Some say there’s no such thing as unicorns, that they’re mythical creatures. Others say climate change wiped them out. But if you’ve spent even a little time on the web in 2019, you’ll discover modern unicorns — private companies valued at more than US$1 billion — are alive.
Last week, The We Company, parent company of WeWork, filed to go public.
Yep, another unicorn, following in the steps of Uber, Lyft, and Pinterest, to name a few.
We’ll get to where The We Company is going in a second, though.
For now, let's travel back to 2008.
Adam Neumann and Miguel McKelvey convinced their landlord to allow them to turn a single floor of a Brooklyn-based warehouse into a co-working space called GreenDesk. After two years of renting out desks and workspaces for up to US$2,400 a month, they sell the business to their landlord for a seven-figure profit.
But they feel they’re onto a good thing, so they do it all again. This time, though, they bring on another co-founder (Rebekah Neumann), name the company WeWork, set it up across the river in Manhattan, and nab US$15 million in funding.
And maybe they were onto a good thing.
Within a few years, business is seemingly booming. WeWork grosses an estimated US$150 million in 2014, and Forbes says they’re on track to become “the fastest-growing lessee of new space in America” by 2015.
Fast forward to 2018, WeWork becomes the biggest private office tenant in Manhattan.
There’s something interesting about those two achievements, though. While WeWork was making money by renting office space, you can see it’s a tenant itself. In fact, its entire original business model relied on taking on long-term leases and creating short-term rental options.
And that’s one reason there’s been mixed feelings about WeWork in recent years.
A Wall Street Journal article published in 2017 suggested WeWork was technically a garden variety real estate company masquerading as a tech company (with the well-crafted image and multibillion-dollar valuation that goes along with that).
As they pointed out, WeWork’s strategy assumed many of the costs and risks — such as being on the hook for long-term leases, and not owning its own buildings — associated with traditional real estate. What’s more, the majority of its clients were startups, risky in their own right.
But if these risks were an Achilles heel to the naked eye, WeWork didn’t let it get to them.
The company continued to raise money — most notably from Masayoshi Son’s SoftBank — and continued to open new spaces in new cities.
And in April 2019, Neumann revealed WeWork had confidentially filed IPO paperwork in December 2018 and was rebranding as The We Company.
The new branding brought with it a new mission: to elevate the world’s consciousness. It also brought WeWork’s “business ambitions together,” meaning WeWork would sit alongside WeLive (its co-living spaces) and WeGrow (its education arm) under one umbrella.
But the constant rollercoaster of company news has continued.
According to the Financial Times, The We Company lost approximately US$219,000 every hour of every day during the 12 months leading up to March 2019.
However, they are moving into a more conventional business model; they’ve announced plans to launch a US$2.9 billion investment fund, which will allow them to start purchasing office buildings outright. This should ease some of those lessor/lessee concerns, at least.
But then there’s the fact CEO and co-founder Adam Neumann has three different types of shares that essentially guarantee him majority voting power. Interestingly, if he sells or gives away those shares, he still retains the voting rights attached to them.
But then there’s the fact that The We Company does, in fact, solve a problem. It has created affordable and accessible office space for oodles of entrepreneurs and small businesses, and that has value. (Whether or not that business model can last through, say, a recession, well, that’s another question that needs answering!)
It also helps that WeWork claims its enterprise customer base is growing and their lease commitments have doubled to 15 months, which means a committed revenue backlog of US$4 billion. This could help stabilise WeWork if, say, a recession does hit.
You don’t have to look far to discover that WeWork is easily one of the most controversial companies to IPO this year. It’s lengthy S-1 prospectus has probably raised as many questions as it has answers.
Nevertheless, at Spaceship, we’ll be watching WeWork closely to see whether, well, it works.
We’d love to hear your thoughts on this.
Important! We’re sharing with you our thoughts on the companies in which Spaceship Voyager has considered investing for your informational purposes only. We think it’s important (and interesting!) to let you know what’s happening with Spaceship Voyager’s potential investments. However, we are not making recommendations to buy or sell holdings in a specific company. Past performance isn’t a reliable indicator or guarantee of future performance.
The Spaceship Universe Portfolio and the Spaceship Index Portfolio invests in Softbank at the time of writing.