Some WeWork Board Members Seek to Remove Adam Neumann as CEO(wsj.com)
wsj.com
Some WeWork Board Members Seek to Remove Adam Neumann as CEO
https://www.wsj.com/articles/some-wework-board-members-seek-to-remove-adam-neumann-as-ceo-11569171188?mod=rsswn
244 comments
This has all happened before. The proto-WeWork was called HQGlobal and the firm behind it was Frontline Capital. The whole thing unraveled in the 2000 bust as the tenants all went out of business and canceled their leases at the same time. WeWork is not going to be pretty when the economy turns. Bill Ackman backed Frontline Capital and it pretty much sunk his first hedge fund, Gotham Capital.
> when the economy turns
What if the economy never turns?
What if the economy never turns?
It can work, but they need more anchors. Stripe, Gitlab, ... companies that are remote but have workers prefer to cowork. Economic downturn might actually help them if they can gobble long term low leases. More unemployed also means more consumer base outside big corporate America. Their biggest threat is small mom and pop coworking spaces like Gravitate in DSM. Geoff wouldn't sell for less than a massive premium, and nobody is going for WeWorks bad service if they tried to compete.
Do Gitlab and such companies even have the volume of employees to show up on WeWork's balance sheet?
How many of those places have people working at co-working spaces anyway? As opposed to home?
Not sure that during a downturn companies, or even individuals will be more likely to go for paying for fancy coworking space... perhaps less so?
My understanding is WeWork is more likely to be MORE sensitive to an economic downturn compared to their competitors as their valuation will put more pressure on them to make money and arguably they might already be behind the bullet on that one.
How many of those places have people working at co-working spaces anyway? As opposed to home?
Not sure that during a downturn companies, or even individuals will be more likely to go for paying for fancy coworking space... perhaps less so?
My understanding is WeWork is more likely to be MORE sensitive to an economic downturn compared to their competitors as their valuation will put more pressure on them to make money and arguably they might already be behind the bullet on that one.
The anchors might lease, but it's essentially just them mitigating their risk at the expense of WeWork though, right? If Facebook leases an entire building via WeWork rather than doing it themselves (and they definitely have the capacity to do it themselves), it's because they've decided there's a good chance they'll vacate the space in a short period of time and they'd rather sign a short term contract with WeWork than deal with a 15 year lease. That's not great for WeWork though.
Why on earth would stripe pay a middle man like WeWork to manage their office and lease?! Stripe is looking at buying an entire building. I'm pretty sure they can handle a 15 yr lease just fine. And don't need WeWork staff to decide what their office kitchens need.
WeWork has a "Powered by We" service that companies like Amazon use so they don't have to manage a new building. They allow WeWork to deal with everything from top to bottom. https://www.poweredbywe.com/
Because demand might be elastic and you can keep costs closer to utilization and outsource stuff you don't want to do like manage an office
Same reason companies pay Google and Amazon for cloud servers
Same reason companies pay Google and Amazon for cloud servers
But plenty of "non-WeWork" office space offerings have already been like that for decades. They'll provide janitors, receptionists, etc unless you opt for spaces without it to run your own.
But plenty of "non-WeWork" office space offerings have already been like that for decades.
Cynically, those companies have the downside of needing to make a profit. WeWork strikes me as the sort of company that would happily take a massive loss, just to get to brag that Stripe and Facebook use their services.
Cynically, those companies have the downside of needing to make a profit. WeWork strikes me as the sort of company that would happily take a massive loss, just to get to brag that Stripe and Facebook use their services.
That's 100% been the case - I am familiar with the industry and they have been more than willing to not make any margin in order to get the clients they want (big names, or poach from the competition)
That strategy works great, so long as you have unlimited funding.
That strategy works great, so long as you have unlimited funding.
Facebook leases an entire WeWork building in London, but I imagine it's not their long-term plan.
No one is leasing WeWork as the long-term plan.
That's kinda the point of WeWork: flexibility.
That's kinda the point of WeWork: flexibility.
I assume they mean using WeWork for Stripe's non-primary offices where flexibility is often more valuable.
Stripe is at a size where they can easily afford all the flexibility they need without a middleman company.
'Affording flexibility' means accepting higher costs in order to get short-term leases, which is exactly what companies like We offer. Going the normal office rental route has longer-term leases and thus much less flexibility.
Stripe would almost certainly prefer to outsource this for places where they have a small handful of employees, and dealing with one company has a big opportunity cost buried in it that they almost certainly would be willing to pay.
If that was true then they would be, but they aren't. Companies that big can easily afford one or many full-time employees focused on office and resource management which is more than enough to figure out a few leases.
Remember this is a company that already has a major international business in one of the most regulation industries. Adding in a few real-estate deals is unlikely to be a major source of friction.
Remember this is a company that already has a major international business in one of the most regulation industries. Adding in a few real-estate deals is unlikely to be a major source of friction.
> If that was true then they would be, but they aren't.
This article (https://www.curbed.com/2019/3/26/18280774/wework-real-estate...) seems to indicate that big corporate clients are quite happy to do exactly what I described. I suspect this probably also has to do with transferring CapEx to OpEx.
Perhaps Stripe, specifically, thinks they have a better bead on this than employing someone like WeWork.
This article (https://www.curbed.com/2019/3/26/18280774/wework-real-estate...) seems to indicate that big corporate clients are quite happy to do exactly what I described. I suspect this probably also has to do with transferring CapEx to OpEx.
Perhaps Stripe, specifically, thinks they have a better bead on this than employing someone like WeWork.
Isn't that We's end goal though? To get billion dollar companies like Microsoft, Stripe, etc. as tenants. People that don't really want to deal with running an entire building when they can just pay someone else to do it.
That is already available. Ever heard of Cushman and Wakefield?
That is already available.
Of course, but I assume that WeWork offered them a better deal.
Of course, but I assume that WeWork offered them a better deal.
Counterpoint: Google now outrights owns a absurd amount of buildings outright on Manhattan's West Side near SoHo.
These big companies have so much money, that they stand to make even more money just holding the damn real estate for all they care if they end up not using it.
It's the same as a individuals buy vs. rent scenario for a house. Sure, rent may be cheaper, but there are long term pros just holding the property yourself if you can afford it.
It's the same as a individuals buy vs. rent scenario for a house. Sure, rent may be cheaper, but there are long term pros just holding the property yourself if you can afford it.
Which makes sense If you run your own investments / pensions your going to want to have some commercial property investments (normally by having a certain % in funds / REITS)
No. Companies that big have the resources and stability do it themselves, and want control over their space as well. They have no need for a middleman other than real-estate brokers or construction companies to actually get the space.
Yes - but that doesn't indicate that a) the demand exists for such a solution or b) that they will successfully execute on said demand.
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Companies like to brand offices as their own. Their name on the front, their corporate colours in the decor. WeWork offers the exact opposite of that. No company with its own strong brand will want to subsume that brand to that of their letting agent.
WeWork offers the exact opposite of that.
WeWork offers both services. WeWork will just as happily get you a whole building designed and decorated to your exact specs, as they will provide you with 3 desks paid for by the day.
WeWork offers both services. WeWork will just as happily get you a whole building designed and decorated to your exact specs, as they will provide you with 3 desks paid for by the day.
If you want to be durable in a downturn you need resilient or countercyclical industries leasing from you.
If they had a bunch of boring utility companies and collections agencies leasing from them then we might be onto something.
If they had a bunch of boring utility companies and collections agencies leasing from them then we might be onto something.
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> Mr. Neumann still has allies among the directors and the ability to fire the entire board thanks to shares he controls that carry extra votes.
It defies imagination that a fund would put 10B into a company whose CEO is accountable to no one. I think we may also see new leadership in SoftBank, or at least their next fund.
It defies imagination that a fund would put 10B into a company whose CEO is accountable to no one. I think we may also see new leadership in SoftBank, or at least their next fund.
You can thank loose monetary policy that has created an unbalance between capital seeking returns and the number of investment opportunities. Executives have leveraged this into abusive multi-class share structures that sacrifice shareholder's ability to reign in company behavior. The result is a few tech executives wielding unaccountable authority over incredibly powerful economic resources.
> You can thank loose monetary policy
I'm not so sure. WeWork is the product of three capital sources.
One, Mortimer Zuckerman, who was "not just their landlords AND seed investor," but also "happened to own Fast Company and NY Post which were instrumental in propping up WeWork in the press before anybody knew who they were" [1].
Two, MBS, who backed the Vision Fund to the tune of $45 billion [2].
Three, Masa Son.
