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WeWork’s Back Is Against a Wall (wsj.com)
129 points by JumpCrisscross 29 days ago | hide | past | web | favorite | 165 comments

As has been called out by other analyses, the problem here isn’t really WeWork, it’s SoftBank. They thought they could run a pump-and-dump like Goldman did with Uber, but sorely misjudged the market’s view of WeWork.

WeWork is probably legitimately in the $15B range, but SoftBank has really tied themselves in a knot with such a high valuation paired with the downside insurance. They‘re in for an 11-figure loss no matter what, because liquidation preferences and huge losses scare off any serious investors they could potentially find.

My guess is that WeWork ends up getting massively scaled back and sold to one of its smaller competitors for under a billion. They’re just way too overextended to have any value beyond the brand.

>the problem here isn’t really WeWork, it’s SoftBank

No: WeWork is a huge part of the "problem", with crazy org structure, self-dealing, a "cult of CEO" structure, and a business model that may not be that defensible. Softbank is an enabler.

Let's hope this his "peak hubris" and we're back to more sensible tech IPO attempts.

There are millions of poorly run shady businesses, it's a problem that takes care of itself if you don't have infinite money coming in.

Not sure that it's a problem now though. Like Matt Levine suggested[0], WeWork did a lot of weird shit when they were private, but now they want public money, they need to behave more like a responsible company. It's kind of what's supposed to happen because of the disclosure, it's just that most of the time companies take care of governance issues before the S-1.

[0] https://www.bloomberg.com/opinion/articles/2019-09-13/we-is-...

I think an under-appreciated aspect is that you can't just have a CEO who's engaged in extremely questionable practices like WeWork's did just flip a switch and say "Ok, now we're public, so I'm going to cut all that out and be honest". It's a pretty big fucking signal that he's not trustworthy.

Neumann's past behavior is still a problem.

Absolutely. Traditionally the move for a company in this situation might be to replace the CEO if they plan to raise public money and he has a history of bad behaviour.

In WeWork's case it's probably impossible to remove him both legally and because the whole company is built around his personality cult.

I mean... this should lower the valuation into the ground, companies built around personalities will collapse - possibly when the personality retires/dies but more likely just due to implosion over crazy antics.

A company is something "we" build, it isn't something "one" builds, and this misunderstanding is causing a lot of social pains in the US right now.

>A company is something “we” build

It is deeply ironic that the company that elucidates this exact philosophy in its IPO is such a good example of a company built by “one.”

Softbank are the ones who drove the valuation that high. I agree with the cult of the CEO thing and all, but I’ve always felt the smart money in the valley knew to stay away from WeWork. It was a sucker’s gambit from the start.

Wikipedia is saying that the 2016 round valued We at 16bn which was before Softbank invested. It was already overvalued before Softbank and the corporate governance issues were there before as well.

There is a difference between 20% overvalued on the expectation of future growth and 400% overvalued.

WeWork should be valued around the same as Regus

All of this is true, but it was the SoftBank capital flow that made this all possible until now. The reconinging and reform would have happened sooner with WeWork if SoftBank was not providing "free jet fuel."

>Softbank is an enabler.

Enabler is true, but a lever requires both the rod and the fulcrum the rod pivots on. Without the enabler the lever would not exist.

>No: WeWork is a huge part of the "problem", with crazy org structure, self-dealing, a "cult of CEO" structure, and a business model that may not be that defensible.

Sounds just about par for the course of any SV startup, the only difference is, the critique seems consistent with outsiders criticizing SV startup IPOs, only the shoe is on the other foot and SV is criticizing outsiders for the very concepts it seems to promote within its own little bubble.

WeWork takes this much further than other SV companies. In their S-1 filing, they had to disclose something like 100+ related party transactions: https://www.forbes.com/sites/alapshah/2019/08/19/just-how-un...

Wow, those filings make it seem like the founder was using WeWork as his personal piggy bank. Did I understand it right that he took out a loan from WeWork then used a bonus from the company to pay it back?

He sold the company a trademark for the word "we" for $6M. It was eventually rolled back after media exposure.

> WeWork is probably legitimately in the $15B range

How do you arrive at that number?

I've seen comparisons to firms like IWR / Regus that imply a much lower number would be appropriate, even if WeWork was as profitable as those firms (which it isn't even remotely... it loses money hand over fist).

You have a point; $15B is on the high side and I can’t defend it. But they do have a brand, which is what makes an undifferentiated service like office space valuable.

I still contend that most of the value of Uber is tied up in their brand, and I think the same is true of We. I’m not sure either of their operations are all that valuable.

So the problem of these companies that are many billions of dollars having "most of their value tied up in their brand" is that the brand becomes... kind of inextricable from the operations.

Who would buy a $10B brand? Much less a $30B one or whatever? The answer is almost exclusively "companies that already have a better brand than you do." Like, Apple could buy Uber, and then do its own ride-sharing service, and brand that ride-sharing service Uber... but they don't need to. They're Apple.

