance will return wearing different clothes.
It sure does give me a really good and warm fuzzy feeling about the stability of our economy to see VCs repeating the same hyped up exaggerated valuation and bubble that was already done in the 1995-2000 era "dotcom 1.0" boom and bust cycle.
You sound like me in 2001 or shortly thereafter.
Matt Levine had a great theory on this. It basically boiled down to:
"If I wanted to short the VC market how would I do it?"...and basically point to what Adam Neumann did:
I can’t quite say that Neumann improved the allocation of capital, but there are certain parallels. Neumann too … look, here I am speculating, and I don’t mean to speak for Neumann’s subjective experience of his WeWork career, but from the outside, in hindsight, objectively, one could describe it like this: He spotted a bubble in venture-subsidized fast-growing money-losing capital-intensive low-margin tech-adjacent companies, noticed in particular that SoftBank seemed to be on the long side of that bubble, and set himself up to profit on the other side—by raising money for his own ultra-unicorn, by setting up the governance of that unicorn in a maximally self-interested way, and by selling and margining a bunch of his personal shares. 6 When investors like SoftBank were frenziedly buying unicorn stock, he was frenziedly selling it. He set himself up to profit from the collapse of the unicorn bubble, and accelerated that collapse. Lessons were learned, and he taught them. Now he’s rich.
https://www.bloomberg.com/opinion/articles/2019-10-23/how-do...
All of these businesse can easily be profitable. Shared offices have been a thing forever and easily turn handsome profits. As do cab companies, courier companies, restaurants...
What isn't possible is turning in enough profits to justify the mammoth valuations.
Holmes is in jail, SBF probably on his way, but that Adam Neuman, for what it worth, is apparently not accused in any fraud. He's "just" a failed founder that costed his investors $$$, not unlike many, many others.
They'll invest in a series of companies, as those companies are failing, they'll buy them out with one of their successful companies (possibly a later stage investment, cheaper in a less costly market) then the once successful company also can't survive.
On paper, it looks like they have 3-4 successes to balance out their one failure. For their personal portfolio, it's also great too, and helps them raise more money.
If they're really successful, they'll oust the CEO of one of the once successful but in down market companies, really boost their shares; and if lucky that investment will exit.
Isn't it unethical? The VCs in the podcast All In and the firm a16z defended Neumann because he bootstrapped a real-estate sector into a billion-dollar business even before getting huge VC investment. I don't doubt that, but didn't everyone say the most the important thing in a leader is integrity? Yet I hardly see how one can trust Neumann again as he skimmed his own company's money.
VCs defend it because they were riding along w Neumann the whole time, throwing more and more money into the trash fire as the we work valuation rose to insane levels. And of course they were the first to get out with a profitable return before things come crashing down.
We now know that Neumann had access to large personal lines of credit from large banks secured by his we work equity. So these transactions allowed we work to have access to properties without taking on liability for a mortgage but enjoying perhaps a more reasonable landlord that wouldn’t terminate a lease or refuse to renew in order for extract the value of renovation (which is unfortunately really common).
I am not justifying any particular action or transaction, just saying 1. The facts matter in this situation because it could have been totally in the company’s interest 2. We should equivocate we work with others like FTX where the facts appear that they told customers they would safeguard assets as a custodian (which has a very specific legal definition and set of obligations FTX must abide by) but then used the assets for risk taking investments without disclosure or Theranos where they knowingly lied about their technology it’s efficacy and prospects for further advancement. Both of those were fraudulent misrepresentation.
We work was instead a related party transaction that arguably has a win-win for both parties and was signed off by the board after full and complete disclosure.
Do mortgage providers consider it enough to show a signed multi-year tenancy agreement as sufficient collateral to offer a 100% value mortgage, and therefore Neumann didn't need to put in any cash himself?
I'm pretty sure he didn't apply for a traditional mortgage through a traditional lender in the way that we plebians or even publicly traded companies do. He has a long history of using his charisma and star power to get private individuals to make completely idiotic deals that benefit him and leave them holding the bag.