Mr. Zuckerman's investment was too small to be affected by monetary policy. And I doubt the Saudis invested in the Vision Fund because their bonds weren't yielding enough. The only monetary actor is Son, though that is more based on Japan than dollar dynamics.
WeWork's competition, on the other hand, is juiced by monetary policy in the form of construction loan and mortgage rates. But that doesn't create WeWork, just lots of commercial real estate.
[1] https://medium.com/@henry.hawksberry/is-we-work-a-fraud-5b78...
[2] https://www.reuters.com/article/us-saudi-pif-investment-fact...
I'm not so sure. WeWork is the product of three capital sources.
One, Mortimer Zuckerman, who was "not just their landlords AND seed investor," but also "happened to own Fast Company and NY Post which were instrumental in propping up WeWork in the press before anybody knew who they were" [1].
Two, MBS, who backed the Vision Fund to the tune of $45 billion [2].
Three, Masa Son.
Mr. Zuckerman's investment was too small to be affected by monetary policy. And I doubt the Saudis invested in the Vision Fund because their bonds weren't yielding enough. The only monetary actor is Son, though that is more based on Japan than dollar dynamics.
WeWork's competition, on the other hand, is juiced by monetary policy in the form of construction loan and mortgage rates. But that doesn't create WeWork, just lots of commercial real estate.
[1] https://medium.com/@henry.hawksberry/is-we-work-a-fraud-5b78...
[2] https://www.reuters.com/article/us-saudi-pif-investment-fact...
Aren't there also tax strategies/techniques that offer benefits from these investments when they fail as well? That both making and losing money in the VC/FinEng context each have their tax advantages (in the US)?
My impression is that upon this foundation and US interest rate/monetary policies create a perverse incentive where the investor doesn't really have to care too much how the company turns out. Like sure, a success pays off much more, but bankruptcy isn't bad either. Did I dream all this? :)
My impression is that upon this foundation and US interest rate/monetary policies create a perverse incentive where the investor doesn't really have to care too much how the company turns out. Like sure, a success pays off much more, but bankruptcy isn't bad either. Did I dream all this? :)
> Aren't there also tax strategies/techniques that offer benefits from these investments when they fail as well?
The Vision Fund will have a $10bn capital loss to write off against future capital gains taxes. But those losses are worth a hell of a lot less than $10bn in cash.
WeWork has no federal guarantees and basically no assets. Its downside scenario is grim for shareholders. The only one walking away with cash might be Adam, though I expect he'll burn a good amount of it defending against litigious shareholders and possibly prosecutors.
The Vision Fund will have a $10bn capital loss to write off against future capital gains taxes. But those losses are worth a hell of a lot less than $10bn in cash.
WeWork has no federal guarantees and basically no assets. Its downside scenario is grim for shareholders. The only one walking away with cash might be Adam, though I expect he'll burn a good amount of it defending against litigious shareholders and possibly prosecutors.
> Aren't there also tax strategies/techniques that offer benefits from these investments when they fail as well? That both making and losing money in the VC/FinEng context each have their tax advantages (in the US)?
Nope. It is always better to have income and pay taxes on it than to have losses and not pay taxes on the losses when we are dealing with entities over certain ( rather small ) size.
Nope. It is always better to have income and pay taxes on it than to have losses and not pay taxes on the losses when we are dealing with entities over certain ( rather small ) size.
I think you are actually illustrating the point. Zuckerman's investment is too far upstream of WeWork's size to take the blame. And the fact that competing companies are able to rely on loans and mortgage easing is exactly why folks with a surplus of capital (Saud + Son) have to accept worse terms - they have more competition.
I think it was an episode of Planet Money a couple of months ago, that had an interview with someone senior in the bond world. She seemed really quite worried about the current state of the market.
There is so much capital desperately trying to find a home that they are having to invest in companies with very little oversight or influence. In the past they would have been the grown-ups in the room, applying some scrutiny and skepticism to everything. But now companies can simply go somewhere else if you turn them down.
She seemed to think that there were a lot of companies being kept afloat by this easy money that could easily go pop in the near future, or companies that should have gone bust ages ago but are limping along with cheap credit.
It does seem that whether or not we are headed for an imminant bust, the economy is in a pretty peculiar place at the moment with negative interest rates etc.
There is so much capital desperately trying to find a home that they are having to invest in companies with very little oversight or influence. In the past they would have been the grown-ups in the room, applying some scrutiny and skepticism to everything. But now companies can simply go somewhere else if you turn them down.
She seemed to think that there were a lot of companies being kept afloat by this easy money that could easily go pop in the near future, or companies that should have gone bust ages ago but are limping along with cheap credit.
It does seem that whether or not we are headed for an imminant bust, the economy is in a pretty peculiar place at the moment with negative interest rates etc.
do you have a link to that? (can’t seem to find it myself)
i would really like to listen to it because intuitively i’ve felt the same way and wonder what others who are-in-the-know have to say about that.
i would really like to listen to it because intuitively i’ve felt the same way and wonder what others who are-in-the-know have to say about that.
"Abusive"? That's a bit over the top. No one is forcing these people to put money into these companies if they dont like the terms.
I mean, it sounds like it is abusive, but it's an abusive relationship investors sought out.
At this point it's akin to someone who seeks out abusive partners due to mental health issues. It doesn't make the partners any less abusive, but lets not kid ourselves and think the seeker is a healthy individual.
Their greed is killing them.
At this point it's akin to someone who seeks out abusive partners due to mental health issues. It doesn't make the partners any less abusive, but lets not kid ourselves and think the seeker is a healthy individual.
Their greed is killing them.
I think the reality of the situation is that some of these investors actually like the "visionary leader who full control and isn't dragged down by investors" model.
Yeah I don’t understand why people in this thread aren’t entertaining that possibility. It objectively worked for Facebook, at least in terms of financial return.
If they actually had to earn the money they'd treat it different. Free money just enables stupid shit like this at all our expenses. The comment you responded to is on point
The problem is having so much wealth concentrated in the first place. If capital was more evenly spread, then those who control it would have no problems finding worthwhile investments (smaller investments would become worthwhile because collectively the controllers of the capital would have more time to oversee them)
The real question is what is the endgame for our current worldwide incredibly loose monetary policy and deep wealth inequality. Literally nothing good comes to my mind, at best we'll get a slow return to a few % interest rates on major 10yr notes, which means a decade of garbage returns on pretty much any asset class, problems with pension funds, general malaise. At worst, well, last time we had this setup was 1930s and the various world govt stimulus went towards war efforts ...
This is true of many large companies today, though. Facebook comes to mind.
It's true of some large companies, yes. But it's still extraordinarily uncommon overall. Zuck's Facebook arrangement was essentially unique at the time of the IPO, and Facebook's success led to more founders on unicorn trajectory demanding and receiving similar terms, but it's still far from the norm.
Google has 3 share classes as well and the founders control more than 50% of the voting power.
Yes, but there's two of them.
Preferred shares existed before Facebook, and it may not the be norm, but there's a reason we no longer see the hostile takeovers from the 80's.
It's not preferred shares that are letting these founders retain control, it's having multiple classes of common stock where either the public investors get no votes for their shares, or the founders have 10+ for each of their shares, so that their vote always wins. This article gives a good overview of some of the changes that have occurred that have allowed this issue to proliferate (although the main issue seems to be a glut of capital and FOMO for these deals):
https://corpgov.law.harvard.edu/2017/05/26/snap-and-the-rise...
https://corpgov.law.harvard.edu/2017/05/26/snap-and-the-rise...
> Preferred shares existed before Facebook, and it may not the be norm, but there's a reason we no longer see the hostile takeovers from the 80's.
That has nothing to do with preferred shares. Most of public companies adopted poison pills aka shareholder right protection plans which work along the lines of this:
1. If someone acquires a certain percentage of company shares without board of directors agreeing to it, then the company automatically issues a very large number (2x to 3x) of shares and allows shareholders of record of a certain past date before the hostile party launched the acquisition to obtain newly issued shares at a discount.
2. Board members have staggered terms so the acquiring party cannot replace more than a small percentage of board members thereby preventing the one's ability to flood the board one's supporters
It used to be that preferred shares were a special class of equity that paid higher dividends. The funny part is that tech companies tend not to pay any dividends what so ever and now with the special classes of shares that have nearly no voting rights ( compared to the 'preferred shares' that are controlled by the insiders ) the same companies make a virtual mockery out of the concept of a "public company". Facebook is not a public company in any sense other than the name -- it is Mark's personal piggybank that he shares with a few insiders with the crums off the table being given to the people whom he used to call "stupid".