Any potential ride-sharing service that would like to build its own operations and the bootstrap itself to wider name recognition by buying Uber's brand won't be paying tens of billions of dollars.

So what's left? We and Uber need to reform their own operations to make money, which is the exact problem that nobody thinks they can do. What does their supposedly powerful brand get them?

>Who would buy a $10B brand?

Phillip Morris (a cigarette company) paid over $13BN for Kraft Foods, the vast majority of which was simply for the "Kraft" brand. And this was a long time ago.

Brands have enormous value.

It wasn't for all the money they make from selling food products? Kraft generates predictable revenue and profit.

>It wasn't for all the money they make from selling food products? Kraft generates predictable revenue and profit.

Not really for that, no. In GAAP accounting "goodwill" is the generic term for "extraneous stuff that we can't quantify" i.e. the brand - the vast majority of the purchase price for Kraft was labled "goodwill" in the public accounting statements Phillip Morris issued.

There is a pretty good writeup on this in Naiomi Klein's book "No Logo"

Brand names matter more in food and health verticals. People are far more brand driven when it comes to putting things in their body than they are about ridesharing or office space

Regus has more locations, owns the buildings instead of subleasing them, is profitable, and is valued at 3.6B. 15B would be not be a sane valuation for Wework even if they weren't bleeding money at an alarming rate.

Regus offices are soulless. If you try to run a startup out of one, you'll have a harder time hiring and everyone will want to go home at 5 pm.

The amazing thing about WeWork is that the offices are fun. The one I know in SF is an OK place to hang out in the evening.

So I disagree it's just a brand. WeWork's product is better.

Maybe other temporary office companies will figure out how to make their offices fun, but I sort of doubt it. Companies rarely learn how to be more fun if they didn't start off that way. If WeWork is the only fun office space, they'll be hugely profitable someday.

Regus offices are soulless.

Well...they're (in my experience using them in the SE US) generic, quiet, generally well run. So, about as soulless as any office. Which was pretty much what I want.

WeWork's product is better.

Excepting Regus being profitable, having a better financial structure and management that's not a liability. But I understand that's not the only measure of 'better'.

The one I know in SF is an OK place to hang out in the evening.

I can't imagine anything I'd less like to do after work than hanging out drinking beer with a couple of dudebros with nowhere else to go after work than...work.

If WeWork is the only fun office space, they'll be hugely profitable someday.

I'm certain there's a market for work-space-as-life-substitute, but my own equally unsubstantiated feeling is that when people look for "workplace" they have one thing in mind, and when they think "fun", they're looking for something very, very different. At least for me, I don't want to try and work someplace where other people think it's for fun; fun is distracting.

It seems that in the last batches of adults we got there has been a growing minority that doesn’t subscribe to the „go home at 5“ mentality. From personal experience WeWork type locations are an excellent thing for such people whereas anything focused and tied to classical careerism just doesn’t work for them.

I also think this is cool.

People in these places (not necessarily only WeWork) seem to be often interested in finding true purpose through work. It is a nice idea. Work, like sleep, is a large part of our life. Might as well be fulfilling in itself not by side effect.

I don't disagree completely, and I acknoeledge there's a need for something like what WeWork pitches, but I would make a couple of points:

- I guess I'm from a previous batch of adults. The idea that we all have a "go home at 5" mentality is a fallacy. I don't check out promptly at 5 (or any other time) every day. None of my employees do. Very few people I know do (and the ones that do aren't in technology). Maybe there's that impression because we've got enough experience to have realized that "you are your work" is not the better alternative it's sometimes presented to be.

- Conversely, I think the issue with "the last batch of adults" is that they have been feed the idea of "don't go home at 5" as an ideal, even a requirement, and saying "I have a life outside of work that I want to maintain" is what people who don't have what it takes to succeed say. Sure...there's Jack Ma, but Jeff Bezos has breakfast with his kids every day and Larry Ellison still ditches Oracle to go sailing.

- Work, like sleep, is a large part of our life. Might as well be fulfilling in itself not by side effect. Work can (and should be) fulfilling. Work does not have to be the totality of fulfillment in life. If it is for you, mazel tov; but it's not a moral failing to say "nope".

It's a false dilemma to assert that only people who work excessively find purpose in work. Plenty of people at large companies enjoy and value their jobs. They just make reasonable delivery schedules and go home to their families at 5PM.

> But I understand that's not the only measure of 'better'.

I think there's a space in the market for a Regus-like company where the offices are 'Affordable Luxury' like Google offices, rather than 'Standard' which Regus provides.

You know, free food and soft drinks, ergonomic chairs, things like that.

The fact WeWork aren't making a profit, there are major governance problems, they have bad share structure, arbitrating long-term and short-term space leases has substantial downside potential, and the fact they're over-valued, mean I won't be investing of course.

> The amazing thing about WeWork is that the offices are fun. The one I know in SF is an OK place to hang out in the evening.

