wework

As if past scandals weren’t enough, the COVID-19 hit a nail in the coffin of WeWork as Softbank yanked away from its $ 3 billion tender offer.

WeWork, an American commercial real estate company, that that provides shared workspaces for technology start-ups and services for other enterprises, launched in 2010, is a perfect example of how a billion-dollar dream can go down in intense corporate drama filled with tired investors and greed painted all over.

The latest one in the series is an attempt to cope with the severely ridiculed as well as failed IPO of 2019. WeWork aimed to finally raise enough funds to sustain the company in its deal with Softbank. But now that the Japanese Bank has backed out, WeWork has filed a lawsuit against its largest investor. Now that is not a smart move!

A DECADE OF MISFORTUNE

Ever since it had been founded in 2010, WeWork had always managed to find itself in the midst of some or the other crisis.
By 2014, WeWork was considered “the fastest-growing lessee of new office space in New York” and was on track to become “the fastest-growing lessee of new space in America.”
In 2018, it lost over $2 billion in operations.

WeWork was valued at $47 billion in January 2019 and by the end of September it went down to $20 billion.
The current valuation of WeWork as of March 2020 is approximately $7.5 billion on paper based on the recent Softbank takeover in 2019 and continued losses at the company.

In March 2020, WeWork mentioned looking for an external advisor to help in the analysis of the company’s profile including the reassessment of operations and assets all over the world as well as renegotiating leases.

WeWork IN INDIA


In India, WeWork is a joint venture between the We Company and the embassy group. In spite of the failed IPO in the United States, it has significantly increased its presence in India.

WeWork India has 26 operational co-working centres with 46,000 seating capacity. WeWork India has taken on lease over 3 lakh sq. ft office space to open three co-working centres comprising nearly 3,900 seats in Noida.

The Hindu mentions of Karan Virwani’s ambitions to further the WeWork plan as it blooms all over India. Karan Virwani is the scion of the Embassy group that controls majority stakes in WeWork India. It aimed to raise approximately 1400 crores in December 2019.

FINANCIAL ANALYSIS OF WEWORK (YEAR 2019)

Softbank revenue history
WeWork total Funding$13.8 b
WeWork latest funding size$5 b
Time since last funding6 months ago
WeWork investorsGoldman SachsDAG VenturesBenchmarkT. Rowe PriceWellington ManagementFidelity InvestmentsGlade Brook Capital PartnersHony CapitalJP Morgan Chase & CoHarvard Management CompanyPrimary Venture PartnersAlephSoftbankSoftBank GroupAlpha JWC VenturesSyren Capital AdvisorsLegend HoldingsJP Morgan Chase & Co.Masayoshi SonSoftBank Group CorpCatalyst VenturesStraightPath Venture Partners
year on year return for wework

WeWork’s latest funding round in October 2019 was reported to be $5 b. In total, WeWork has raised $13.8 b. WeWork’s latest valuation is reported to be $12 b.

HOW IT BEGAN for WeWork

WEWORK

The Guardian mentions how Neumann’s ambitions were as ludicrous as his persona. Even before the start of the company, Neumann’s vision was to move from WeWork to “WeSleep to WeSail to WeBank”. Well now those dreams are down the drain. The problems began when the company didn’t make profits despite continuous pouring of funds by investors like JP Morgan, Goldman Sachs and Mortimer Zuckerman among others.

But a question that still lingers is why were the investors still pumping money in spite of everything? The problem lied in its business model. The company’s decisions remained ever optimistic. it counted anyone who worked at a desk in an American city where there was a WeWork as a potential “member”; in non-US cities with WeWork, the estimate applied to anyone with an office job. This business model was highly expensive. And this was just the tip of the iceberg. Neumann’s persona was not pleasing to many.

His grip on the board led the company to where it is today. Adding to that was the ownership debacle between its major investor Softbank and the company’s cofounder Neumann.

SOFTBANK: THE BIZZARE INVESTOR

A question that puzzles many is why Softbank invests money in companies that show no signs of profits. Softbank has a $100 billion Vision fund which invests in emerging technology start-ups like Uber, WeWork AND OYO among others.

In a statement by Softbank’s CEO, Masayoshi Son,” multiple companies linked to the $100 billion fund will close their doors as the company tightens its financial belt and COVID-19 continues to rock the economy.”

Softbank believed things would take a turn for WeWork after its IPO. In an interview with Forbes, Son said that too much was paid at valuation, mainly due to belief in Neumann.  

THE OWNERSHIP DEBACLE

A question that puzzles many is why Softbank invests money in companies that show no signs of profits. Softbank has a $100 billion Vision fund which invests in emerging technology start-ups like Uber, WeWork AND OYO among others.
Softbank believed things would take a turn for WeWork after its IPO. In an interview with Forbes, Son said that too much was paid at valuation, mainly due to belief in Neumann.


But now too much money has been lost and Softbank intends to cut down its own losses. It reported a $8.9 billion loss, its first quarterly loss in 14 years.

In a statement by Softbank’s CEO, Masayoshi Son,” multiple companies linked to the $100 billion fund will close their doors as the company tightens its financial belt and COVID-19 continues to rock the economy.”

Until now Son and his company Softbank has been lauded for his investment prowess and his ability to spot young and up-coming companies. But now that things have taken a U-turn, its board has decided to take a step back and think it all over.

As of now, the worst industry affected due to COVID-19 is travel, tourism and hospitality. Softbank has also invested in OYO, a key start-up in this field. Wework’s failure has suddenly changed everything for companies like OYO, which are included in the Softbank Vision Fund. Comparisons between Neumann and Agarwal come up too often in discussions by analysts and industry observers.

Ritesh Agrawal, Founder of OYO, while speaking to the Financial Times said,” There was before WeWork and there was after WeWork. Pre WeWork, all our decisions were iconic. Later, it seemed easy to blame us for all we decided.”

THE LAWSUIT

SOFTBANK

SoftBank cited failure by WeWork to obtain certain regulatory approvals, new criminal and civil investigations, and government actions due to the 2019–20 coronavirus pandemic as reasons for withdrawing the offer.

After the termination of the deal, this lawsuit was expected as mentioned by the special committee on the board of WeWork’s parent We Company. In a statement, the committee says,” SoftBank’s failure to consummate the tender offer is a clear breach of its contractual obligations … as well as a breach of SoftBank’s fiduciary obligations to WeWork’s minority stockholders, including hundreds of current and former employees”.

Softbank retaliated with a company spokesperson calling the lawsuit as “desperate and misguided” and said that the company would fight the lawsuit “vigorously”.

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