That has nothing to do with preferred shares. Most of public companies adopted poison pills aka shareholder right protection plans which work along the lines of this:
1. If someone acquires a certain percentage of company shares without board of directors agreeing to it, then the company automatically issues a very large number (2x to 3x) of shares and allows shareholders of record of a certain past date before the hostile party launched the acquisition to obtain newly issued shares at a discount.
2. Board members have staggered terms so the acquiring party cannot replace more than a small percentage of board members thereby preventing the one's ability to flood the board one's supporters
It used to be that preferred shares were a special class of equity that paid higher dividends. The funny part is that tech companies tend not to pay any dividends what so ever and now with the special classes of shares that have nearly no voting rights ( compared to the 'preferred shares' that are controlled by the insiders ) the same companies make a virtual mockery out of the concept of a "public company". Facebook is not a public company in any sense other than the name -- it is Mark's personal piggybank that he shares with a few insiders with the crums off the table being given to the people whom he used to call "stupid".
While there are issues with Zuckerberg, I think it bears noting that the FB IPO wasn't done because he needed the money, but rather because they were forced too by law because too many people had ownership. So, he didn't give great terms in the IPO because he didn't really need any cash; FB was already cashflow-positive. This is a marked contrast to WeWork.
> While there are issues with Zuckerberg, I think it bears noting that the FB IPO wasn't done because he needed the money, but rather because they were forced too by law because too many people had ownership.
This isn't entirely true. Once a company passes the shareholder limit they are required to publish public financials similar to what a publicly traded company must provide. However they are not required to sell their stock on the open market, it's just that it's such a small step at this point that most if not all do.
Also - while this is often quoted as the reason for Facebook's IPO, it's worth noting that the investor limit was actually raised (from 500 to 2000) a couple months before Facebook's IPO. If it were really the main reason they could have easily held off on the IPO and carried on as a private company.
This isn't entirely true. Once a company passes the shareholder limit they are required to publish public financials similar to what a publicly traded company must provide. However they are not required to sell their stock on the open market, it's just that it's such a small step at this point that most if not all do.
Also - while this is often quoted as the reason for Facebook's IPO, it's worth noting that the investor limit was actually raised (from 500 to 2000) a couple months before Facebook's IPO. If it were really the main reason they could have easily held off on the IPO and carried on as a private company.
A company with 2000 shareholders and $10MM in assets it is forced to become a reporting company but it doesn’t have to go public.
That's not correct at all, there's no rule requiring companies to go public.
And even if he didn't need cash, an IPO creates an incredible opportunity to use shares as a currency to fund high-dollar acquisitions, which he has most certainly taken advantage of.
And even if he didn't need cash, an IPO creates an incredible opportunity to use shares as a currency to fund high-dollar acquisitions, which he has most certainly taken advantage of.
It is a bit more complicated than that - FB investors used SPEs rather than held the shares directly. When the number of SPEs got too high those SPEs themselves reorganized moving the investors more levels down.
I think the Facebook IPO was done for one reason only; public relations.
As is the case with toxic discourse on his website, the nonchalant attitude with private information, Zuck loves to steer clear of taking responsibility for anything. The IPO allows the message to be: it's not my personal responsibility, I'm merely the CEO of the company.
As is the case with toxic discourse on his website, the nonchalant attitude with private information, Zuck loves to steer clear of taking responsibility for anything. The IPO allows the message to be: it's not my personal responsibility, I'm merely the CEO of the company.
The shares with no voting power would still be converted in the case of a buyout of a company though, right?
It is also a lot more complicated than that.
With a single class of shares every shareholder interest is aligned. It is not possible to create a subclass of shareholders among the existing shareholders without existing shareholders agreeing to it. So in a buyout all shares are equal and will receive and equal percentage of distribution of all assets regardless of how those assets are structured.
The moment there are different classes of shareholders, there's a jockeying for a position. It is no different from the plays that can be made by a private company when it is getting a new round of investment/gets bought out -- those with A class shares have certain rights, with B some other rights with C some other rights etc. There's nothing ( apart from a rather complicated regulations that govern a right of minority shareholders not to get totally screwed ) that prevents those that control the voting block via special preferred shares from virtually screwing other shareholders:
Board can just vote to split the company into "icky carcass" with nominal assets, most of the liabilities give most of it to non-voting shares. Give the non-voting shares some tiny percentage of the ownership in the "awesome sauce" part of the company. Voting shares (held by insiders) get the opposite percentage. As the part of this deal the "awesome sauce" company gets sold.
It just has not been tried yet -- in fact I'm very surprised it has not been tried yet. It of course would be challenged in courts but I'm pretty sure it will be found legal -- after all "you have no rights compared to the rights of holders of class SP" has been spelled out in the offering paperwork and investors/employees/shareholders still lapped it.
With a single class of shares every shareholder interest is aligned. It is not possible to create a subclass of shareholders among the existing shareholders without existing shareholders agreeing to it. So in a buyout all shares are equal and will receive and equal percentage of distribution of all assets regardless of how those assets are structured.
The moment there are different classes of shareholders, there's a jockeying for a position. It is no different from the plays that can be made by a private company when it is getting a new round of investment/gets bought out -- those with A class shares have certain rights, with B some other rights with C some other rights etc. There's nothing ( apart from a rather complicated regulations that govern a right of minority shareholders not to get totally screwed ) that prevents those that control the voting block via special preferred shares from virtually screwing other shareholders:
Board can just vote to split the company into "icky carcass" with nominal assets, most of the liabilities give most of it to non-voting shares. Give the non-voting shares some tiny percentage of the ownership in the "awesome sauce" part of the company. Voting shares (held by insiders) get the opposite percentage. As the part of this deal the "awesome sauce" company gets sold.
It just has not been tried yet -- in fact I'm very surprised it has not been tried yet. It of course would be challenged in courts but I'm pretty sure it will be found legal -- after all "you have no rights compared to the rights of holders of class SP" has been spelled out in the offering paperwork and investors/employees/shareholders still lapped it.
Excellent comment. Nitpick: it's "jockeying for position", as in, what the jockeys do during a horse race to get in a better position so they can win.
Thanks for the correction. I totally suck at noticing misspellings on a phone and beat myself up afterwards.
Eh. I don’t think the Delaware courts would go for it. Ebay vs Newmark is on point.
Does not have much in common - single class of stock with the same rights vs. different classes of stock with different rights.
Still stands for the proposition that directors have a fiduciary duty to shareholders which is subject to judicial scrutiny in the face of self dealing.
That's where I happen to be disagree -- it goes back to the blue sky laws. I think we are going to see it fairly soon - SNAP, in my view, is heading there and it has an insane corporate structure.
No one put anything close to 10B into Facebook. Their largest single investor was Goldman Sachs at 450MM, after there was already a lot of other money in. Their total funding was 2.3B before IPO.
What I don't understand is what is so mind boggling to GP? This is the norm for the vast majority of private companies.
I think if you are including coffee shops, dry cleaners, and the rest of small businesses that are self-funded, I agree. If you look at VC backed high tech startups, I don't think that is the norm:
https://www.capshare.com/blog/4-key-insights-from-5000-cap-t...
https://www.capshare.com/blog/4-key-insights-from-5000-cap-t...
What about non-vc backed high tech startups, which are the by far the majority of tech jobs? (my company, fwiw) We have investors sure, but the two founders retain the control. All of the companies we have acquired were in similar situations. In fact it is precisely not until you get to VC-backed startups where this becomes surprising, such as in the GP comment I was referring to.
If you actually make money, have positive cash flow, and have a sustainable business model, you don't have to give up control. The investors will come to you -- foreign concept to the SV-SF "high tech" bubble, I know.
If you actually make money, have positive cash flow, and have a sustainable business model, you don't have to give up control. The investors will come to you -- foreign concept to the SV-SF "high tech" bubble, I know.
non-vc backed high tech startups, which are the by far the majority of tech jobs?
Citation very much needed. The majority of tech jobs are not at startups of either kind.
Citation very much needed. The majority of tech jobs are not at startups of either kind.
Startups is such a loosely qualified term these days that it practically means any business that has "recently started", so no you don't need a citation because the word in of itself is subjective.
> high tech
WeWork?
WeWork?
WeWork presents itself as tech startup and is often presented that way. They are really more a real estate business, but in this context their self perception is the only relevant view
That's not the case. For private companies where the founder has the majority share, sure. But what's unusual with WeWork is how the founder has control despite not having a majority share.