I've worked in a few WeWorks in NYC and I can emphatically say that is not the case in any of them. I don't doubt what you're saying, but that you're overestimating WeWork's product consistency. Most of my WeWork experiences have been more or less as soulless as a Regus office, only with "Hustle Hard" and "Always crunching" LED signs on the walls (I don't think those are the actual phrases but the real ones are so vacuous that I can't even remember them). On the plus side, their free coffee is excellent.

(even all this aside, if your office space is so fun that people don't want to leave it then I'm afraid your employees probably aren't all that productive. It is not a good thing to optimize for and if WeWork did they'd be turning off potential customers that live outside the SV bubble)

If you pay a monthly premium rent, the coffee ain't free. I've been at a WeWork and a smaller coworking space in Seattle and couldn't really tell which one had a multi billion dollar evaluation.

The amazing thing about WeWork is that the offices are fun. The one I know in SF is an OK place to hang out in the evening.

This sounds like my worse nightmare. Fake “fun” at work. I don’t go to work to have fun. I go to work to get a paycheck.

And for startups inducing “fun” is just another way to get young gullible employees to work crazy hours for less than the market rate and the promise of equity that statistically won’t be worth anything.

> This sounds like my worse nightmare. Fake “fun” at work. I don’t go to work to have fun. I go to work to get a paycheck.

Well said. I can understand "fun after work" (which I don't want as I prefer to go home). But what this all rant about "fun at work" ? all valley cult. Remember 'enjoying work', 'good work environment' are completely different than 'fun at work'.

This may be a generational thing, but I prefer my workplaces to be for work, and my playgrounds to be for play, without blurring the lines between them.

Leaving work at 5 pm is the goal. Clock out. Go. Be free.

If I want a social club, it will be a separate organization. People staying at the office after hours is indicative of a toxic work culture (unless those folks always come in just as late on the other end of the workday). An effort to design a workplace as having the appearance of fun strikes me as disingenuous, at best, and at worst is a signal that the company is, as David Brent put it, "'aving a larf", at the expense of the investors.

Do not make your offices fun. Levity and gravitas can co-exist, but at work, the latter should have the greater weight.

I've upvoted more comments (including this one) among these responses than I have for the entire year previously. I think this goes to part of what creeps me out about WeWork, generally.

I suspect they are selling to founders who are rich enough that they want to startup mostly for the social interaction

> Regus offices are soulless

> everyone will want to go home at 5 pm


> WeWork is that the offices are fun.

> is an OK place to hang out in the evening.

That is because outside of SV, work is where you work, not "hang out in the evening". And that is a good thing. Work-life balance is important for long term health

As a startup founder/CEO, I want my employees to come in, work hard, and then go home.

Professionalism and separation are important to a work environment. It creates balance and a better culture with more productivity and satisfaction for everyone involved, especially those with families and other commitments that take up their evenings.

An office that's also a personal hangout is blurring the lines and always leads to problems.

> everyone will want to go home at 5 pm.

You say that like it is a bad thing.

Like it or not, from a company owner's perspective, it is.

Also, it's not like a soulless or poorly configured office has negative effects only after 5pm. I know someone who's in a WeWork office temporarily - they love it, because the old space was poorly configured and amplified stress. Go figure, they've also mentioned they feel more productive and are getting more done.

But they're not they're any longer than they were before.

Actually a company owner with a brain doesn't want their people to burn out, so limits late nights and overtime.

There’s a reason why every landlord is an asshole. It’s a cutthroat business all about minimizing costs. Fun is fickle, expensive and requires ongoing investment. It’s leaving money on the table, which is why few people do it.

What's wrong with going home at 5pm? Ever heard of work-life balance? Your start-up won't run better when you run everyone into the ground. Build sustainable businesses over shattering yourself.

WeWork is that the offices are fun. The one I know in SF is an OK place to hang out in the evening.

This is so SV. In the real world CEOs aren’t so into paying a premium so that their employees can chug “free” brewskis at work. Going home at 5 and coming in at 9 is the norm.

I am not sure the product is really any better. There are a bunch of cute little old things around the printer, they have cool signs and I don't mind the fruit water. There are some other goods things like being able to build a virtual network of devices and things like that, which would be much more problematic without a single provider.

But I would settle for wifi that always works (been working on this in our own little corner of WeWork for a couple of weeks) and coffee that was ready before 9. It would be great if we could just scan our badge at the printer.

I feel like they provide insufficient attention to the basics and really focus on what they think provides differentiation. Maybe in a year I will think differently but if I had to pick a different office space today I don't think I would be any more likely to rent a WeWork given their brand.

Supercool offices are a negative signal when I'm interviewing. I need fewer distractions when I'm trying to get work done.

> If WeWork is the only fun office space, they'll be hugely profitable someday.

The competitive moat of being fun is built on huge subsidies of cheap capital being injected into the company during funding. It's a great venue because the costs are being subsidized by Softbank. Absent that subsidy they would be losing even more money than they already have and would either have to raise costs or lower quality.

Everyone is going after the 'go home at 5 pm' part, but missing the point.

