
WeWork Is Raising Funds at $35B Valuation - vthallam
https://www.bloomberg.com/news/articles/2018-06-13/softbank-executive-says-wework-is-raising-funds-at-35-billion-valuation
======
z0a
If the tech bubble and real estate bubble had a baby, it's name would be
WeWork. How is a company that had a net loss of $933 million and that owes $18
billion in rent even remotely worth $35 billion. I'd consider the lemonade
stand on the corner to be more of a business than WeWork in the true sense of
the word. What's inherently hard about what WeWork is doing? With enough
money, anyone can rent out buildings, chop it up, and make it appealing to
hipsters with some interior work, then over charge companies and individuals
to rent out tiny spaces.

~~~
shimms
I find this whole “owe $18b in rent” thing that’s come up recently
interesting.

They only "owe" $18b in rent the same way any company leasing office space
"owes" their landlord money. The word "owe" is thrown around here in relation
(almost exclusively to WeWork) to imply they're in arrears to the landlords to
the sum of sum of $18b.

It isn't anything like that - they have leases over the next 10-15 years with
a contract value of $18b.

Over the length of their leases they have an $18b obligation, but that isn't
the same as the way "they owe 18b" is used colloquially to mean currently in
arrears/default.

It is the same as entering into any agreement - over the agreements length you
have an obligation, which if you can't service you're insolvent.

I guess I find the narrative that they "owe" $18b to imply a far greater
extent of distress than the reality of their leasing obligations actually
entail.

~~~
aphextron
>It isn't anything like that - they have leases over the next 10-15 years with
a contract value of $18b.

Precisely. They have liabilities of $18b with no profits. In the event of
revenue drying up, they are still on the hook for those leases. There is no
real difference financially between a lease and a loan in that sense. If I
lose my job and can't pay the rent, I don't get to just say to my landlord
"Sorry, lease is up!", and move out. I can be sued for that entire value.

~~~
nwienert
You can't frame it as a loan because it's nothing like that. In fact they can
only get $18B because landlords know if WeWork goes under they aren't getting
paid the rest of the lease (lucky to get much at all). The point is, they
don't mind. It's not lost money it's lost contractual revenue on a building
that can be turned around immediately. The risk profile is not even close to
the same.

If I was an investor in WeWork I'd care 0 about the total amount and almost
entirely on what their trajectories look like, and the terms of those leases,
etc. The $18B number is a red herring.

~~~
subpixel
If they operate like most real estate companies, each lease is entered into by
a different corporate entity. Any one of them could be sued for breaking a
lease without touching WeWork.

But nobody sues when they can just rent to another party.

~~~
jmalicki
As a WeWork member, I can confirm that the lease of my local WeWork (and the
fee I pay) go to a subsidiary specific to the location.

------
justboxing
Not trolling, really don't understand how WeWork is valued at 35 BILLION when
they don't even own the real-estate properties that they are leasing.

How is this absurd valuation -- or for that matter, even the 17 BILLION
previous valuation -- justified esp considering (according to the article)
they are _losing_ money ?

> The company’s bond offering documents showed fast-growing sales but even
> faster-increasing losses. WeWork had total revenue of $886 million but a net
> loss of $933 million in 2017, according to the documents.

~~~
georgespencer
As someone else has pointed out, not owning the real estate is part of the
reason for the high valuation.

A good franchise business will force the franchisee to buy the real estate and
give the franchise the opportunity to buy the real estate at a fixed cost
(either fixed outright or a multiple of revenue for the location), effectively
giving them no downside on capital depreciation on the site (i.e. the value of
the site going down) or the ongoing dilaps costs. They only have upside: they
can buy the site if it's doing really well. And meanwhile, you're buying your
training, goods, services, and paying a portion of your revenues to the
franchise.

WeWork is like a franchise which has no interest in owning your real estate.

They and others have realised the opportunity to take advantage of a couple of
factors in the macro (more fluidity in working working lives -- telecommuting,
flexible work --, startups, low interest rates meaning units can be vacant and
on balance sheet without too much pain for an owner) and build a smart
offering around that: got an empty building OR bored of the overheads and
headaches of managing an office space yourself? We'll lease it from you for a
fixed price and then take any upside. You get smoothed cashflow and a fixed
yield, and we get whatever upside we can make.

They don't have any of the overheads, complexity, costs, or risks of owning
the real estate. The IP and brand they're building (brand is an important
factor here!) are not wedded to geography. Shoreditch isn't cool for startups
any more? WeWork is gone.

~~~
sonnyblarney
Owning the real estate is exactly why McDonald's is valuable :) but there are
odd terms.

But it doesn't answer the existential question as to their valuation.

I don't see how WW has any systematic advantages at all.

Nobody really cares if offices are in WW or some copycat clone.

Many companies are wearing of paying heavy premiums for such offices and want
out as soon as they can.

Real estate is an old business. There is no 'new' here. Dressing up places,
making them cool and selling at a premium is not new.

I just don't see where the magic sauce in this business is.