As others mention, there are historical reasons why WeWork got this. But things like WeWork and Uber are going to be the new historical reasons why founders don't get that as much.
As others mention, there are historical reasons why WeWork got this. But things like WeWork and Uber are going to be the new historical reasons why founders don't get that as much.
Assuming you mean just tech companies, yes, this is now the norm. But I suspect it's mainly due to backlash over the previous period, where many ignorant investors would oust founders and replace them with "professional managers" who would then either run the company into the ground, or sell it for scraps.
So I completely understand why founders, now given the opportunity, would write these sorts of share class structures into their business. It's definitely gone too far, though. But that's usually what happens.
So I completely understand why founders, now given the opportunity, would write these sorts of share class structures into their business. It's definitely gone too far, though. But that's usually what happens.
> This is the norm for the vast majority of private companies.
But they're trying to become a public company - that's the point.
But they're trying to become a public company - that's the point.
That vast majority never goes public or gets close to doing so, right? Those companies aren't worth a billion or more
The last 10 years have been investors competing over startups, so this is what you get.
This is awesome, it might force the private sector to regulate governance structures more strictly.
The exchanges and indexes already do this, but haven't gotten around to cultish companies that consider themselves tech. The exchanges and indexes say things like “minimum X% of float needs to be in the market”, so you dont have 1% of the company trading with the CEO now being a billionaire on paper from 99% of shares. Ive seen Chinese exchange allows for shenanigans like that, for example, while US ones dont. They could easily dictate share class structures, ultimate beneficial ownership rules, and more.
This would force VCs and PE to require changes no matter how much FOMO they have.
The exchanges and indexes already do this, but haven't gotten around to cultish companies that consider themselves tech. The exchanges and indexes say things like “minimum X% of float needs to be in the market”, so you dont have 1% of the company trading with the CEO now being a billionaire on paper from 99% of shares. Ive seen Chinese exchange allows for shenanigans like that, for example, while US ones dont. They could easily dictate share class structures, ultimate beneficial ownership rules, and more.
This would force VCs and PE to require changes no matter how much FOMO they have.
WeWork is a useful product. Office real estate is broken for startups. Landlords make us take 5-10 year leases when startup planning horizons are almost never longer than 18 months. WeWork earning 30-40% margins by allowing us to take shorter terms that better fit our needs. Should be a good business.
Right, that's the theory, which is how they got this far. But that's not a new thing; companies have been in the same business for years. WeWork's valuation is wildly out of proportion to its competitors.
WeWork probably does have an advantage specifically for tech startups. But startups are definitionally not a large market, nor are they generally a good one. When we're small, we're cheapskates. And then we pretty quickly either go out of business or become like other companies, willing and able to deal with building owners directly. It's high churn, which is expensive.
Startup investment is also pretty cyclical; anybody who was around after Bubble 1.0 knows how quickly the party stops when investors get nervous. So WeWork has a lot of long-term commitments, with no obvious way to cover them in the next recession. And since we're already in the longest peacetime economic expansion, the possibility of recession is definitely on investor's minds.
WeWork probably does have an advantage specifically for tech startups. But startups are definitionally not a large market, nor are they generally a good one. When we're small, we're cheapskates. And then we pretty quickly either go out of business or become like other companies, willing and able to deal with building owners directly. It's high churn, which is expensive.
Startup investment is also pretty cyclical; anybody who was around after Bubble 1.0 knows how quickly the party stops when investors get nervous. So WeWork has a lot of long-term commitments, with no obvious way to cover them in the next recession. And since we're already in the longest peacetime economic expansion, the possibility of recession is definitely on investor's minds.
> But that's not a new thing; companies have been in the same business for years. WeWork's valuation is wildly out of proportion to its competitors.
I take issue with the "people have been doing the same thing for years" take, when most hugely successful start-ups tend to be small tweaks on established ideas. Take AirBnB. Peer-to-peer short term rentals existed on the Internet in the form of sites like VRBO since the late 90s, but AirBnB's relatively small changes (mainly ensuring that the financial transaction occurred completely on their platform) allowed for the sea change of urban short term rentals.
While I'm bearish on WeWork for the same reasons as many other people, I think there is certainly room for a consolidated business of month-to-month office rentals that offers a branded experience.
I take issue with the "people have been doing the same thing for years" take, when most hugely successful start-ups tend to be small tweaks on established ideas. Take AirBnB. Peer-to-peer short term rentals existed on the Internet in the form of sites like VRBO since the late 90s, but AirBnB's relatively small changes (mainly ensuring that the financial transaction occurred completely on their platform) allowed for the sea change of urban short term rentals.
While I'm bearish on WeWork for the same reasons as many other people, I think there is certainly room for a consolidated business of month-to-month office rentals that offers a branded experience.
There's also the important bit where VRBO attempted to comply with local hoteling regulations and AirBnB just ignored them or even actively encourage hosts to ignore the law.
I used VRBO often before AirBnb existed and I never experienced anyone collecting hotel taxes or attempting to be in compliance. Do you have a source for this claim?
I used VBRO before Airbnb and hosts in vacation towns were definitely collecting local taxes. Unlike Airbnb, VBRO responded to requests for host info because they were trying to do things the right way.
This take makes a very clear argument, but I think it's important to question that, as a company grows, it is generally "willing and able to deal with building owners directly" - a similar argument could have been made for the early days of AWS, when it seemed like a great way for startups to avoid managing low-traffic, scalable infrastructure, but redundant for companies that had the resources to manage their own servers. AWS has shown how successful a 'platform middleman' can be, even for very large companies.
WeWork is betting on taking a similar track - sure, companies _could_ decide they want to build out expertise in leasing and managing real estate space, but it can actually help them focus on their core business more by leaving it to another company that provides the 'platform'. The growth of WeWork's enterprise offerings and general awareness of how to pitch to mid- and large-size tenants indicates that growth projections are not pinned to a startup-driven economy.
WeWork is betting on taking a similar track - sure, companies _could_ decide they want to build out expertise in leasing and managing real estate space, but it can actually help them focus on their core business more by leaving it to another company that provides the 'platform'. The growth of WeWork's enterprise offerings and general awareness of how to pitch to mid- and large-size tenants indicates that growth projections are not pinned to a startup-driven economy.
For me the big difference between AWS and WeWork is that a company will always have people dedicated to figuring out their offices. WeWork isn't solving problems like "who do we have, how do we arrange them, and what kind of spaces are best for how they work". On top of that, finding and negotiating leases every 5-10 years isn't a lot of extra work. AWS in contrast eliminates entire classes of work.
Although now I think about it, perhaps demand volatility is even more important. Office space needs are way more stable and predictable than server load. Salesforce, for example, signed a 15-year lease for Salesforce tower. And there's every reason to think they'll use it. Whereas AWS and its customers benefit hugely from being able to change load both month to month and hour to hour.
Although now I think about it, perhaps demand volatility is even more important. Office space needs are way more stable and predictable than server load. Salesforce, for example, signed a 15-year lease for Salesforce tower. And there's every reason to think they'll use it. Whereas AWS and its customers benefit hugely from being able to change load both month to month and hour to hour.
Prof.Damodharan has an excellent valuation on WeWork. The bottomline is WeWork as an $8 Billion company would be appropriate valuation.
Yes, WeWork has market-fit, no one denies that. Their problem is governance and risk management. On top of it, how would an unprofitable company with massive debt and contract obligations do during a down-turn.
Yes, WeWork has market-fit, no one denies that. Their problem is governance and risk management. On top of it, how would an unprofitable company with massive debt and contract obligations do during a down-turn.
I actually agree, but I don't see any reason why they should be a $40B company. Forbes or Bloomberg or someone compared them to other companies in the space, and valued them at $4B or so. That is still a great opportunity...unless you have invested $10B to get there.
It's not that there is no need for what WeWork does; it's that they do it too expensively, and are valuing themselves far too high.
It's not that there is no need for what WeWork does; it's that they do it too expensively, and are valuing themselves far too high.
There is clearly a market for WeWork... and many competitors.
WeWork is and will be a great company, no matter what.
WeWork main competitor is Regus, founded in 1989. Regus is now present worldwide with revenues of 2.535 billion GBP (2018). Their market cap is a mere 3.68 billion!
There are also tons of smaller companies in that sector which are not international (mostly 1/2 countries) with much lower valuations.
So, the business model is fine, the market fine, the room to expansion here (especially with growth of remote work). Just the previous valuation wasn't.
WeWork main competitor is Regus, founded in 1989. Regus is now present worldwide with revenues of 2.535 billion GBP (2018). Their market cap is a mere 3.68 billion!