The moment HN hears about people staying past 5, everyone is up in arms, but... what if I'm staying past 5 so I can leave earlier the next day? Or past 5 for a week to get something done on time, and then taking off early for the next week when there's less to do? Personally, I'd prefer to do that in a nice office. It works for me, and for the company!

Even just in general. The effects of an office are far more than just 'do people stay past 5'. Even within a strict 9-5 work period, there is a huge amount of variance. If the office is depressing and soulless, it will have knock on effects on productivity and employee happiness. Again, good for the employees and the company.

But no, according to these comments an office people stay at longer is always evil.

> But no, according to these comments an office people stay at longer is always evil.

You're projecting here. No-one is suggesting that being in the office at 5:01pm is a capital offence, but that workplaces with a consistent expectancy that you stay late (something many of us have an experience of) are a bad thing.

Brands only have value if they can be used to create customers and profit. Apple, Microsoft, Google are massively valuable. Blockbuster, Sears, Theranos are not.

WeWork is a bubble about to burst. Uber is still unknown. The value of both brands is complete speculation and highly inflated by hopes and dreams.

> I still contend that most of the value of Uber is tied up in their brand, and I think the same is true of We. I’m not sure either of their operations are all that valuable.

What good is a brand if it's losing money?

Eventually: nothing.

That may take a while, though. As an example, check what the “Commodore” brand went through.


”Commodore declared bankruptcy on April 29, 1994, and ceased to exist”

https://en.wikipedia.org/wiki/Commodore_International#Post-C.... :

“In late 2004, Tulip sold the Commodore trademarks to Yeahronimo Media Ventures for €22 million”

That’s 10 years after they went bankrupt, and the story didn’t even end there.

Yeah, but Commodore did ~US$1B in sales per year in the early 80s. So, sure, there's some residual value in a well known brand, €22 million is a tiny pittance compared to the pre-fall valuation of the brand. Will C= become another multi-billion dollar company under Yeahronimo? Maybe, but given other resurrected nostalgia brands (see: Bell+Howell shilling crap flashlights on late night TV) I wouldn't bet on it.

Because a brand is all about revenue. The entire purpose of VC financing is to build a brand with outsized mindshare before the market is mature enough to have established players and then fix the operations later.

It is sort of amazing that this is still happening - when your brand is heavily reliant on network based social effects then taking a loss to build up that network is hard to swallow but potentially correct. But, if I were to build a steel mill and take this approach it'd be idiotic - some tech companies do benefit from network effects, but others do not. WeWork simply doesn't - if it'd been an office space renter with an emphasis on style and the social environment that had started in SF and spread organically it totally could have made it, but money was wrecklessly pumped into a business that shouldn't ever be in the red (outside of asset acquisition including software components, that's totally reasonable).

I completely agree with you. But the problem with markets with strong network effects is that those network effects usually aren’t obvious until you’ve struck gold. The markets with obvious network effects tend to be too heavily competitive to actually ever get there.

This is an interesting observation.

Can you share a link/case study?

Kind of makes sense, but curious of how you developed your certainty. thnx

But aren't they still supposed to fix the operations before they IPO, or at least enough to convince investors it's a good buy? We're not talking about companies that hope to stay private for the foreseeable future - these are companies that are trying (and failing) to IPO or very recently had unsuccessful IPOs.

A brand is only so useful if it's attached to a money fire.

Absolutely agree, the whole WeWork IPO has been a dumpster fire. They should have had their house in order long before an S-1.

Does the brand really matter for office space? I can’t think a company, even a small one, not shopping around for such an important matter, and also not looking for facilities that are convenient in term of location rather than going to the other side of the city because it is a well known brand.

They do have a brand, but it's a brand that comes with a lot of baggage.

How does WeWork massively scale back? They have $47.2B worth of obligations. How do they get rid of those?

The problem with blitzscaling is, you can blitzscale into shit.

Most of those obligations are through special-purpose entities for each location. They just walk away from all but the most profitable ones and leave the landlords holding the bag.

Re: "special-purpose entities":

Why would landlords agree to this? "Hey guys, we'll sign a 25 year lease with you but only through a special purpose entity, so we back out at anytime and you can't do anything!". Given how choosy and patient commercial landlords are (eg. letting properties stay vacant for years to find the right tenant), why did they make an exception for wework?

They probably signed triple-net leases with WeWork, meaning that WeWork pays rent, property taxes, utilities, and upgrades/maintenance.

If WeWork walks away, they leave behind nice offices that the landlord can rent out to another tenant with minimal investment beyond a few months lost rent (that could theoretically be recouped from WeWork).

Yup. My wife worked in commercial real estate (contracts and billing, before the crash in that biz) and she surmised exactly the same thing.

I think most real estate folks learned their lessons in the dot-com bust. Lot's of folks were making stupid office space deals with tech companies in return for warrants, etc., which ended up being worth less than nothing.

That's fine if they never plan to sign another lease. It's like saying oh, you can't service your debt huh, just declare bankruptcy! Sure, if you don't plan to need credit in the next 7 years.