As a common person, I've been looking into this myself with my RSUs and option grants. But there aren't credit lines that banks offer using equity as collateral for the common person.
I guess when your net worth is high-enough, you can pull anything off with the banks.
The closest "normal" people can get to this is with real estate.
Fidelity Fully Paid Lending Program [1]? not quite what you're looking for, but still generate cashflow from owned equities.
[0]: https://www.schwab.com/pledged-asset-line [1]: https://www.fidelity.com/trading/fully-paid-lending
Disclaimer: i am not a fiduciary, nor a financial professional. this is not financial advice.
Plus, he still has something like 88m shares still in wework[3]. Hopefully he didn't margin-loan those shares.
Safe to say, he did better on wework than anyone else - a rare moment where the founder of a failed company has a better outcome than the investors
1 - https://www.fool.com/investing/2022/01/04/wework-co-founder-... 2 - https://archive.vn/bBW2d 3 - https://fintel.io/n/us/we/neumann-adam
"Neumann led WeWork to a failed attempt at an initial public offering in 2019 and was ousted shortly afterward. As part of the original bailout effort, SoftBank had agreed to buy $3 billion in stock from WeWork investors, including close to $1 billion from Neumann."
https://www.latimes.com/business/story/2021-02-26/softbank-s...
Neumann had lines of credit from banks secured by his wework equity. Kind of like a home equity line of credit but with stock instead of a home.
This is Neumann's "Flow" company that a16z backed with $350 million this summer. Scheduled to launch next year, will be interesting to see how it fares in this new interest rate environment.
https://techcrunch.com/2022/10/18/a16z-chris-dixon-adam-neum...
Neumann used age-old strategy to ignite this business: throw VC money to create foundation for business while doing that at loss. When he signed the over the top leases, no one - and I repeat no one - ever thought we were going to be off of 0% interest rates. No one thought real estate will plunge. It made sense at the time and VCs threw even more money as everyone held same view. In alternate universe, COVID would have never happened, QEs would have continued for another decade and WeWork would have been highly profitable monopoly.
This is not to say Neumann acted in unethical manner. He used WeWork cash and assets as his personal property. But keep in mind VCs always thought of WeWork as his "family business" just like how they thought of Facebook as Zuck's family business.
Perhaps they should have pivoted to become an incubator!
August 2022 https://a16z.com/2022/08/15/investing-in-flow/
What some people may not realize is that "executive suites" have been around forever, however they were never looked at as a "hypergrowth" SV/hot startup. This is where you get a small office among many others and there's a shared receptionist.
When I looked at WeWork, sitting at a table all day with other people and no privacy was about the same price as executive suites. They've also apparently had a business model where they don't own the spaces, so the underlying landlords can squeeze them at any time.
Was this the company where the CEO owned the trademark and was leasing it back to the company?
In any case just a company that, with a cursory inspection, IMHO showed no promise from day 1.
So like let's say my house got too crazy to work from, without being aware of WeWorks, it would seem like something I just have to suck up and deal with, but with awareness of WeWorks (and the associated concept of co-working spaces) my mind would at least go there. So maybe I'd shop around from the different co-working options based on location and price but wouldn't even occur to me to look at exec suites.
So all that is to say - I agree with you on the business, but that the existence of WeWorks may have widened the audience for that type of service with We itself getting the largest share of that business (same as Uber gets the most rides just by being the most associated name with taxis right now)
None of this is to say that We is "worth it" in valuation or as a service, I have no idea. Just point out the impact of marketing/awareness.
Is this a hypothetical? Because if you did run a business out of your home, you absolutely would know about short-term rental offices. Pre-covid, it was normal to meet in person at both offices if the size of the contract is large enough.
Regus was/is the main player in that space, and it certainly wasn't startup territory at all. WeWork took a very different angle to it, as they were looking to capture small startups that wanted to be in a kind of "incubator" type set up. The buildouts and the target clientele were different concepts than had been tried in that market. I'm not saying that WeWork didn't/doesn't have issues, or that the idea was profitable at it's core, but it was a different take and seen as quite "disruptive".