There are also tons of smaller companies in that sector which are not international (mostly 1/2 countries) with much lower valuations.
So, the business model is fine, the market fine, the room to expansion here (especially with growth of remote work). Just the previous valuation wasn't.
Have you ever been in a Regus office? They're horrible spaces. They don't get it. WeWork is a lot nicer. That's why they're worth a lot more.
I'm probably in the minority but I find WeWork spaces horrible - just a collection of fishbowls. I can't get out of there fast enough.
Yes, I did rent an office from Regus a few years ago... and it did look horrible!
But for the difference in valuation, that's an easy thing to do in a LBO: Hire a Chief Design Officer!
Thanks to WeWork maybe, their new offices are better: https://www.regus.co.uk/offices/united-kingdom/county-edinbu...
But for the difference in valuation, that's an easy thing to do in a LBO: Hire a Chief Design Officer!
Thanks to WeWork maybe, their new offices are better: https://www.regus.co.uk/offices/united-kingdom/county-edinbu...
I've been a few times in different locations around the world. They were blander than WeWork and had about the same level of community. It was just an office. WeWork branded itself as something special... it isn't. It's a slightly nicer looking office (with beer* maybe). Regus is profitable and has a valuation in line with what they do. WeWork... doesn't.
Yeah. Regus offices are dreadfully bland. Also, they nickel and dime you for every little thing (you want an hour of wifi for that meeting room you booked? it's going to cost you...). Regus is also very expensive, as office space goes.
This could be due to the fact that margins are slim and they're trying to make a profit?
>WeWork is and will be a great company, no matter what.
That depends on their financial state. If they over expanded with the expectation of future capital to cover future contractual costs then they'll need to find a way to cover those costs without funding. That could be impossible without declaring bankruptcy.
That depends on their financial state. If they over expanded with the expectation of future capital to cover future contractual costs then they'll need to find a way to cover those costs without funding. That could be impossible without declaring bankruptcy.
>> WeWork main competitor is Regus
Not really. Regus is brutally bad. I am not a fan of WeWork specifically but it's vastly superior to Regus' offices, old-school style of lead capture, and terrible dealing with its customers.
I now lease from an independent co-working space to expand on my small business' offices until we can find a larger space at a reasonable price (good luck with that in Seattle), and it's been great. WeWork helped push co-working along. Regus has done absolutely nothing in this regard for decades.
Not really. Regus is brutally bad. I am not a fan of WeWork specifically but it's vastly superior to Regus' offices, old-school style of lead capture, and terrible dealing with its customers.
I now lease from an independent co-working space to expand on my small business' offices until we can find a larger space at a reasonable price (good luck with that in Seattle), and it's been great. WeWork helped push co-working along. Regus has done absolutely nothing in this regard for decades.
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> "product"
They're a glorified landlord, not a product.
They're a glorified landlord, not a product.
What happens to wework when landlords one day offer leases directly to wework tenants? I’m not sure why landlords aren't doing that right now.
Use wework to fill the building, then go around them to get more cash by leasing directly to the tenants. Tenants might even see rents lower.
Use wework to fill the building, then go around them to get more cash by leasing directly to the tenants. Tenants might even see rents lower.
That's the optimistic approach.
Shopify went through something similar -- offering their product for free, taking a cut of any transacted products. But they realized that it incentivized companies who, deep down, knew they would never make a dollar. So it was okay to sign up for the 'free' ecommerce software, because they were never going to make a dime.
It also _dis_incentivized companies that were actually selling things, because taking a cut of every transaction is too expensive if you're really driving volume.
In short, WeWork is attractive to companies that, deep down, know they aren't going to grow. These companies minimize long-term exposure by paying more short-term. The companies that are _confident_ they will grow have no problem signing 5-year leases. It's the long-term prudent thing to do, and drastically cheaper.
Shopify went through something similar -- offering their product for free, taking a cut of any transacted products. But they realized that it incentivized companies who, deep down, knew they would never make a dollar. So it was okay to sign up for the 'free' ecommerce software, because they were never going to make a dime.
It also _dis_incentivized companies that were actually selling things, because taking a cut of every transaction is too expensive if you're really driving volume.
In short, WeWork is attractive to companies that, deep down, know they aren't going to grow. These companies minimize long-term exposure by paying more short-term. The companies that are _confident_ they will grow have no problem signing 5-year leases. It's the long-term prudent thing to do, and drastically cheaper.
Sure it's useful. And there's also no barrier to entry except enough capital to buy or lease a building. If WeWork goes under, the need will be met by others.
The issue is if the global economy downturns fewer people want to rent short term, WeWork is still committed to paying the long term lease costs.
Short term rentals are an inferior good. An economic downturn could lead to more business for them
Not when the companies that wish they could shorten their lease terms tend to be stuck with them (and sometimes, after shedding some employees, with a lot of additional space they could let out short term...). WeWork also isn't at the cheap or flexible end of the short term office space rental market - it's very much a product designed to appeal to a particular type of company starting out. They could pivot, but so could other people with office space they can't lease out...
Any earlyish startup (smaller than a certain size) that's facing cash flow problems during a larger economic downturn would likely just move to a remote-only model, maybe with very short-term rentals for high-stakes meetings. No, it's not ideal, but if the survival of the business is at stake, cutting out your coworking fees seems like the easiest way to reduce overhead.
I'm no economist, but to me, it seems that short term rentals can't be an inferior good if a large percentage of startups are already currently using them. You'd need a majority of them to be leasing a traditional office space in order for coworking to be seen as a viable lesser option. And I don't really see larger, more established startups that do have traditional office space (like Duolingo for instance) moving out into a WeWork.
I'm no economist, but to me, it seems that short term rentals can't be an inferior good if a large percentage of startups are already currently using them. You'd need a majority of them to be leasing a traditional office space in order for coworking to be seen as a viable lesser option. And I don't really see larger, more established startups that do have traditional office space (like Duolingo for instance) moving out into a WeWork.
Any earlyish startup (smaller than a certain size) that's facing cash flow problems during a larger economic downturn would likely just move to a remote-only model, maybe with very short-term rentals for high-stakes meetings.
Do you know any companies that have made this kind of transition?
Do you know any companies that have made this kind of transition?
I'm not sure the combination of downturn and co-working spaces pitched for relatively short-term startup spaces has existed before.
I would note that I know of larger companies that are shifting people to remote who don't consistently use their assigned office space if capacity has gotten tight.
I would note that I know of larger companies that are shifting people to remote who don't consistently use their assigned office space if capacity has gotten tight.
Past experience says WeWork will end up bankrupt.
"This time it's different"
"This time it's different"
It's not a terrible business indeed. And I think the bigger scale can help here.
But it's also a very risky business, requiring a lot of capital, and it's not at all a SaaS business. The valuation was crazy.
But it's also a very risky business, requiring a lot of capital, and it's not at all a SaaS business. The valuation was crazy.
Sure, that can all be true, but is there really enough "startup" business to really justify the growth expectations, or even the current valuation?
Prof Galloway wrote an article just days ago laying out what will happen to we work given the IPO is shelved now. First one was to replace the CEO.
https://www.profgalloway.com/wewtf-part-deux
https://www.profgalloway.com/wewtf-part-deux
With $700M extracted and long term leases to the company for properties that he owns... One could easily ride off into the sunset.
It will be interesting, and insightful, to see if that is the tact he takes. If he does... It will add credibility to the already strong case for this being deliberate deceit versus unchecked ignorant hubris.
It will be interesting, and insightful, to see if that is the tact he takes. If he does... It will add credibility to the already strong case for this being deliberate deceit versus unchecked ignorant hubris.
>With $700M extracted
The $700M figure is a combination of equity sold outright and loans taken out using the equity as collateral. I have not seen any breakdown of how much falls in each category. I would not be surprised to see those loans get called in soon given the current situation and the recent governance change requiring him to pay back any profits he makes on leasing those properties to We.
The $700M figure is a combination of equity sold outright and loans taken out using the equity as collateral. I have not seen any breakdown of how much falls in each category. I would not be surprised to see those loans get called in soon given the current situation and the recent governance change requiring him to pay back any profits he makes on leasing those properties to We.
(Assuming he manages to stay in control) I'm curious to see whether he/the Board follows through with all of the concessions he made in an attempt to get the IPO off the ground.
He’s quoted as saying he wants to be “President of the World” and live forever. This guy isn’t riding off into the sunset.
So the bank robber type who gets caught after the perfect crime for picking up a penny from the floor or for having one last job too many?