Corporate bankruptcy doesn't work exactly the same as personal bankruptcy. WeWork declares bankruptcy, it's officers find a couple of new, untainted folks to hold key corporate officer positions, and suddenly YouSlave, Inc is open for business and looking to rent space. Might need to polish your D&B a little, but that's easy enough.

Owners of office buildings aren’t stupid. If WeWork created a special entity to rent each building, rent would go up significantly, or the landlord would require the parent company to guarantee that rents would be paid.

Or did WeWork pay for refurbishing the building, so that, if they stop renting early, the building’s owner ends up with a better building than what it had before?

The latter. They invest heavily in FF&E and the landlord gets to keep the improvements no matter what

We will have to leave the glass walls and wood floors, but the other stuff should be movable and liquidated to help We's balance sheet.

"FF&E are movable furniture, fixtures, or other equipment that have no permanent connection to the structure of a building or utilities. These items depreciate substantially but definitely are important costs to consider when valuing a company, especially in liquidation."


Then, the mother company can indeed get out fairly easily, at the price of some goodwill, making it, IMO, a (possibly only slightly) less risky investment.

Mightn't it be possible to pierce those subsidiary corporate veils to reveal (make liable) the parent corp?

Even if not, they are in for some expensive lawsuits. It won't be a matter of simply walking away.

I would be amazingly disappointed if

1. WeWork got away with this no matter how stupid those landlords were

2. Landlords actually signed out leases with no collateral considerations.

Though, to be honest, assuming WeWork doesn't actually stiff them on time the space was in active use and a bit of a margin... then I'm less disappointed, since the land lords will have lost very little actual value.

I suppose this is the next step after saying executives at companies shouldn't be held accountable. Now companies shouldn't be either, only those funding them.


WeWork is probably legitimately in the $15B range

No. Scale to the same PE ratio as IWG/Regus and knock off a fudge factor for poor governance. You’re lucky if it’s worth $1B. Or anything if you accept that the only legitimate reason to own it was to flip it to a sucker, and everyone knows about it now.

It's the founder's responsibility to accept responsible funding terms that facilitate the next round.

Softbank’s MO seems to be making big bets on lots of competing companies and letting the chips fall where they may. I’m guessing (pure speculation) that they have a stake in some, if not all, of the Asian companies that will operate in WeWork’s vacuum.

> In this case, downside protection for early backers appears to take the form of a $1 billion convertible note that changes into equity on the last day of this year. The note is held by major shareholder SoftBank, according to We’s regulatory filings. We’s prospectus offers only a vague price for the conversion, so it is impossible to tell exactly how much or whether shareholders will be diluted, says Nori Gerardo Lietz, senior lecturer of business administration at Harvard Business School in an unpublished paper seen by The Wall Street Journal. But because the conversion appears to happen after the IPO, buyers of its shares in the offering could take a hit.

How is this not something material that should be disclosed as part of the initial filing?

"A final squeeze on the company is that it will lose its status as an emerging company under the JOBS Act by the end of this year, which would make the IPO process even more cumbersome. The act allows the company to use more lenient reporting standards about its finances and executive compensation—a potential problem for a company already dogged by governance concerns."

It might also explain why they have been so pushing so aggressively for an IPO this year.

The higher set of reporting standards that would be imposed next calendar year might help raise public confidence in the business.

I think it's saying that Nori Gerardo Lietz's analysis paper was unpublished.

The conversion price of the convertible debt is the only that the wasn't disclosed in teh S-1. It says it did convert to a G-1 prefered stock, but it's unclear what the value of those shares are.

It's on Page 115.


>"Convertible Note and Warrant Agreements

In July 2018, we entered into an agreement for the issuance of a convertible note with SoftBank Group Corp. for a commitment in an aggregate amount of $1.0 billion (as amended in January 2019, the “2018 convertible note”). On August 31, 2018, we drew down on the full $1.0 billion commitment. On July 15, 2019, the 2018 convertible note was converted into 9,090,909 shares of Series G-1 preferred stock."

I loathe WeWork, especially their 'photograph everybody that visits our building high res and up close and with the names attached to the record'. I stopped going there to visit companies after the first time they pulled that. Oh, and got into a tiff with a receptionist that insisted I not block the camera.

Here's to hoping they go bust.

Wait - they take a photograph of your face at every building?

Yes and no. They use a guest registration system (on an iPad) that takes a photograph to send to the person who invited you on arrival so that your host knows who to look for in the shared space. You can simply choose not to stand in front of the camera (there’s a countdown) — it’s not mandatory, and certainly nobody would take issue with you opting out. I was a WeWork member for years and, as far as I know, the photos are only used in the emails to hosts.

Also it’s worth noting that the same systems are used by lots of companies, especially tech companies: they go as far as taking photos to print on temporary badges. Photos of guests is certainly not unique to WeWork, most startup offices I’ve visited do it.

I've been told very explicitly that opting out was 'not an option' and there was also zero information on what would be done with those photographs.

Yep. I would never ever house my company in a building where the landlord insists on high res pictures of my visitors being taken by their systems.