>They've also apparently had a business model where they don't own the spaces, so the underlying landlords can squeeze them at any time.
WeWork leases have single purpose entities on nearly all their leases with few guarantees from WeWork the company. That basically means that the landlord is holding nothing next to nothing. In fact, it's WeWork that could back out of a lease pretty easily leaving the landlord with little recourse, not the landlords that could squeeze them. And even then, the only squeeze the landlords have would be when renewing a lease, and landlords don't have the upper-hand there at all right now.
One of the things that WeWork did was buy up significant chunks of square footage in well located buildings that had trouble filling that square footage, then WeWork offloaded a lot of the initial capital expenditure for the buildouts onto the landlord. Some of these leases had break even points for the landlord outside of 5 years, which is quite long for leases that big.
So if WeWork goes under or backs out of a given lease, the landlord is left with a huge amount of space, that they likely can't lease, and will likely take a significant amount of capital to either A) break it up, or B) make it amenable for another company to lease out. That means that the landlords are likely going to give WeWork as long a leash as possible, because they don't want that space back.
The writing is on the wall though, and WeWork has been going downhill for years now. It was arguable whether it was a good business model before the pandemic, but I can't imagine it making sense in a post-pandemic world.
While WeWork clearly were squandering SV investor money, don't underestimate how much real estate fat cats made out on these deals. They got these seemingly sweetheart WeWork leases on the books, marked up valuations for the remaining space in the building, and sold the dream to other investment firms to make out like bandits.
Maybe I'm missing something obvious, but I think it makes more sense. If companies would rather not get invested in holding real-estate long-term in an uncertain economic and work climate, then having a much more flexible office situation makes a ton of sense. If the business they're starting doesn't work out, they're not left holding the bag on real-estate that they'll then have difficulty unloading.
We call this the library where I’m from and it is free and comes with expert help from librarians! :)
I know most of the time as an independent consultant, the physical space to get away from your house is the reason why you pay WeWork, but if it's about structuring your work day, more focus, more energy from other people around you, and potentially meeting a person or two, virtual co-working offers all of that.
The US has a lot more entrepreneurship than the UK, and I think it is something that us Brits could well do more of. In the UK we're too conservative, whilst the US plays it much more fast-an-loose. The UK has its fair share of financial scandals, mind.
I get the impression that in the US there has been far too much money chasing after far too opportunities. Blasting through $10b in a single business seems, shall we say, "quite an achievement."
I mean, Juicero, what was that crap, anyway? And then there was the whole Elizabeth Holmes thing. It would have been a large-cap company by UK standards. It seems that there's a lot of US "businesses" out there who are looking to hoover a lot of that sweet sweet VC lolly. I'm not sure what "due diligence" the VC guys are doing, but it doesn't seem much.
Another thing I have noticed is that, fairly recently, VC has seemed to switch into reverse gear. Now growth seems to be de-emphasised. It's like the whole Venture Capital market has collectively woken up one day and decided that they are much more sceptical about funding growth opportunities. What has changed really, though? It seems that just because Facebook and a couple of other titans decided to have a round of layoffs, that everyone else should, too. It's not really logical when you think about it. Sure, there's the whole Covid and Russian conflict thing throwing a spanner in the works, but have things really changed that much? It seems more a case of a lack of "animal spirit" compared to formerly that is causing the problems rather than any real problems themselves.
Inflation. :-/
While we weren't quite to that situation, the last decade of near zero interest rates put VCs precariously close to it.
Macro: We had exceptionally low interest rates creating a debt bubble coupled with unprecedented Fed printing. To put it into perspective: we printed $6-Trillion USD on COVID stimulus compared to FDR's New Deal at $1-Trillion USD (today dollars).
Micro: Bubble popping. Public price-to-sales ratios fell substantially. Declines in consumer spending, inflation, and supply chain hiccups compressed margin. Lending rates went up, liquidity went down, and commercial realestate is still bracing for impact. Late-stage mega funds slowed their investing in the face of redemption threats. IPOs and SPACs became unpalatable. So early stage funds sitting on loads of cash raised pre-2022 are waiting on the sidelines to see where it falls out & who emerges.