Both maybe? Trying for the We trademark money after cashing out 700m seems like picking up the penny, and the various We spinoffs seem like the job too many.
He may wind up dragged behind the horse into the sunset, though.
Modest too I see
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I'm not sure if any other employee in any other company could get away with something like that. Sounds like a clear conflict of interest to me. Same goes for some of Elon's and Tesla's business transactions, so. Sounds like an overall bad idea to me, just how SoftBank accepted any of it is beyond my imagination.
I'm all for letting founders cash out to a certain degree before an IPO, but 700M and the lease agreements? Bot sure if that was a good deal for investors.
I'm all for letting founders cash out to a certain degree before an IPO, but 700M and the lease agreements? Bot sure if that was a good deal for investors.
Eddie Lampert, former CEO if Sears, seems to have gotten away with it.
Sears went bankrupt. In this context, for We, "getting away" with it doesn't really mean "Adam keeps the money." He got the money, there's no question there. Getting away with it has more to do with how the company fairs, so a bankrupt Sears isn't the best example.
The point is who cares if the company goes bankrupt if you were able to extract enough money out of it. He extracted $700mil, that's like a 20% of regus's (their main competitor) valuation. And he did it faster and without the need for profitability.
What kind of company that is controlled by a single man insists on branding itself as “we”?
Even the name of the company is a bold-faced lie.
Even the name of the company is a bold-faced lie.
It was quite common among monarchs to use "we" instead of "I".
https://en.wikipedia.org/wiki/Royal_we
https://en.wikipedia.org/wiki/Royal_we
Is your argument that companies that use plural pronouns in their name should have certain types of ownership structures?
At a certain point, you need to stop listening to what people say and start looking at what they do.
In this case, there is a clear mismatch in terms of what Adam is saying and his behavior as the CEO of this company. If WeWork’s mission is really to be one of empowering people to work the way they want, its governance structure and actions by those at the top need to reflect those values.
Put simply, the CEO himself isn’t living up to the core values of the company and needs to be dismissed.
In this case, there is a clear mismatch in terms of what Adam is saying and his behavior as the CEO of this company. If WeWork’s mission is really to be one of empowering people to work the way they want, its governance structure and actions by those at the top need to reflect those values.
Put simply, the CEO himself isn’t living up to the core values of the company and needs to be dismissed.
First rule of getting out of a hole is to stop digging.
Honestly how did you make this logical jump? It’s pretty obvious to me the parent post was pointing out that there is a lot of irony in a company, completely controlled by one individual (or his wife if he dies), is named “We”.
Honestly how did you make this logical jump? It’s pretty obvious to me the parent post was pointing out that there is a lot of irony in a company, completely controlled by one individual (or his wife if he dies), is named “We”.
Unless it's the "royal We" and then it's even more potential delicious irony.
I think his argument was that if a company uses the name "We", it should have a certain type of ownership structure. The interpretation could probably be further extended to other names that signify plural governance. That sounds reasonable to me. I can't infer ownership implied by all plural pronouns though, so I suspect your interpretation is probably too general.
The we could refer to the customers. “We Work at WeWork”. It could refer to the staff as well.
How should wework be pronounced? I always pronounce it like I'm stating a fact (that we do in fact work)
"Whey Orc"
Didn't investors, especially SoftBank, enable this behavior? They deserve as much blame for this mess as he does, if not more.
Help me understand how this is a coherent argument. I could see making the argument that investors share some of the blame for what the CEO did. How could they have more of the blame?
Obviously Adam deserves the blame for what he did, but if you interpret "this mess" as referring more to the scale of the company in it's current state than specifically the actions of the CEO, then the investors deserve more of the blame. If WeWork didn't have access to all of softbank's capital, there's no chance that WeWork would be trying to do a multi-billion-dollar IPO, and if they weren't trying to do a multi-billion-dollar IPO it wouldn't be much of a problem.
A CEO trying to run a small little nothing company in a weird way isn't a big deal. It's only a problem because of the scale.
A CEO trying to run a small little nothing company in a weird way isn't a big deal. It's only a problem because of the scale.
I could argue it either way. But I think it's reasonable to suggest that there will always be people who are scammers (or so oblivious that it amounts to the same thing). We've only heard of Adam Neumann because investors gave him billions. SoftBank in particular gave $10+ billion [1], and I understand that's really just Masayoshi Son making those decisions. So I think it's reasonable to give him a lot of the blame for empowering somebody whose business plan appears to have been surprisingly close to that of the Underpants Gnomes [2].
[1] https://www.bloomberg.com/news/articles/2019-09-06/wework-ip...
[2] https://knowyourmeme.com/memes/profit
[1] https://www.bloomberg.com/news/articles/2019-09-06/wework-ip...
[2] https://knowyourmeme.com/memes/profit
> SoftBank in particular gave $10+ billion
This is the fundamental conundrum. Softbank has invested a total of $10.65B for a 29% stake in a company that (if valued like the commercial real estate firm it actually is instead of the tech unicorn that it isn't) is probably worth $5-6B if we're being generous. Further complicating matters, We is posting losses and burning cash at an incredible rate and will need additional financing in the very near future. It only makes sense for Softbank to continue to prop We up if they believe they can dump it on a greater fool in the very near future, which is looking less and less likely by the day.
This is the fundamental conundrum. Softbank has invested a total of $10.65B for a 29% stake in a company that (if valued like the commercial real estate firm it actually is instead of the tech unicorn that it isn't) is probably worth $5-6B if we're being generous. Further complicating matters, We is posting losses and burning cash at an incredible rate and will need additional financing in the very near future. It only makes sense for Softbank to continue to prop We up if they believe they can dump it on a greater fool in the very near future, which is looking less and less likely by the day.
WeWorks next finance round was supposed to be $4Bn IPO money + $6Bn loans contingent on the IPO succeeding. Another SoftBank-sized mountain of cash, which is now looks unlikely they’ll get. It’s interesting that it’s the same amount. Maybe this was SoftBank’s planned exit?
Even if someone were to invest in we work they will expect bargain price, given things considering.
I think SoftBank is probably pushing things further enough until they raise money for their next vision fund.
I think SoftBank is probably pushing things further enough until they raise money for their next vision fund.
Because they decided to invest and never demanded oversight or questioned his voting power with each new term sheet they handed to him?
The point of the board is in part to keep the CEO in check. They had many opportunities to do so well before weeks before the now shelved IPO roadshow.
The point of the board is in part to keep the CEO in check. They had many opportunities to do so well before weeks before the now shelved IPO roadshow.
Yeah, but all that would have been fine if he’d acted responsibly. Obviously giving him that much power is a dangerous game to play, but it doesn’t absolve him of responsibility for his behavior. Ultimately he — not the investors — is the one who built this sandcastle on partying, self-dealing and a cult of personality.
One of the things about blame is that it’s never zero sum, and in this case there’s more than enough to go around.
One of the things about blame is that it’s never zero sum, and in this case there’s more than enough to go around.
> Yeah, but all that would have been fine if he’d acted responsibly.
> if he’d acted responsibly
> if
The "if" is the point. SoftBank had the ability to eliminate the risk of this "if", and didn't.
> if he’d acted responsibly
> if
The "if" is the point. SoftBank had the ability to eliminate the risk of this "if", and didn't.
So what you’re saying is: if someone doesn’t prevent you from doing something, they should shoulder more of the blame than you do for actually doing the thing?
It's a matter of perspective. Your general example sounds like it's from the perspective of WeWork's CEO, who is obviously responsible for his decisions.
But what about the perspective of SoftBank's shareholders? If they're unhappy about this, they ought to be unhappy with the dealmakers at SoftBank for creating a situation where SoftBank is exposed to volatility of this kind.
But what about the perspective of SoftBank's shareholders? If they're unhappy about this, they ought to be unhappy with the dealmakers at SoftBank for creating a situation where SoftBank is exposed to volatility of this kind.
Take an extreme example. If a VC decided to invest $1b in a lemonade stand run by a 7 year old and the whole thing falls apart, then yes I would blame the VC for not conducting proper due diligence and enabling someone who neither had the right business for $1b or was the right leader to execute on that business in the first place.
There's a difference between not preventing behavior and enabling it, with gobs and gobs of cash.
>> Yeah, but all that would have been fine if he’d acted responsibly
This is what people say when they give the executive branch of the United States unchecked power to unilaterally do things and sidestep the legislative and judicial branches. Presidents don't always do that sort of thing, and neither do CEOs or.... normal people.
