WeWork had been noted, until recently, as one of the most valuable startups amongst the high value unicorns, whose business models do not earn any money as yet. After its recent huge IPO failure, a closer look into the WeWork business model and the pattern of business behavior of the founder Adam Neumann is appropriate.

WeWork has branded itself as a tech type of shared working space that offers something else than conventional real estate companies. Herewith WeWork tries to appeal to technology startups and entrepreneurs by designing its spaces as urban jungles, using glass walls and distributing plants everywhere. Its business model, however, has shown to be especially risky. WeWork is locked into long-term leases of building/properties all around the world. In addition, WeWork offers short-term individual customer leases. Consequently, if WeWork loses its short-term individual customer base, it faces enormous rents to be paid by the company itself (CBinsights, 2019).

After taking a close look at its finances, it has become clear that there is no path to profitability. More specifically, the coworking space company has reported a loss of $1.7bln in 2018 and $1.4billion in the first half of 2019 (CBinsights, 2019). As matter of fact, despite being valued at $47bln a few weeks ago, the valuation of WeWork just dropped to $15bln (New York Times, 2019). Consequently, the company has announced to postpone its initial public offering.

On top of these doubts concerning WeWork’s business model and financial perspective, there have emerged huge questions about the way the chief executive officer has been conducting business. Has Neumann’s own strategy been aligned as much with the growth of WeWork?

Firstly, when looking into Adam Neumann’s professional behavior, it becomes clear that he has full control over the company. Herewith, being the largest shareholder, his vote is larger than the votes of other shareholders (Wall Street Journal, 2019). Secondly, by selling stock and borrowing against his WeWork shares, Neumann has been cashing out of WeWork as the company has been growing and becoming more valuable. In addition, Neumann has been leasing his own personal properties back to WeWork. Using this technique, WeWork actually paid rent to Adam Neumann. Finally, Neumann charged WeWork for the use of the word ‘We’ at a value of almost $6lmn, as he privately owned the trademark rights (New York Times, 2019).

The 9-year-old company, which is losing $2bln dollar a year, is just another example of Wallstreet not buying what Silicon Valley is selling. Herewith WeWork is, amongst Uber and Lyft, just another example of the significant overvaluation of Silicon Valley unicorns. From my perspective, WeWork’s overvaluation poses huge risks with regard to future investor appetite for tech companies that want to make a stock market debut. What is your view on WeWork’s failing IPO and Neumann’s practices – is this yet to be another unicorn disillusion?

CBinsights (2019). How Does WeWork Make Money?. Retrieved at: https://www.cbinsights.com/research/report/how-wework-makes-money/

New York Times (2019). WeWork C.E.O. Adam Neumann Steps Down Under Pressure.Retrieved at: https://www.nytimes.com/2019/09/24/business/dealbook/wework-ceo-adam-neumann.html

Wall Street Journal (2019). WeWork’s Adam Neumann Steps Down as CEO. Retrieved at: https://www.wsj.com/articles/neumann-expected-to-step-down-as-we-ceo-11569343912