
WeWork: Now a $5B Co-Working Startup - mbesto
http://www.wsj.com/articles/wework-now-a-5-billion-real-estate-sartup-1418690163
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7Figures2Commas
> “If I showed you their cash-flow statement, you would not compare it to a
> real-estate company,” said Henry Ellenbogen, a portfolio manager at T. Rowe
> Price. “You’d compare it to a brand or tech company—maybe Chipotle or Uber.”

> WeWork said its December revenue puts it on an about $150 million annual
> revenue run rate. It also said the month’s annualized operating income puts
> its valuation at roughly 100 times income. It expects to grow significantly
> in years ahead, which would lower that ratio. Landlords typically trade
> between 18 times and 20 times earnings, according to Jed Reagan, an analyst
> at real estate consultants Green Street Advisors.

> Price depends on location. In the company’s Financial District headquarters,
> it charges $400 a month for a desk and $1,400 a month for a small two-person
> office, well above the area’s rate for such space.

> The business is a risky one in which its costs, fees paid to landlords, are
> fixed, but its revenues from startups and established businesses can fall
> quickly when the economy slows.

> “The small-to-medium-size businesses, they get particularly impacted in a
> recession,” said Jon Halpern, who ran shared office space firm HQ Global
> Workplaces in the early 2000s.

> HQ grew rapidly in the run-up to the dot-com bust. But in the recession that
> followed, its value plummeted. It ultimately sold itself to Regus.

Let me guess: this time it's different?

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mbesto
> _Landlords typically trade between 18 times and 20 times earnings_

This is my favorite part. So WeWork is "trading" at 33x on _projected_ annual
earnings and yet these contracts can easily be broken. When it all falls down
(it will, but probably less dramatically than we've seen in the past) this
type of business will be hit the hardest. Not having fixed cost structures are
typically why so many tech startups can be valued so highly.

~~~
pbreit
You mean "33x on projected annual _revenues_ "! Huge difference and far worse.

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jarjoura
Instead of thinking of WeWork as Airbnb for desk spaces, I like to think of
them more like office hostels. They are relatively cheap spaces depending on
how much of it you need and and how private of an area you want.

They offer community events and shared spaces to help connect founders with as
many other people as possible. They're not all startups like at accelerators,
but also include remote office workers from big companies who haven't rented
an official space yet. So it is quite the diverse crowd.

If you like working in coffee-shops, give WeWork a try. It was a worthwhile
couple of months and I met some good friends.

~~~
pdq
It's definitely not like Airbnb, as the producers own the space, the consumers
rent it by the day, and Airbnb connects the two for a fee. WeWork lease the
office spaces themselves and rent it directly out to consumers, ala Coworking.

The only secret sauce is if they can get a large enough following nationwide
(especially for startups) to get a household name, such that you go directly
to their location in your city, rather than Googling for Coworking.

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dimva
This company provides inspirational, collaborative, nice office spaces for
very high prices (compared to traditional office space). Their outsized
profits will encourage competitors to enter the space and undercut them on
price. Is there a way they can defend against that?

\- Their events provide some sort of network effect and marketing

\- The current group of startups provides some sort of network effect

Still, their customer base consists almost entirely of price-sensitive, savvy,
early-adopters, so any new competitor would be known about without having to
do much marketing, and could start without all the nice events in the
beginning if the price is lower.

I just don't see how this business is defensible long-term...

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acgourley
I suspect that if you ask them they will say that there are network effects in
that a) you can travel and use other wework spaces with a single membership
and b) you get access to a community to hire from, seek advice from, network
with, etc. For me those would not command a large price premium and so am
incline to agree with you that it's not very defensible.

That said, a capital heavy business like this doesn't need as much defensive
power as a tech company. Very few challengers will have access to the capital
needed to compete with wework at scale (and there are scaling benefits here)
so the competition won't be crippling.

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francesca
WeWork did a great job of capitalizing on the move to smaller more agile
companies. I don't think that "startup hype" is going to die. It's cheaper
than ever to start a company and the market for tech companies is excellent
right now. It's not easy to do, but getting $1-3MM in funding is accessible to
talented people and once they get that in the bank, they're not going to open
an office-- they're going to WeWork. This is huge for their business and it
also enables the creation and maintenance of small companies who want to do
things lean until the build a market and revenue stream (or maybe in some
cases, adoption to drive further venture investment).

I've seen WeWork do great things for companies in NYC by just giving them a
place to work and a community to work with.

Still, WeWork is not just another. They are actually a next-generation Real-
Estate company! WeWork makes it clear that working is not just about your
desk. It's also about your environment, the other people you interact with,
the events that come to your space, the coffee you have (and in the case of
WeWork, the architecture and design of your floor!). This is very cool for the
future of company/working culture.

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pdq
Is there history behind the $355MM Series A funding, and does anyone have
statistics for other large A rounds? I have never heard of such a large
investment on the front side.

~~~
gatsby
Much more similar to private equity financing / bank loans, as opposed to
traditional VC investment.

WeWork needs lots of upfront capital to cover security deposits, build out
spaces (tenant improvements), prove enough assets to take 250k sq. ft. at a
time for 15 year terms, etc.

Lots of coworking spaces have raised significant 6, 7, or 8 figure sums
(WeWork definitely getting more than most), that mostly fly under the radar in
terms of "companies that raise huge amounts of capital."

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etjossem
Paywalled. I wish the submission link went to the full article.

~~~
melling
Sign up. It's a little over $1 a day.

~~~
pbreit
Which is kind of a ripoff, dontcha think? That's about what I pay for all my
internet access and triple that of Netflix, Hulu, Amazon Prime & NY Times.

~~~
melling
It really depends on how much you value the content. I pay for the WSJ. People
need to earn a living. We fight for McDonalds employees to earn a fare wage
but we complain because we don't want to pay for newspapers. There's nothing
wrong with "premium content".

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bache
We need this in Toronto

~~~
driverdan
A 30 sec search for "coworking toronto" shows me many coworking spaces in your
city.

~~~
bache
Massively overpriced, a private office in a Toronto coworking space starts at
2x what wework charges

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mrfusion
This got me wondering, why hasn't anyone made an airbnb for office space? (Or
is that what this company does)

~~~
stevesearer
[https://desksnear.me/](https://desksnear.me/)
[http://www.peerspace.com/](http://www.peerspace.com/)

Loosecubes is another that recently shut down. Kodesk doesn't look like is is
around anymore either.

Here's a Quora answer with a bunch of them: [http://www.quora.com/What-are-
all-of-the-sites-that-do-Airbn...](http://www.quora.com/What-are-all-of-the-
sites-that-do-Airbnb-for-office-space)

And Airbnb's 'Airbrb' April Fools: [http://blog.airbnb.com/introducing-
airbrb/](http://blog.airbnb.com/introducing-airbrb/)

~~~
mikraft
Airpnp: [http://www.airpnp.co/](http://www.airpnp.co/)