This is what people say when they give the executive branch of the United States unchecked power to unilaterally do things and sidestep the legislative and judicial branches. Presidents don't always do that sort of thing, and neither do CEOs or.... normal people.
He said for 'this mess', not for what the CEO did.
Probably.
It would be funny if this blew up in SoftBank's face. I think it will make even Theranos sound more sensible.
Sure, the product exists and it's good but the "business plan" and its assumptions and business structure don't make much sense.
Though I don't know how long they will survive without any more cash injections in the short term due to all their rental liabilities.
It would be funny if this blew up in SoftBank's face. I think it will make even Theranos sound more sensible.
Sure, the product exists and it's good but the "business plan" and its assumptions and business structure don't make much sense.
Though I don't know how long they will survive without any more cash injections in the short term due to all their rental liabilities.
Nah, this isn't like Theranos.
In reality, it is a very good product with slim margins. The reason it is losing so much money is because it is expanding quickly to show that it is a "high growth" Unicorn company.
It isn't that it's a scam, it just puts it is a non-tech/non-SaaS category. Every founder/CEO wants to tell a huge growth story. If private investors are buying that then it's just that they miscalculated, but not defrauded.
In reality, it is a very good product with slim margins. The reason it is losing so much money is because it is expanding quickly to show that it is a "high growth" Unicorn company.
It isn't that it's a scam, it just puts it is a non-tech/non-SaaS category. Every founder/CEO wants to tell a huge growth story. If private investors are buying that then it's just that they miscalculated, but not defrauded.
It's also losing money because the CEO is converting it to personal wealth.
Slim margins means it isn't a great product, at least by standard business definitions.
A product with slim margins is one that you divest from so you can focus on the products with good margins.
A product with slim margins is one that you divest from so you can focus on the products with good margins.
There are lots of good businesses that operate on thin margins. They're good businesses, which is why you can divest them to investors who want to run a good business. What they're not are businesses that should trade at anything close to software revenue multiples.
I was referring to the quality of the product from the customer POV.
They rent office space.
MoviePass was an amazing product from the customer POV. Not a viable business though.
From the customer's POV, selling dollar bills for fifty cents each is also a high-quality product.
No not really. Again, they lose billions right now because it costs a lot to build out new buildings. Then as a building matures they recoup these costs through the memberships. The more mature offices are profitable. It just isn’t necessarily tech/VC level profits.
They aren't building out anything, they lease existing office space.
Considering he has the votes to fire the entire board, I'd be shocked if this happens.
Softbank is completely fucked.
Softbank is completely fucked.
Adam has the votes, but not the cash. Softbank has the cash, but not the votes. Arrangements can be made.
Ironically, that's a problem for Adam precisely because We is not Theranos. Holmes had the votes and the cash, which hadn't been spent yet since Theranos wasn't a real business, and she could (and did) just coast for years on what was already in the bank without any need to go to any investors or banks or third parties (who would of course have demanded her ouster as step 1). But since We is a real business with real users and a successful one, We can't just coast on its cash (even if it stopped expansion).
Ironically, that's a problem for Adam precisely because We is not Theranos. Holmes had the votes and the cash, which hadn't been spent yet since Theranos wasn't a real business, and she could (and did) just coast for years on what was already in the bank without any need to go to any investors or banks or third parties (who would of course have demanded her ouster as step 1). But since We is a real business with real users and a successful one, We can't just coast on its cash (even if it stopped expansion).
> But since We is a real business with real users and a successful one, We can't just coast on its cash.
We have a very different definition of what does it mean to be a successful business.
We have a very different definition of what does it mean to be a successful business.
It's successful in the sense that it could raise prices to make a profit and there's a possibility that it would still have enough customers left. Unlikely the oft-discussed "selling dollars bills for 90 cents" companies, WeWork is creating real value that its customers will pay for. The question is still open whether that value is more than the operating costs, but it's at least possible. I'd bet against it though.
It's also a successful business in that their growth plans could potentially deliver real value and economies of scale (talking purely hypothetically here). There's a very big difference between a startup which is profitable but would be far more valuable if it could grow using investments, a startup which is premised on economies of scale and so which fails if it can't grow fast enough to take off from its runway, and a startup like Theranos where the tech did not and probably could never work regardless of how many customers it had.
Even if We would fail for lack of further investments (because it's type #2), that doesn't mean it was #3, a Theranos. In both #1 and #2, Softbank has a lot of leverage over Adam, and in both it's kind of a game of chicken: neither Softbank nor Adam want to see lack of cash cause We either permanently curtail its potential (#1) or die (#2).
Even if We would fail for lack of further investments (because it's type #2), that doesn't mean it was #3, a Theranos. In both #1 and #2, Softbank has a lot of leverage over Adam, and in both it's kind of a game of chicken: neither Softbank nor Adam want to see lack of cash cause We either permanently curtail its potential (#1) or die (#2).
Uber is also creating real value for its customers.
And Uber could be profitable and create real value for investors. The problem is that, in that case, Uber isn't a unicorn and isn't worth the billions already thrown into it.
Ye, but depends on how much loans Uber has if they can ever be profitable. But in theory yes. Just sack 95% of the RnD departement and raise fare prices untill supply and demand even things out.
> But since We is a real business with real users and a successful one, We can't just coast on its cash.
If it were a real successful business it wouldn't need emergency cash injections to stay alive.
If it were a real successful business it wouldn't need emergency cash injections to stay alive.
Financial Times is just reporting that _Softbank_ is the one asking him to step down, so that clearly complicates things: https://www.ft.com/content/ee652036-dd64-11e9-9743-db5a37048...
If he fires the whole board, wouldn't that add further doubt about the company's governance and reduce the expected value of any future IPO even further? It doesn't seem like that would be in his best interest.
>If he fires the whole board
It's game over at that point. Kiss the IPO goodbye, kiss the $6B in lines of credit goodbye, kiss any further investment from Softbank goodbye. With their burn rate, they then have MAYBE another 6 months before they become insolvent. That having been said, it would be quite the Pyrrhic Victory for Softbank, might even mean their demise as well.
It's game over at that point. Kiss the IPO goodbye, kiss the $6B in lines of credit goodbye, kiss any further investment from Softbank goodbye. With their burn rate, they then have MAYBE another 6 months before they become insolvent. That having been said, it would be quite the Pyrrhic Victory for Softbank, might even mean their demise as well.
> It doesn't seem like that would be in his best interest
Rationally, he might be able to extract more cash out of the business running it into the ground than by having it saved by someone else. Delusionally, he might think he's the only one who can run WeWork.
Rationally, he might be able to extract more cash out of the business running it into the ground than by having it saved by someone else. Delusionally, he might think he's the only one who can run WeWork.
It depends, I suppose, on how soon We needs more investor money. If he actually exercises his right to fire the entire board, it seems like it would be hard to get somebody else to chip in big money.
On the other hand, it could be that Softbank knows it won't work, but feels they have to be seen attempting something.
On the other hand, it could be that Softbank knows it won't work, but feels they have to be seen attempting something.
"We needs more investor money"
I read this and heard Gollum saying "We wants it. We needs it."
I read this and heard Gollum saying "We wants it. We needs it."
I also feel that SoftBank has some turbulence in it's future, at least on the mega fund side of things.
This is just the beginning. Start microwaving some popcorn because this will be quite a glorious train wreck to watch! Hopefully the negative impacts are economically isolated.
My popcorn got cold. This train-wreck is taking too long. The suspense is killing me.
I don’t mean to speak in support of the CEO, and I don’t say this to support WeWork.
> The Wall Street Journal reported last week that Mr. Neumann had taken marijuana on a flight from New York to Israel.
In this day and age, where we have businesses that legally sell weed, this sort of commentary appears to be a pointless inclusion of “salacious” details. It is irrelevant to the discussion of whether WeWork has a legitimate growth model or whether the CEO is doing the “right” thing.
I suspect that SoftBank is attempting to win this battle in the court of public opinion, because they bought shares that didn’t have the same voting rights as Mr Neumann’s shares, and they now regret that decision.
> The Wall Street Journal reported last week that Mr. Neumann had taken marijuana on a flight from New York to Israel.
In this day and age, where we have businesses that legally sell weed, this sort of commentary appears to be a pointless inclusion of “salacious” details. It is irrelevant to the discussion of whether WeWork has a legitimate growth model or whether the CEO is doing the “right” thing.
I suspect that SoftBank is attempting to win this battle in the court of public opinion, because they bought shares that didn’t have the same voting rights as Mr Neumann’s shares, and they now regret that decision.
