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The startup WeWork set out to revolutionize the workplace -- leasing, renovating and subletting offices as shared coworking spaces. At the beginning of 2019, it was the single biggest private office tenant in London, New York and Washington. But the company’s valuation has plunged $40 billion, and it’s now laying off 2400 employees. John Yang talks to The New York Times' Peter Eavis.
This has been a sobering year for some of Silicon Valley's highest-flying start-up companies, some of which have been brought down to earth.
The Wall Street Journal estimated today that some of the most prominent start-ups have lost $100 billion in market value, one of the biggest, WeWork.
John Yang looks at what went wrong.
Judy, WeWork set out to revolutionize the workplace, leasing offices, fixing them up, and then subletting them as shared spaces.
At the beginning of this year, it was the single biggest office tenant in London, New York and Washington. But since January, WeWork's valuation has plunged from $47 billion to $7 billion.
Last week, the company said it was laying off 2,400 employees. That's nearly a fifth of its global work force. The announcement was delayed until the company raised the cash it needed for severance payments. That was after co-founder Adam Neumann was bought out for more than $1 billion and given a four-year $185 million consulting contract.
Peter Eavis of The New York Times has been covering this story. He joins us from the paper's newsroom in New York.
Peter, thanks so much for being with us.
Fundamentally, what was the problem? What happened? Why did $40 billion go away?
That $47 billion valuation was the result of WeWork's biggest backer, SoftBank, pouring in billions of dollars into the company.
That then set off an enormous expansion across the globe that left the company with huge losses. And when they — when WeWork came to do its IPO, and everybody saw how much it was losing, how it was draining cash so quickly, they balked, and the IPO had to be called off.
So, tell us quickly, who is SoftBank, and who was running it, and why is it important?
SoftBank is a Japanese conglomerate. It's headed by a legendary investor called Masayoshi Son.
And he gained his reputation for making a very successful bet on the Chinese e-commerce company Alibaba. He's made other successful investments as well. And he's used his reputation and the gains he's made over the years to invest in a lot of young companies recently, one of which was WeWork. But he's also put a lot of money into others.
And not all of them are doing particularly well.
And his decision to invest in WeWork — his initial investment — was $4.4 billion, came after a very brief meeting with the co-founder, Adam Neumann.
I mean, that investment scaled up to as much as $10.5 billion. He was enthralled by Mr. Neumann's vision. He shared this idea — Masayoshi Son shared this idea that a shared space could somehow revolutionize the workplace and was happy to put in the billions, and apparently even said that Mr. Neumann should be even crazier than he thought he should.
You say he was enthralled by Mr. Neumann.
Let's give the viewers an idea of Mr. Neumann. We are going to play a bite of him selling WeWork to a group of U.S. mayors.
If you bring us in for 10 locations, we will create 200,000 jobs other the next 10 years. And it can go bigger and bigger.
And we won't just bring you jobs. We will bring a place to live. We will bring education. And — and this is important — we will bring corporate America.
So, we get a sense of charisma, his energy, his — the zeal he brought to these things.
Tell us more about Adam Neumann.
He was raised on a kibbutz. He apparently came from an unhappy home. He talks about that. He served time in the Israeli military. He went to Baruch.
He teamed up with a guy from — who grew up on a commune, I think, in Oregon, and they founded WeWork. And they wanted to create, you know, a company that they said ultimately would elevate the world's consciousness.
They — I don't know to the degree it was sincere, but they said they wanted to create a place that would revolutionize the workplace and bring people together and spark creativity and create entrepreneurship.
And it's not just — I mean, what he was doing was subletting office space, but he sold it, as you say, as a way to build a community, to change the nature of communities?
And you will still find a lot of people who are in WeWork spaces, particularly those early on, who still believe in this vision. It's a catchy one. I can see how it caught on, especially in the dark days after the financial crisis, when WeWork was formed.
There were people looking for work. They went to these shared spaces. They dreamt up ideas for new businesses, start-ups. And that was the pitch. Of course, you know, we ultimately saw just how hollow it was, but you can see how it had some attraction.
This is, of course, one of the great crashes in American business. Is there a moral to this story?
I think there is.
I think that there's a good moral and there's a bad moral. I think bad moral is the one that — made one somewhat pessimistic, is that so many people fell for this. There were people on Wall Street that wanted to sell this company at over $47 billion, maybe as much as $60 billion.
But on the other hand, there was — as soon as these numbers went out into the public, nobody wanted to buy this company. It was seen to be a risky proposition, and the IPO failed. So, you know, people were wise to it. They saw through it.
Peter Eavis of The New York Times, thanks so much for being with us.
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