Worth noting that inflation-adjusted GDP was $1T in 1930 and $19T in 2019.
There's this weird historical effect represented by "Real GDP" that has the 1930s number being 10x that size (whatever that means):
https://www.statista.com/statistics/1031678/gdp-and-real-gdp...
Not just the US: the 2008 bubble and the tech bubble both had sovereign wealth funds chasing high returns. The US tech sector was good at convincing them that investments would perform highly but it’s always been amazing to me to see the kind of returns predicted for a cab or shared office space company, and it’s felt like big institutional investors were basically saying they had no idea what to do either but needed to put the money somewhere.
Part of the issue is that the VCs got very good at convincing themselves that they were geniuses at picking winners, even though in hindsight they clearly had no clothes on.
Yeah, low interest rates and cheap money chasing returns definitely helped fuel a historic immolation of vast sums of money, but I feel like it'd be remiss to discuss this without pointing out the complete fecklessness of the VCs in general.
These people spent years talking up their thought leadership and their uncanny ability to pick winners, and how it made them Galt-like messianic figures. Any criticism or even just skepticism was derided as anti-progress luddites, or worse - corrupt agents of an evil incumbency.
They anointed themselves the heralds of progress itself, in a way that was plainly unearned.
I really hope (but am not holding my breath for) a changing of the guard this time around. So much human progress has been denied because we allocated capital so poorly - and chose such incredibly poor stewards for capital allocation.
> [progress]
how would you allocate our economic surplus in a better way?
People can argue that it was too expensive or over-designed. But I don't think the basic idea is as ridiculous as people make it seem. "You can just juice it yourself!" Sure, but the same can be said for a Keurig machine, and they're extremely popular. Having watched what it would take to juice the Juicero packs on your own and having made my own Keurig pods without a machine, my guess is it's probably easier to do your own Keurig (and the Keurig machines seem to be more susceptible to getting dirty than Juicero machines).
Keep in mind they weren't juice packs that were being squeeze, but rather they were pieces of fruit and vegetables that could have the juices readily squeezed out. I haven't tried the juice - just about no one has - but if it was able to give the taste of fresh squeezed juice in seconds time it seems it would at least be notable. There's not really a better solution at the moment (actual juicing takes a lot of time and is very messy and store juice isn't as tasty).
We're a small business, we rent out a couple offices, but we've downsized. Especially with more WFH, a co-working space is criminally expensive for occasional usage.
In my area, a startup has formed[0] offering desks at an HOURLY rate. Consistent decor, internet, staff, etc. across all locations. At the end of the day we still need a place to meet up in-person occasionally, this works for our use case perfectly.
Renting an office room by the hour/month has been a thing for a very long time. Regus/IWG was founded in 1989.
The tax you pay for wholesale goods includes the costs of logistics - the forethought, the scaling, the redundancy. If all of that were free then you'd get everything straight from the manufacturer for half the price.
It might be that there's a business model for a WeWork-style company that actually works, but I'm not sure this is it. There are a number of companies where most of their hard assets are real estate, and we joke about them being real estate companies masquerading as something else (eg, McDonald's, and Sears before malls died). If they owed buildings outright they might have something as well.
In many cities the number of landlords that own 80% of the available space is actually a pretty small number. What a WeWork would be doing is hiring charismatic people to build relationships with those companies to try to establish long term leases at a more favorable rate than you or I could ever hope for, particularly during a down economy when you can spin it as doing them a huge favor. Possibly by taking additional discounts for clauses like, "I can move you to a different suite in the same building in these situations" because maybe there will be a day when the guys on the fifth and sixth floor really want the fourth floor and meanwhile the tenants on the 3rd floor are downsizing. Some people will pay for those sorts of contingency.
If even half of that is reasonable, then you might be looking for a shared space company that's backed by a hedge fund, rather than VC's, because you're looking for a company that is watching the downward trends in the market, not the upward ones.
