It appears that WeWork, the once highly valued flexible workspace provider, is on the brink of bankruptcy. According to The Wall Street Journal, the company is planning to file for bankruptcy protection as early as next week. This is a disappointing end for a business that was once synonymous with America’s hottest tech companies and the venture capital boom of the late 2010s.
WeWork missed interest payments to its bondholders on October 2, which initiated a 30-day grace period. If the company does not make the payments within this period, it will be considered to have defaulted. However, WeWork announced on Tuesday that it has reached an agreement with its bondholders, giving it an additional seven days to negotiate before a default is triggered.
WeWork was once celebrated as one of the most promising start-ups in 2019. The company, founded in 2010 by Adam Neumann, tapped into the growing trend of collaborative working following the financial crisis. It targeted young workers, particularly in the tech sector, by offering luxurious workspaces with amenities like lounges, free coffee, and beer on tap. The corporate slogan “Do What You Love” embodied the idea of having fun while working.
WeWork quickly attracted financial backing and its valuation reached $20bn in a 2017 funding round. By January 2019, it received a $2bn investment from SoftBank, valuing the company at $47bn. However, doubts about WeWork’s business model began to arise. It became clear that WeWork was a real estate business rather than a tech company. The company entered long term leases while renting out space on a short term basis, which posed risks in the event of a downturn in demand.
Concerns about corporate governance surfaced when it was revealed that Neumann had been renting properties he owned personally to WeWork. The initial public offering (IPO) was eventually scrapped in 2019, Neumann was forced out as CEO, and SoftBank stepped in to bail out the company with a $10bn investment. Then, the COVID-19 pandemic hit, resulting in office closures, layoffs, and lease renegotiations for WeWork.
In October 2021, WeWork went public through a merger with a Special Purpose Acquisition Company (SPAC), but its valuation plummeted to $9bn. Despite hopes that the company would benefit from the hybrid working trend post-pandemic, its costs remained a concern, and it reported that it would not be profitable in 2022. The company struggled to meet sales expectations, and with rising interest rates and a heavy debt burden, WeWork’s future became uncertain.
CEO Sandeep Mathrani stepped down in May, and his successor, David Tolley, cited economic challenges and an oversupply of flexible working space as reasons for the company’s missed forecasts. WeWork attempted to close unprofitable locations, but the stock price fell by 96% this year. It narrowly avoided delisting from the New York Stock Exchange through a share consolidation. Ultimately, WeWork’s failure, if it does come to that, serves as a reminder that if something appears too good to be true, it probably is.