Isn't that frequently the case though? The number of times I've walked into a building and been captured by some security camera must be enormous. Maybe the resolution is lower, but 1.) that may not matter that much, they can still recognize/have a record of you and 2.) I'm sure security cameras get better over time and eventually that's going to be high res too.

As for the name<->picture mapping, many many buildings have a log book for visitors, doesn't take too much work to associate a name with video of who wrote in the book at that time.

My point is that it's quite likely you've already given out tons pictures of you to the locations you visit. We-work might be more explicit, but they're not unique.

There is a huge difference between a full-frontal face shot from a few cm away at 4K vs a frame shot on a CCTV system. Besides that the CCTV footage tends to get automatically wiped every so many days if there is no explicit reason to keep it but those WeWork mug shots will likely stay on file forever and quite possibly not in the country that you are in.

Isn't this kind of thing standard any time you visit e.g. a Google office, or a colocation facility?

Many of these companies required you to agree to an absurd NDA which is extremely one sided... all for the benefit of attending a meeting they invited you to.

Getting your picture taken would be a much better deal.

How about neither?

I haven't seen this happen in a few Microsoft and Google offices across Europe

Not at google or apple. yes at facebook (predictably)

I'm almost positive I had my picture printed on a paper badge at both Google offices I visited, but they were so long ago I can't be 100% sure.

In Mountain view you only needed a name, and not even to show ID to prove it was real.

Source: 7.5 years of signing guests in to visit me

I've had my photo taken at sign in the large NYC office.

I’ve visited google a few times and never had my picture taken.

They definitely did it in NYC as of a few years ago

This was the building owner, not google. Once Google bought the building, the practice stopped.

Name is required at many places, but usually not a photo.

Yes. That reason (amongst others) is why I would never rent space or do business in a WeWork facility.

This must surely be an obvious GDPR violation if it happens in Europe.

If WeWork owns no assets (leasing model), can't raise money, burns billions per year, and runs out of cash, what is there left except bankruptcy? It's a cash flow model that doesn't cover its costs - WeWork pays 100 units for commercial real-estate and flips it for 90 units. This is the Movie Pass model - they give VC money directly to customers!

> This is the Movie Pass model

It's the dumb-money backed venture model, and there are plenty of those. Many companies that are not profitable on a unit-economic basis are kept afloat by burning cash. It can't last of course, but in the meantime they can make your life quite hard if you are competing with them.

I think one difference between the typical VC model and Movie Pass / WeWork is that VC-backed companies typically own assets, such as valuable IP and software. WeWork doesn't own anything and operates a real estate splitting service. This is a thin-margin business. Similarly, Move Pass didn't own the theaters, the films, and didn't ink any exclusive deals - they just took 10 units of money from customers and gave them 100 units of tickets. There is no real value there.

I think the initial model, where they charged 50$ a month, could have worked.

But then the douchebags moved in with they're brilliant "what we lose per customer we make up in volume" philosophy.

Making up in volume they definitely did.

> they just took 10 units of money from customers and gave them 100 units of tickets.

One could have said the same about Netflix and Spotify. The key point is to find a monthly fee that is low enough to get masses of people subscribing, but high enough that the masses of 1-movie-a-month ordinary users support the 30-movies-a-month power users - or to cap the "power user" limit at something reasonable.

The other thing would be to gain value from the users beyond the subscription, for example by having them rate the movies they see or giving out boni (=one high quality review gets you two extra visits even if you hit the cap).

Except that Netflix and Spotify don't have to pay the per-performance costs, Netflix isn't paying $29.99[1] to CBS every time someone watches Star Trek TNG - and spotify isn't paying 70$ every time I listen to a song even though concert tickets might run that high.

MoviePass _may_ have been a sane venture if they rented out the theatres for MoviePass specific screenings at a flat rate then tried to make a margin on filling those seats up enough. As it is they resold a thing from one company to consumers at a price below the consumer's standard price while trying to convince theatres to honor the passes by rebating the theatres well below standard fare price.

Would you like to buy a coke from a merchant for 2$? What if I could sell you a subscription to buy as many cokes as you'd like for free for a 29$ monthly fee, while offering the merchant 1.50$ per sold item - oh and the transaction would still take place in the store... and be run by the shop owner... they'd just make less money - but hey maybe my subscription will end up selling more coke than the merchant would normally sell - but wait if that happens I lose money, so I only end up making money here if both of you are screwed because I'm essentially trying to make money shaving it off of a transaction that was already taking place.

MoviePass was so ridiculously stupid[2].

1. The price off of Amazon to purchase the season in CAD

2. Props to college humor on a great mock of their business and CEO, worth a watch if you want a laugh.

>but high enough that the masses of 1-movie-a-month ordinary users support the 30-movies-a-month power users

How would this work for WeWork though? If someone rents the space, WeWork can't rent it out to someone else. And this is work. People are going to show up on most days - unlike gym memberships.

This seems to be a theme, but I wonder how it passes muster with any semi-smart VCs. Don't they ask about this? If the unit economics are so obviously bad, how did they get through in the first place?

