What Led to the Fall of the US's Once Most Valued Startup? The first reports of WeWork's financial decision made rounds in August when it said there were "substantial doubts" about continuing operations
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On Tuesday, Softbank Group-backed startup WeWork filed for bankruptcy in the US and Canada. The first reports of the financial decision made rounds in August when it said there were "substantial doubts" about continuing operations.
"WeWork Inc. and certain of its entities filed for protection under Chapter 11 of the U.S. Bankruptcy Code, and intend to file recognition proceedings in Canada under Part IV of the Companies' Creditors Arrangement Act (the "CCAA Recognition Proceedings")," read the company's official statement.
The move comes as WeWork begins a comprehensive reorganization to improve its capital structure and financial performance.
Today, we take another step forward to best position WeWork for the future. We remain committed to our members and to delivering a best-in-class experience in our spaces. https://t.co/b2pZQSWJBQ pic.twitter.com/7M2gpKyANt— WeWork (@WeWork) November 7, 2023
Once cited as one of the most valued startups in US, WeWork was founded as a co-working space provider, including physical and virtual shared spaces by Adam Neumann, Rebekah Keith, and Miguel McKelvey in 2010.
"We defined a new category of working, and these steps will enable us to remain the global leader in flexible work. I am deeply grateful for the support of our financial stakeholders as we work together to strengthen our capital structure and expedite this process through the Restructuring Support Agreement," said David Tolley, CEO, WeWork.
Valued at USD 47 billion in 2019, the startup was backed up 26 investors according to Crunchbase. The startup was aiming for an IPO in the same year but postponed it in September when it was devalued at USD 10 billion. The IPO filing revealed it had suffered a loss of USD 1.9 billion in the previous year and was expected to run through the remaining cash available.
Pandemic to be blamed?
The year changed things for the worse for the co-working space provider. One of its co-founders, Adam Neumann, resigned as CEO and gave up majority voting control in WeWork.
The same year saw SoftBank taking an 80 per cent controlling stake with an investment of USD 5 billion in new financing with an additional USD 3 billion for existing shareholders. This financial deal took place right before the pandemic struck in December and WeWork's valuation dropped to USD7.3 billion.
With government-imposed social distancing and restrictions on leaving houses, WeWork suffered a loss of USD 3.2 billion in 2020. It saw a 50 per cent drop in footfall in March 2020. The startup was reported to have vacated 66 locations and re-negotiated rents, deferrals and lease changes in other 150 locations.
It looked to improve and make a recovery by going public two years after the IPO derailment via a special-purpose acquisition company with a USD 9 billion SPAC merger with BowX Acquisition Corp.
WeWork announced shutting down 40 "underperforming" locations in the US in late 2022 and lost USD 1 billion in operational costs and other related expenses in the first six months of 2023.
While the parent firm is bearing the crisis, its Indian franchise, WeWork India, is having steady growth. Established in 2017, WeWork India was established as a partnership between WeWork Global and real estate firm Embassy Group. The vertical did not receive any capital from the SoftBank deal worth totalling USD 18.5 billion.
Will the Indian operations be affected? Karan Virwani, CEO, WeWork India shares no.
"WeWork India operates independently of WeWork Global, and our operations will not be affected in any manner. It is a separate entity in itself, and we are not a part of this strategic reorganisation process," shared Karan Virwani, CEO, WeWork India.
WeWork India currently operates in 40+ offices pan-India.
Other co-working firms who fell victim to the pandemic include Knotel Inc. and subsidiaries of IWG Plc, which filed for bankruptcy in 2021 and 2020, respectively.