WeWork was once a prized start-up valued at $47 billion, but things have changed drastically for the co-working and shared offices company. Their valuation plummeted to such lows that the New York-headquartered company has now filed for bankruptcy is a US court.
While filing for bankruptcy, the co-working giant said that it had entered into agreements with the vast majority of its secured noteholders and that it intended to trim “non-operational” leases.
The bankruptcy filing is limited to WeWork’s locations in the United States and Canada. The company reported liabilities ranging from $10 billion to $50 billion, according to a bankruptcy filing.
WeWork valuation reached $47 billion after a funding round led by Masayoshi Son’s SoftBank back in 2019. But it suffered one of the most dramatic corporate failures in recent US history.
Its downfall began with a failed initial public offering (IPO). In August 2019, WeWork filed to go public, but the IPO documents exposed its unprofitable business model, conflicts of interest and a bizarre management style, reported CNBC.
WeWork CEO Adam Neumann had a number of conflicts of interest, such as renting out company space to his own businesses and selling his WeWork stocks at a higher price to SoftBank, according to Business Insider.
Neumann, who had a reputation for being an eccentric and demanding CEO, was also known for his lavish lifestyle that included spending millions on a private jet and a yacht.
Investors were spooked by these revelations and the IPO plan was eventually called off. Neumann was ousted as CEO and the company was forced to make drastic cuts.
But, it was too late. WeWork was already facing a cash crunch, and it didn’t have enough revenue to support its business.
In October 2019, WeWork was forced to accept a bailout from SoftBank.
The pandemic next year made things worse as several companies abruptly ended their leases due to the emerging work-from-home (WFH) model. The economic slump that followed led even more clients to close their doors.
The company debuted through a special purpose acquisition company in 2021, but has since lost about 98% of its value.
In mid-August, WeWork announced a 1-for-40 reverse stock split to get its shares trading back above $1, a requirement for keeping its New York Stock Exchange listing.
WeWork disclosed in an August regulatory filing that bankruptcy could be a concern. It downfall is a cautionary tale about the dangers of hype and overvaluation of the startups. It is also a reminder that even the most successful companies can fail if they have a weak business model and poor management.
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