> WeWork pays 100 units for commercial real-estate and flips it for 90 units

Not from what I can see ... they charge their clients enough to cover the location. Individual locations are (barely) profitable, the losses are coming from massive expansion and leasing new places.

Maybe I'm wrong on that. Either way this seems like an epic fail, but they are not "paying for 100 flipping for 90".

The "step 1 collect users, step 3 profit" business model.

There is a key business trick of renting the buildings in the name of smaller companies. Then if one building cannot be rented out, the small company declares bankruptcy and the rest of WeWork is unaffected/profits. I'm pretty sure this is what's going on and I don't think it should be legal.

Semi-unrelated, but the American Express Business Platinum Card currently offers 1-year of WeWork included as part of $595 annual fee (which is easy to cover with the airline incidental credits, bonus points) until the end of the year.

If you were thinking of joining WeWork that is an incredible deal, especially since it allows you to use any WeWork anywhere in the world.

I am jumping on that.

It's pretty wonderful. Just started last week and loving it so far. $50/mo WeWork, effectively? Awesome. Plus $200 off at Dell (picked up a new SSD for free), $200 off flight incidentals for one airline, etc. The thing basically pays for itself (for the first year at least).

I'd be curious who actually pays for that. Is it Amex or did We & Dell give that much discount?

Who pays for it? Likely:

- People not paying their Credit Card bills on time and racking up interest.

- Everyone else who is not using a Credit Card and get points (or get less points), subsidise the points users.

- Merchants who pay 3% transaction fees.

- Probably to a small degree, investors who buy stock in the cc companies (capital, which is deployed for Growth).

I meant this offer compared to other card offers which are not as generous. All of the points you mentioned would mean that Amex pays for it. However, I'm not sure they really pay much of the face value for the Dell and WeWork vouchers, I'd just be curious if they paid 50%, 10% or even less.

3%? Premium rewards can go up to 5%.

I think what happens in deals like this is that Amex buys bulk memberships (in the case of We) and credits (in the case of Dell) at a heavy discount. They are also betting when doing any financial modeling that a significant % of cardholders won't use these benefits at all.

I wonder how Adam Neumann is feeling through all of this. Stressed out? Checked out? Calculating? Defiant? Worried? Embarrassed?

What's it like being the public face of a company under such intense scrutiny?

I imagine the several hundred million he has already given himself helps tide over any stress from this.

He has the stress of worrying what the family whose money this was will do if they think he ripped them off...

He clearly does not care. If he did, he wouldn't have taken as much cash out of the company as he did, and would also spew less bullshit about the brand.

Laughing. All the way to the bank.

At least he's not stupid enough to believe his own BS.

He answers just enough to not be criminally liable for the overvaluation of the company.

Compared to Elizabeth Holmes? He's much better.

he's cashed out hundreds of millions. maybe his ego is taking a hit, but that's about it.

He's been delusional since he and the hommie got high and thought up "capitalist kibbutz"

4 important numbers, from the video:

WeWork's average lease term: 15 years

WeWork Tenant's average lease term: 15 months

WeWork's lease obligations: 47.2 bn

WeWork Tenant's lease commitments: 3.4 bn

Almost certainly, the video glosses over (read: ignores) the likely fact that the 47.2bn is over that 15 year average, and the 3.4bn is over the 15 month average, so this doesn't necessarily represent a shortfall in the long term.

> Almost certainly, the video glosses over (read: ignores) the likely fact that the 47.2bn is over that 15 year average, and the 3.4bn is over the 15 month average, so this doesn't necessarily represent a shortfall in the long term.

$47.2bn/15 yrs = $3.15bn/yr lease obligation $3.4bh/1.25 yrs = $2.72bn/yr lease revenue

So, if they can manage to continue leases at their current rate, they'll be losing $400m/yr.

Thank you for mathing it! That's very helpful.

Big office spaces go un-rented for long periods between tenants. In WeWork's case, maybe they expect shorter dead times.

Keep in mind also, 15 years on WeWork's side means they've locked those prices in, whereas 15 month terms on the client side means rents will go up on each renewal. (assuming no downturns in real estate, of course.)

So, this might pencil out to break-even or a few millions in gross profit ... over 15 years. Hardly a good business.

Lease obligations over the next 15 years: $47.2 billion ($262.2 million/month for 180 months)

Lease commitments for the first 15 months of that 180 months: $3.4 billion ($226.6 million/month)

Shortfall for the first 15 months which we know there is contractually-obligated income for: $35.6 million/month.

I haven't read through the original filing, but was the expectation that We would see increased per-month margins over the next 15 years to make it to a break-even or better point?

It's been floated they can get margins instantly by pulling back on variable cost ameneties like beer, kombucha, operations staff, etc.

That said, having been one of their tennants in SF, the price still feels high.

The facilities are really nice, but it's A LOT of cash flow for most startups.

The clinentell that seem OK with the price tend to be large corporations conducing top-of-cycle innovation theater with small offices doing "INNOVATION"

And service agencies; PR, Marketing, etc.