But I don't get the impression they did any of that.
What's interesting is this is exactly what happened to me and my existing office lease. Every tenant on multiple floors wanted to downsize, landlord wanted to do a complete teardown and rebuild of my floor, and so we all played musical offices and we all got what we wanted.
No WeWork style contracts needed, it was all laid out in the office lease agreement, that the landlord could do something like this.
Developers were going to need paying more than even a 10-year served exec in the UK with 200 staff under them. They couldn’t run it within their existing organisation - the salary disparity would have been unpalatable. So they were advised to set up a subsidiary, rent a whole floor of Wework in London and run it out of there.
Burned through £20m in a year - a decent chunk on contractors from the sort of IT brand you know. Nothing shipped. Wrote it off after a year. Fired everyone and surrendered lease.
That was Wework’s target market - not freelancers or startups. Big companies with deep pockets who could have leased the whole building but never created the buzz. Work from home killed that market and it won’t return.
Great point, and a key issue in the PR narrative about WeWork and others like Uber and Airbnb. The PR is always about "helping the small guy", when the business reality is that enterprise whales are much better for the bottom line.
Good job posting this publicly on a thread I'm sure at least one WeWork corporate employee is reading.
Expect to find a charge on the credit card you put down for your June purchase for all the services you have used. It is 100% legal for them to bill you for their price mistakes. Check the terms and conditions.
Do you have a source for your claims here? They mentioned a contract beginning in June of next year, if the company fulfils more than the contract generally that would be upon them, though it may be grounds for termination of the contract.
If you have some relevant law or legal reference to back up your statements on the matter, I'd be interested in learning a bit more about it personally.
All the core elements of a contract are there: offer, acceptance, consideration, and exercise. By making use of the services early, OP is materially expressing their intent to exercise the contract early, which gives WeWork the right to take consideration in kind, per the terms of the original boilerplate contract.
(And yes, clickthrough or shrinkwrapped TOCs often do not constitute an enforceable contract, especially when one party has not expressed any actual intent to form any contract and the offering party does everything they can to obscure the TOC and its implications, per Specht v. Netscape. But there is clearly intent to form a contract by the customer here, which means the entire TOC is as valid and enforceable as a rental car contract people sign without reading.)
This goes by different names, one of which is "contract by acceptance" (more common in the UK). In the US, see [Uniform Commercial Code § 2-207](https://www.law.cornell.edu/ucc/2/2-207):
> (1) A definite and seasonable expression of acceptance ... operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms. [...]
> (3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act.
Let me put it this way: A customer signs a contract to pay a company a rate of $X per month for unlimited usage of the company's services. The customer agrees that the contracted services will be exercised by booking through the app. The customer initially informs the company they want to start using these services and paying the monthly fee in June. They provide a credit card and sign a contract that authorizes payment for services rendered on a monthly basis, rolling until canceled by either party with X days notice.
Then before June, the customer uses the app to book services, then actually makes use of those services. The company observes that the customer is using the app to make use of the services, for which there is normally no additional payment required. This lack of an additional payment is in line with the "all-access" subscription (and note the app states it in 'credits', not dollars). While the company also offers a per-hour rate, the customer does not make any attempt to communicate their intent to enter into a different contract to pay for these services by the hour.
What else should the company assume? The customer's behavior and prior contract clearly signals intent to exercise the contract earlier than originally communicated. The company then actually provides those services to the customer, who materially benefits from them, at cost to the company. The company then charges the customer for services rendered at the monthly all-access rate, starting at the first day they made use of the services without any additional payment.
And the fact that this is a "mistake" by the app is actually irrelevant. It is the same as if you had a similar agreement with a gym, and show up earlier than you requested. You check in with the human at the counter. They let you in without saying anything other than "Welcome!" The gym starts to bill you the monthly fee. You can't complain.
You're right that I maybe shouldn't have said 100%, because these things are ruled on by human judges and juries.