~~~
secabeen
I wonder too, but I do see some possibilities:

1) The brand has value. Sure, making an empty space into a co-working space is
not that hard. However, how do you market that? How do you get potential
workers to know about your space, and choose to work there? If WeWork or
Impact Hub are the known brands, people will search there first, and never
find you.

2) They may also be exploiting information asymmetry between the high-cost and
low-cost areas. If a company in NYC or SF is used to paying $50/sqft/mo
($500/mo for just 10sqft) for space alone plus utilities, etc., they may not
really balk at $500/mo for the co-working space used by a remote employee.
Sure, those companies know they're getting fleeced compared to regular costs
in those cities, but they may also not care, as it's not worth it to economize
for just a few employees, and when it gets to many, they just negotiate a bulk
deal with WeWork.

~~~
sonnyblarney
I think the brand surely has value, but not $30Billion worth of value. It's
like a clothing line brand or something, i.e. you might trust it more, might
be willing to open offices remotely there just because your familiar with it.

There is no 'asymmetry' in commercial real-estate really ... prices are well
known and watched in every town. Do a little running around in any town and
you get a pretty good idea very quickly.

Also, they are loosing a huge ball of money.

The BI article hints at 'dot-com bubble trouble' and I believe it for this one
... the economics look bad and it could crash.

If this goes, and say, Tesla pops ... it could be really bad because the
'crypto coin' thing is essentially a bubble of sort (by that I mean fuelled by
speculation) and that could come crashing down very easily and quickly as
well. There is also an AI bubble (AI is here to stay, but companies/valuations
are whack) that needs a correction.

So long as the US economy stays good ... maybe all of this will hold, but some
douche-bags are going to just make 'one lie too far' and things will get
gummed up for a lot of otherwise good companies.

~~~
empath75
Add uber to that list.

~~~
sonnyblarney
Uber may be overvalued but they are viable on some level - so they won't go
out of business, just investors will get hit.

Tesla needs cash, and if they can't get it, they could fail. Or be massively
downsized.

WW needs cash badly, if they don't raise ... it will crash.

~~~
CamperBob2
_WW needs cash badly, if they don 't raise ... it will crash._

I don't know about that. The relationship between WeWork and the building
owners may be co-dependent rather than merely symbiotic.

If you owe $10,000,000 in rent, you have a problem. If you owe $10,000,000,000
in rent, the landlord has a problem.

~~~
microtherion
Not sure to what extent this holds when you owe $10M each to 1000 different
landlords, though (I have no idea how many different landlords they are
dealing with).

------
josephjrobison
WeWork does a few things well - obviously they know how to roll out a ton of
offices very fast like McDonalds, they’re good at marketing and PR, and
they’re great at interior design.

They’re smart about getting other companies to sponsor events and provide the
goods. A WeWork funded activity is like 5 boxes of cereal and some milk and
they call it a “cereal bar” - that’s like $20.

Their front desk people are nice, but always seemed overwhelmed and don’t help
beyond surface level.

I’m learning that when it comes to your last month, the customer service goes
out the window and they turn into sharks. One day late on my notice and they
force me to pay a full month to not have an “illegal moveout”. Buyer beware.

------
dalfonso
I had a dedicated desk at a WeWork for about a year. Before that, I had a desk
at Regus location for about a year.

\- While local coworking spaces could match the decor, vibe, etc. your local
coworking space didn't have locations in other cities. I got 5? credits that I
could use to work out of other WeWork locations.

\- WeWork definitely had a tech-first attitude. If you wanted to reserve
meeting rooms, register a guest, sign-up for events, etc, they wanted you to
do that through their mobile app or website. Regus may have had a site, but
they didn't push you towards it.

\- WeWork had a "marketplace" where you could get discounts on various
tech/non-tech things like accounting software, business cards, services, etc.
Probably another good revenue stream. They could be pitching it as the "App
Store" for startups.

\- In my location, in the LA area, tech wasn't the majority. I would say 75%
of the people I met were in some sort of service (real estate agents, lawyers,
consultants, recruiters, etc,).

I don't think they're worth $35B (Delta Airlines' market cap is $38B,
Atlassian market cap is $15B for some benchmarks), but they definitely do have
some positives.

------
skate22
My company is pretty corporate. They have some limited seating in a we work
building. Employees that perform very highly have a chance to get a seat in
the we work building.

It may be a small perk, but the extra hours / effort people put in to get /
retain their spot more than pays for what we spend on the seats.

If this easily re-createable environment was the norm, it wouldnt motivate
internally. If the company only created it for a snall portion of the company,
employees would resent leadership.

It's been a very effective business investment for the company i work at.