There are relatively few low capital, expoential growth companies I have found.

Very few people griding out code past say 6pm most days.

Most folks are living a lifestyle outside of WeWork's walls. The Transbay facility at 535 Mission is completely empty Saturday and Sunday.

It's a lot of innovation & tec tourists. Folks here for top of cycle vibes, but without the cred of having built something that will last.

People who want to build lasting companies GTF away from WeWork.

Do you mind telling me what you picture when describing "something that lasts"? The typical HN-featured SaaS isn't for one (with all of them offering a product easily replaced except for vendor lock-in and the big-data aspects) neither are the funky Teslas (with the eMMC dying faster than all the other cars going into planned obsolescence...)

I hope this doesn't torpedo meetup.com. They aren't the best for sure, but they are the right mix between old school mailman list and facebook.

It would be a sad irony if it did. When Meetup first popped back in the mid-2000s, they very deliberately turned away from the "blitzscaling" model in favor of building a sustainable business. For them to end up as collateral damage of someone else's blitzscaling train wreck fifteen years later would show that God has a dark sense of humor.


MeetUp is cool, needs to live.

Context; WeWork bought Meetup in 2017; https://www.businessinsider.com/wework-buys-meetup-for-200-m...

Hopefully want the team at Instapaper/Pinterest did will become more common.

Wherein failed integrations will be allowed to go back free and pursue their original potential.

I think this is a very positive pattern.


Is meetup deliberately a bit crappy and limited or something? The limitations of their search features continues to baffle me.

_something_ to allow a search for particular times of the day would be great, or the ability to zone in on a smaller area than "5 miles from London". If you want to browse further than My Meetups and Recommended you've to wade through so many 2 person attending afternoon meetups, it's incredibly easy to scroll into the next day and not realise... just all around terrible.

If it's a sustainable business, I would guess it would be sold off to pay creditors in the event of a wework bankruptcy. So will probably be all right (depending on the buyer, of course).

How would WeWork going under torpedo meetup.com? I'm not super familiar with their relationship with each other. Some quick Googling shows that they do have one partnership for a product related to booking a space for use with a meetup, but I don't know if MeetUp earns like a huge portion of their revenue off that.

Edit: Just found out that Meetup.com is owned by WeWork. This makes sense to me now.

A lot of meetups are held in WeWork spaces, especially smaller ones that are too small or niche to have a strong corporate backer.

I also just realized that WeWork owns Meetup.com. I don't know how I missed that.

Their back is against a wall because they saw a wall, pretended they didn't, faced away from it, and took backward steps until they hit it.

General Melchett: If nothing else works, a total pig-headed unwillingness to look facts in the face will see us through.

Not seeing long term consequences appears to be part of human nature.

That attitude isn't limited to WeWork or SV, unfortunately...

What exactly is a 1-3 month delay supposed to buy them? What do they think is going to happen between now and the end of the year to cause potential investors to say "Wework really is a tech unicorn, I want in on the IPO"?

They could halt expansion and raise prices instead to improve the unit economics. They could also fire the senior management. I doubt they'll do either of these things.

(It wouldn't cause it to be a tech IPO, but at least a sustainable business IPO).

Fancier couch pillows.

I suspect nothing. These guys are upside down at the first wife of a softening in commercial real estate.

Uber is laying off people, it's gonna happen.

Minor modification to the offering followed by a massive spin campaign. Expect to see shills like Larry Cudlow suddenly start talking it up.

Is anyone else reminded of how a bunch of bad business models started falling apart in 1999 precipitating a recession? We're on the brink of a recession anyway. Something really unpleasant might be coming.

I recall in the 90s people saying with a straight face things like "it's about eyeballs, not profits." Sure, eventually companies like Google were able to turn the eyeballs into profits by way of advertising, but most of the 90s web ventures failed to turn their eyeballs into sustainable revenue. Now no one doubts you can sell stuff on the web, services on the web, ads on the web. Now what we doubt is the companies like Uber and WeWork that want to 'disrupt' old businesses like car rental office rental. They've done so, but mainly by pricing themselves below cost. (leaving aside the, uh, quirks of management) And there's no sign that they can either raise prices significantly or come up with other more profitable revenue streams.

Most of these businesses only exist because it is an upmarket. Nothing of actual value be lost in the recession.

Someone in the upper levels of WeWork needs to seriously step away for a minute and look at what they have.

They are not a "tech company" who is trying to "revolutionize" the way people and communities come together to work.

They are a real estate company with a good interior design team and a founder with "a vision" but a lack of grasp on reality.

You can fix the governance problem. You can even fix the profitability problem. You can't fix the problem that they have high variable costs (leases, utilities, maintenance) that scale directly proportional to their revenues which precludes a unicorn valuation.

It is as if Jim Jones and his Kool Aid is back again.


So many people feel this way all the time that the HN people made a button you can click to express the sentiment, saving you valuable seconds.

Except they went and removed the count from public view, so the value of voting is limited to the poster. This captures only a small fraction of the potential value.

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