Edit: Another relevant concept is that contract law assumes parties are reasonable and acting in good faith. I'm pretty confident most judges and juries would think it is unreasonable for a person to expect to pay nothing for services that they already agreed are worth $X/mo. The fact that there are so many things broken with the customer experience if you do this one weird trick to get a free WeWork desk would be further evidence OP is acting in bad faith. I'm imagining how that cross-examination would go when OP is put on the witness stand to explain their state of mind.
I don’t understand why the keep their price so high if nobody is going there.
However, a not insignificant percentage of people in the shared space were students on a discounted membership who were there due to inadequate study space at the local university.
I also found their more central Madrid locations to be quite reliably busy.
The rest of their bike parking "amenities" seem to just be the bare minimum required by San Francisco law, which often means having to take a freight elevator which can take a very long time in a busy building, or put it in a shared cage in a parking garage that is open to the public.
Notably they didn't send me any notification regarding the office closure, I just opened the app and it was gone.
I actually worked at an SB-funded company for over a year (I had a non-compete so it was a good time to branch out and try crazy stuff) and the way the company was run was explicitly poised to bet on high growth with acknowledgement that it was a very risky bet that had a high chance of blowing up.
We were one of the first notable companies to do the "we over-hired and now that the world is changing, we need to lay off" thing in this cycle, and got a tremendous amount of negative press for what is now just basically expected behavior across industries.
But anyway, neither company management nor SB were dumb. Everyone understood that we were playing a high-risk high-reward strategy and recognized that "high risk" means the company blows up if things don't go right. It's just a choice that people make about: where to invest their money, what kind of company to start, and where to work. Like, for some people working at the DMV makes sense (very steady, no growth or significant upside) and for some people working at a crazy startup does (not steady at all, some chance of hitting it big.)
The company I was in was very sensitive to rates. We bet that if capital remained cheap, we'd power our way to real scale and profitability. It was a reasonable bet. History showed that we bet wrong and paid the price (I doubt the investors will recoup their money, and my equity is likely to be worth nothing although the company itself still exists.)
But that's OK. My company made a bet at revolutionizing its industry (and to some extent, it did) as did We. If these companies completely die, well - that's the nature of the game we chose to play. If luck worked out the other way, it would be glorious.
My main point is you can't apply the same lens to an explicitly high growth/high risk company that looks to change the world (or die trying) as you would to a self-funded bootstrapped business that is looking to slowly grow (and avoid death at all costs) by taking only small incremental bets. As long as everyone knows who is playing which game (and I guarantee you that management, employees and the investors like SoftBank knows which game they are playing) it's all good.
https://themorningcontext.com/internet/byjus-is-in-the-throe...
> As of September 2022, Son ranks 73rd on the Forbes list of The World's Billionaires 2022,[9] despite having the distinction of losing the most money in history (approximately $70bn during the dot com crash of 2000).[10]
My boss got most of his money from people trying to find some place better to put their money. Since the DotCom boom only felt long to people who said words like "internet time", I imagine the whiplash on that was pretty bad for everybody there.
Maybe the space makes more sense for people who aren't coding and just need to check a few emails and write some documents, but even then it's pretty damn bad for your back to be hunched over your laptop.
I've tried a few coworking spaces and always come to the conclusion that they're a grift. Many people such as myself probably try them out, begrudgingly pay $300 a month for a few months, and inevitably cancel to make room for the next sucker.
In another time, this model probably worked, or at least was less unsustainable than it is now. Charge enough to have non-riffraff clientele that are dumb enough to fall for the grift but smart enough move on so another sap can take their place and repeat the cycle. Perhaps it's a good business to own when times are good (and easy money flowing in WeWork's case), but not when inflation goes up, wages stagnate, and labor force participation is down. $300 means something different than it did 3 years ago even though I was numerically making less than I am now without adjusting for inflation. There's no way in hell I'm throwing away $300 on that kind of experiment now, though part of me misses the days when I could and not feel bad about it.
It may be one thing if you're a scrappy business that has bootstrapped cash or a revenue stream, but coworking seems like a complete dud if you're just a professional who wants to work somewhere that's not Starbucks or the spare bedroom.