~~~
nradov
That sounds like your company has poor facilities and incompetent management
if the employees are trying to escape from the main office. It's hard to see
that as a sustainable competitive advantage for WeWork.

~~~
skate22
The main facilities are more than fine, its a job not a resort haha.
Management could be better, but I have a very small sample to base that claim
off of.

That being said, a sexier environment is just one of many ways to motivate
people.

Rewarding people who work harder is one of the better management decisions in
my oppinion. Merit based bonuses are the main way my company handles this, but
there are more perks for the individuals who take initiative & constantly get
shit done (as it should be)

~~~
nradov
Competent managers reward based on business value generation, not hard work.
In a typical tech company, segregating employees into two different classes of
office space would lead to excessive internal competition and office politics
which kills morale and inhibits teamwork.

~~~
skate22
I dissagree that only business value added should be rewarded. Sometimes your
manager will come to you with an idea that gets squashed 2 months down the
road. I could do great at what i was tasked to do, but did not end up adding
any value. You don't hold back from praising their work. That would kill
morale.

To your second point, i started in the first environment & eventually got a
seat. I never resented people who were over there. I saw some friends get
there before me and i was happy for them. There was no internal competition,
just another nice reward to thank employees. I wouldnt want it to go away even
if i lost my seat.

------
datainplace
I am looking for office space right now, and I left the local WeWork office 30
minutes ago. Its very simple, they do things a lot better. That is the space I
want to rent. When I talk to cheaper office's they feel cheaper. Also their
contracts are simple. I want to think about my business, not building out an
office space. Finally, the fact that I now have a meeting room I can reserve
in multiple cities across the globe makes it almost a no brainier.

The drawback? They really know how to jam a lot of people into a very small
space, which might be why their valuation is so high.

------
synaesthesisx
Anyone else find it interesting that WeWork doesn't own any real estate? They
literally lease and sublet office space (although they provide amenities...do
those justify the valuation?). Granted there is some brand value, but what's
stopping a building owner from offering hot desks + coffee themselves?

~~~
jaredhansen
>but what's stopping a building owner from offering hot desks + coffee
themselves?

That is not at all what WeWork offers. I'm typing this from a Regus office
space (probably the best known incumbent), and having worked out of WeWork
offices at other times, the difference between the two experiences couldn't be
more stark.

A lot of companies try to claim to be "tech companies" when they're really
just doing some mundane thing, in the same way as ever, but with a "tech"
sheen on the website. (Maybe some green kanji characters scrolling down a
black background, that sort of thing.)

WeWork really is different. I've seen some of the tech they deploy to improve
the density ratio of the buildings, and to track different aspects of their
customers' experience, and on and on. I'll grant that there aren't many
barriers to entry in a small-scale, "hey, here's a desk and hot coffee" local
market -- but very few companies can create the kind of global footprint that
WeWork now has, which is a big part of the main strategy, going after the
office needs of the Global 2k.

~~~
zaidf
I've used both Regus and WeWork and would pick Regus over WeWork any day. I am
so much more productive at a more laid-back, quiet (both sound and visual
noise) environment than the hustle and bustle that WeWork takes pride in.
WeWork calls this energy, I call it noise.

~~~
chasely
Seconded. I'm at WeWork now, and had to upgrade offices just so I could be
somewhere that was quieter. Once my contract is up I'll be looking for a more
out-of-the-way office where I don't need to put on headphones several times a
day.

~~~
subdane
Thirded. WeWork has horrible sound design.

------
jillesvangurp
I spent some time working out of WeWork in Berlin (one of their 3 offices
there). A few observations:

\- Being there is expensive for individuals. It seems to be mostly small
companies and projects renting space. They get a decent deal of having an
office and all stuff that comes with that as part of the package. \- They seem
to use space efficiently, I did not spot many vacancies and it was packed with
people. \- It looked to me like they are not having demand issues and they are
basically billing per seat. \- Setting up these spaces must be costing them a
bit as a one time investment. The space looks nice and clearly they are going
for quality here. Seems to be part of their brand.

I imagine the latter is what is driving recent losses, because they have been
expanding like crazy. The flip side is that if each of those new offices has
similar occupancy, they are growing their revenue as well. The initial
investment can be amortized over the lifetime of the lease probably, which
presumably is many years. As soon as they stop growing, they should be making
money. My guess is they are instead expanding as fast as they can get away
with. This means that these losses are in fact solid investments. Somebody
else in this thread is citing 40% profit margins; this sounds legitimate to
me. The per building revenue should be substantial based on what I've seen.

------
saryant
Taken with their "community adjusted EBITDA" and I really want to hear a good-
faith explanation of how this situation doesn't end horribly. A valuation
divorced from any reality and a company using fantasyland financial metrics.

[http://www.businessinsider.com/wework-community-adjusted-
ebi...](http://www.businessinsider.com/wework-community-adjusted-ebitda-is-
reminiscent-of-tech-bubble-albert-edwards-says-2018-5)

------
greggyb
Typing this from a Make Office (WeWork competitor). I am not surprised at
their cashflow situation. A local office recently poached a bunch of members
from the Make location I'm at. They were offering 6 months free rent. It seems
like a "share at all cost" kind of strategy.

Especially considering the churn rate I see at Make, I'd be surprised if they
do much more than break even on the customers they got with a 6-month credit.

~~~
avip
%occupied must be one of their primary metrics.

------
kgwgk
Matt Levine today: [https://www.bloomberg.com/view/articles/2018-06-14/banks-
get...](https://www.bloomberg.com/view/articles/2018-06-14/banks-get-
distracted-by-the-world-cup)

"I have to say, if SoftBank is going to become the entire market for hot
private technology startups, then every valuation is going to be marked-to-
SoftBank, and the numbers will start to lose their meaning.

SoftBank: Would you like some money at a $10 billion valuation?

Startup: Sure.

SoftBank: Here you go. Would you like some more at a $20 billion valuation?

Startup: Sure.

SoftBank: Here you go. How about a $40 billion valuation?

Startup: This is dumb but it’s not like we’re going to say no.

SoftBank: Here you go.

Startup: Thanks brb buying a yacht.

SoftBank: Our mark-to-market investment returns are tremendous, we must be
good at this."

------
noway421
One dangerous part I think investors have forgotten in this whole going-away-
from-public-markets financing craze is that companies can now hold investors
hostage. It's now all or nothing play in which the investors need to pour more
and more money in the subsequent rounds in order to justify the ramp up cost
which gets you to the heavenly break even somewhere in next five years.
There's no longer an option to get out. IPO on 100b valuation or bust. Public
companies would never have luxury to take such gambles, their stock would
crash. (but from the other point of view, tesla is somehow still doing it)

~~~
mlthoughts2018
Perhaps often by design? Maybe sitting rows of expensive engineers in opulent
exposed brick open plan offices like they are office furniture is like
creating a venus fly trap for investors? It would partly explain why
engineering productivity is paid such little attention.

------
mstaoru
I'm typing this from one of WeWork's Shanghai locations, the loud music is
blaring behind me so I wear 3M Peltor construction headset, the sun through
the glass roof blinds my screen, and I have to squint to be able to read what
I type. I'm just back to HN from Medium which didn't load because the Internet
speed is abysmal (packet loss to Baidu LG is at 12% right now with medium ping
at 170ms, if I switch to my phone hotspot it's 1% and 32ms). I just bought
some drinking water outside because their RO filter is probably not serviced
ever and I have stomach issues after drinking it, my TDS pen reads 180ppm from
their water which is about the same as my tap water at home. But my membership
is part of the contract so I'm not paying for it, so I can't complain. $35B,
$350B, these numbers feel very abstract to me. They're probably collecting and
selling a lot of data about us, otherwise, I don't see much value over other
local players here which all have good design and nice crowd. And no banging
music.

------
chasd00
I office out of wework in downtown Dallas. As far as co-working goes it's the
best setup I've seen so far (out of maybe 6 that I've tried). I don't know
much about their valuation but what you get is worth the money you spend. At
the end of the day, that's all that really counts.

------
avip
WeWork is the next BetterPlace, only with way less interesting product.

------
jacob019
Seems the space is getting crowded. I rent from Industrious, a WeWork knockoff
that's nicer IMO; I get a weekly newsletter and it seems like a new location
is opening every week.

------
mistrial9
when are nerds going to figure out that renting services at a techie price,
from other people who form a company that has big valuation, is a new version
of Feudalism.

------
jaypaulynice
So all these tech startups are just good at raising fund? Is that a business
model nowadays? It’s like this startup I worked for and I swear what we did
best was hire people to do nothing...

------
baybal2
Dear WeWork guys, if you are reading this :), these are few tips how to run a
rental office space:

1\. Good furniture. You either buy super duper expensive italian handwork
stuff, or generic IKEA. Nothing in between.

2\. Think of smaller spaces, down to few rooms for 6 people in the same
building. Getting a wholesale rent rate on those, will be I say, easier than
that for warehouse sized halls you rent today.

3\. Rent in premium highrise towers. Your clientele is more than eager to work
out of these places.

4\. Reduce working hours, and charge extra for late stayers!!! You can't work
when you are being disturbed by cleaning staff. Having everybody leave for the
time cleaners do their work, will make life of both cleaners and renters
easier.

5\. Forbid eating at workplace. Having people carrying coffee bumping into me
3 times in 2 months, made me leave your cowo.