They always sell networking as an advantage, but people aren't that chatty and the folks in there are in the same boat as you are, which limits the worth of that network if you're trying to find clients. Never made much sense to me if you have a home office or a space bedroom to turn into one.
The entire market is a dud in my mind. How many scrappy startups without funding that need co-work space really exist? I don't see enough for an entire multi billion industry across the world. Especially since the enviable outcome if those are successful is they no longer are a customer once they get a lease somewhere for less. They can't sublease at a better rate than a direct lease so again no business.
Also I tried one and they all center around the horrible ineffective for getting things done open floor plans. Yes they have private areas I know but they are the exception. The offices should focus on the needs of freelance professionals and provide a better workspace than the FREE library that is in every city.
For example, right now I work out of the spare bedroom in our house. If we have another kid, that bedroom is no longer spare. People in that situation have a few options (a) make it work (b) buy a larger house (c) go into the office.
Option C is probably not much cheaper than $300/m. I bet Option B became a lot less available to a lot of people now. Spending 3600 a year on a place to work may be a lot cheaper than moving house (heck, your real estate taxes may go up by more than 300/m alone)
None of this is to say that We is a good sustainable business, just building on your analysis to point out there are some cases where We has emerged as the more likely/affordable option.
In 2019, they had a 99% occupancy rate.
The most successful coworking spaces near me have a restaurant, a bar, and nice multimedia event spaces with Satellite TV -- all expenses that I don't think Regus, WeWork, or Expansive would ever spend money on.
Those spaces, that have amenities that are not things that you could get at home, have waiting lists for offices.
Terrible business though.
Coffee beans
I haven't really engaged in the community, although there seems to be a somewhat active one. I know other people who have, including going to parties and social events that were organized by WeWork (I have no idea if these are as common anymore, but they seemed to be happening a lot in 2018-19).
Community? Ehhh not in my experience. As a social person, I'm pretty good friends with the employees there, security, and the neighbor office, but overall its just another office with a little more up to date styling. We like it a lot and it works for us, but its not worth anymore than a traditional rent an office.
Oh the dog friendly part kicks ass though! And many of us have use the essentially free (because they give you hella credits) hotdesk credits while working in remote locations. Was SUPER awesome in new york when we had 4 hours between checkout and flight. Snuck my gf into the nearest one for clean bathrooms, coffee, charging, ect.
Their guest policy could be better though! You essentially cannot have guests with the On Demand membership -- just go to a coffee shop for that.
Just a marketplace to rent on demand. Like AirBNB for office space
In a library being on a meeting flat out doesn't work
Meanwhile WeWork seems to be thriving in India. They have a large number of locations in bangalore. Each one of them is reasonably priced, adequately appointed in amenities, and generally pleasant to work out of.
I wonder what's the difference between the operations (India vs USA) that led to such a vast gap in outcomes.
At a certain scale of $$$, is private sector VC investment any less inefficient than state-backed enterprises, aka "government picking winners"?
I for one will happily pay a huge real estate premium for free* beer
https://markets.businessinsider.com/bonds/wework_companies_i...
I think Adam Neumann is the real life version of James Bond setting billions of dollars worth of Mohammed bin Salman‘s money on fire (by way of SoftBank).
Any tips on that? Currently looking for a place locally and it feels impossible. But this could be due to market size (city of ~200k).
The WeWork business model has been around for decades.
Depends. The one thing that WeWord did was locate itself in the better, more desirable, more visible business districts.
If you don't mind having a Sam Spade-style office, you can rent one far cheaper than that. I almost leased one in Seattle's Chinatown for $100/month, but ended up getting a free sub-lease from a friend with extra room at his company in a downtown skyscraper.
Probably won't get something much cheaper if you'll want something that is nicer than your kitchen table.
They vary from larger 4-5 story office buildings with some shared space, to small single story parks with no shared space - usually with a door and a garage door to the outside.
For a period of time a friend let me use the front of the space he was renting - he was using it as a warehouse for his ecommerce shop. He employed about 3 or so people who would pick & pack orders to be shipped.