The concern is not over the marijuana use per se, but over illegal drug smuggling across international borders. That shows a major lack of judgment and could have resulted in serious consequences for the charter company if they had been caught. Based on that behavior and other reports I suspect Adam Neumann suffers from narcissistic personality disorder.
That seems like a serious diagnosis for anyone to make based off of news coverage alone. I don’t think we are helping the dialog when we propagate such ideas.
I also don’t mean to judge, but (right or wrong) marijuana use in Japan is still absolutely scandalous and seen as a major transgression that ends careers. That might explain why someone misjudged the appetite for this “scandal”.
Didn't the two head honchos already redirect some cashflow to their accounts? I think they and their grandchildren will be fine... Softbank on the other hand...
Yes... And Softbank was so high on kool-aid they let Adam sell them $700M of his stake. Absolute worst use of investment at that level...
Taking a little out to derisk yourself after a B or greater round is reasonable. Taking almost 10% of a round is obnoxious.
Taking a little out to derisk yourself after a B or greater round is reasonable. Taking almost 10% of a round is obnoxious.
ya i was surprised that he was able to extra so much money also.
He adds very little of value at this point, and only harms the reputation and uses it as a way to funnel VC money into his bank account.
Leaving aside all of the headline-making entertainment of Adam Neumann being Adam, the real problem here is that WeWork really doesn't have much in the way of enduring network-effect advantages -- even though it tried so hard to convince investors otherwise.
In many tech-fueled marketplaces, getting big in a hurry is a practically unbeatable advantage. I saw this 20 years ago when I was tracking eBay. No end of little players would approach me and say: "I've designed a better marketplace than eBay. If I just had 1 million users, you'd see how good it is."
But it was too late, and there was no way for them to go from 10 users, to 10,000, to anything bigger. Loyalties on both sides of the market were already sewn up. Both buyers and sellers wanted a deep, super-smooth market where they could transact 10-50 times a month without ever being frustrated by a lack of market depth. When people need a viable market many times a week, switching costs become unfathomably high. eBay owned that concept for as long as it would work. It's been basically the same story for Uber, Lyft, Twitter, etc.
But this is not true the one-time need of renting this season's splashy workspace with free kombucha. Tenants pick their spot and then stay for 3 months, 11 months, three years or whatever. There's a little bit of shuffling around and re-transacting, but not nearly as much.
Besides, if the WeWork concept is that good, it's easy to copy and does not need giant scale to work. That's totally different from trying to build the third ride-hailing service. In this case, someone who owns three office buildings in Chicago's West Loop can convert them to a WeWork clone and rent them just fine to people who want to be in that neighborhood. The fact that this new outfit (WeLoop) does not have a London outpost or a list of 75,000 other tenants in other states is irrelevant. Buyers show up for one transaction (get me a groovy office space in my neighborhood) and then they are done. That is already beginning to happen, in fact.
Yeah, WeWork has a greater ability to serve large corporations that want an ever-changing blend of space in a lot of cities. But that's not its core market. And even if it is, WeWork isn't automatically better off than existing REITs that can tweak their multi-city properties as needed.
So it's brave of Team Adam to go into a lot of cities all at once and tell people that this year's losses will soon give way to profits once the buildings fill up. But that doesn't seem to be happening on schedule. And even if WeWork eventually gets to breakeven, that just entitles it to compete against a lot of established players who already own better buildings in better locations -- and who can clone whatever elements of WeWork design seem appealing to customers.
Getting access to capital on super-friendly terms gave WeWork the ability to build fast, almost regardless of what the short-term economics might be. But now access to capital is getting quite a bit harder.
And that can feed on itself in scary ways. Once capital gets scarce, a lot of expansion plans get much harder to carry out. Now growth slows. And that makes investors more jittery. Borrowing rates go up; loan covenants get tighter, and equity dilution gets more severe. Growth shrinks further. Money gets tighter.
In such situations, it takes a skilled pilot to land the plane safely, let alone regain altitude.
In many tech-fueled marketplaces, getting big in a hurry is a practically unbeatable advantage. I saw this 20 years ago when I was tracking eBay. No end of little players would approach me and say: "I've designed a better marketplace than eBay. If I just had 1 million users, you'd see how good it is."
But it was too late, and there was no way for them to go from 10 users, to 10,000, to anything bigger. Loyalties on both sides of the market were already sewn up. Both buyers and sellers wanted a deep, super-smooth market where they could transact 10-50 times a month without ever being frustrated by a lack of market depth. When people need a viable market many times a week, switching costs become unfathomably high. eBay owned that concept for as long as it would work. It's been basically the same story for Uber, Lyft, Twitter, etc.
But this is not true the one-time need of renting this season's splashy workspace with free kombucha. Tenants pick their spot and then stay for 3 months, 11 months, three years or whatever. There's a little bit of shuffling around and re-transacting, but not nearly as much.
Besides, if the WeWork concept is that good, it's easy to copy and does not need giant scale to work. That's totally different from trying to build the third ride-hailing service. In this case, someone who owns three office buildings in Chicago's West Loop can convert them to a WeWork clone and rent them just fine to people who want to be in that neighborhood. The fact that this new outfit (WeLoop) does not have a London outpost or a list of 75,000 other tenants in other states is irrelevant. Buyers show up for one transaction (get me a groovy office space in my neighborhood) and then they are done. That is already beginning to happen, in fact.
Yeah, WeWork has a greater ability to serve large corporations that want an ever-changing blend of space in a lot of cities. But that's not its core market. And even if it is, WeWork isn't automatically better off than existing REITs that can tweak their multi-city properties as needed.
So it's brave of Team Adam to go into a lot of cities all at once and tell people that this year's losses will soon give way to profits once the buildings fill up. But that doesn't seem to be happening on schedule. And even if WeWork eventually gets to breakeven, that just entitles it to compete against a lot of established players who already own better buildings in better locations -- and who can clone whatever elements of WeWork design seem appealing to customers.
Getting access to capital on super-friendly terms gave WeWork the ability to build fast, almost regardless of what the short-term economics might be. But now access to capital is getting quite a bit harder.
And that can feed on itself in scary ways. Once capital gets scarce, a lot of expansion plans get much harder to carry out. Now growth slows. And that makes investors more jittery. Borrowing rates go up; loan covenants get tighter, and equity dilution gets more severe. Growth shrinks further. Money gets tighter.
In such situations, it takes a skilled pilot to land the plane safely, let alone regain altitude.
It's really hard to see where their killer position is.
If the focus is getting a lot of people into an office for a long time, then it will eventually be cheaper for those people to rent their own.
If focus is on short term individuals, then they can just switch to whichever competitor comes along with a newer office and a more enticing introductory rate.
Maybe main advantage is that they're flexible. If you need 20 people sitting together in a random city, for 6 months, starting end of the month - well they can do this, but so can all manner of other managed office providers.
Other 'unicorns' such as Uber and Lyft can compete based upon which app you open first, how many drivers they can put near you - We has to compete by making great big office buildings appear.
If the focus is getting a lot of people into an office for a long time, then it will eventually be cheaper for those people to rent their own.
If focus is on short term individuals, then they can just switch to whichever competitor comes along with a newer office and a more enticing introductory rate.
Maybe main advantage is that they're flexible. If you need 20 people sitting together in a random city, for 6 months, starting end of the month - well they can do this, but so can all manner of other managed office providers.
Other 'unicorns' such as Uber and Lyft can compete based upon which app you open first, how many drivers they can put near you - We has to compete by making great big office buildings appear.
I think it's possible there could be advantages for a chain co-working space over independent ones, but it depends on how the market looks long term. Not saying that chain has to be WeWork, of course.
For instance, short term users, who pay the highest rates, could turn out to be a big part of the market. That could be business travelers, companies moving office or setting up offices, companies that need temp office work, etc. They may go for a well-known chain over an independent, just like business travelers often do with hotels. Similar with, as you mentioned, big companies that need to hire in a lot of different cities at once.
It's also possible a big chain could manage to offer better deals than a smaller player if they can negotiate with big, multicity landlords and other vendors or get some kind of special deals for members (e.g., discounts on software, or cheap lunch delivery/taxi service sharing drivers between members).
We also owns Meetup, and I could see WeWork or another chain finding ways to offer additional uses that we don't currently associate with coworking spaces. The advantage could be easy online booking for all kinds of meetings and events, maybe with added features like food and beverage catering.
A chain could also effectively become a marketplace for coworking and other temporary business space needs. Maybe you could book a spot for your company holiday party, or reserve a shopping mall kiosk for a week to do user testing, or even book space at a non-corporate-owned coworking space through your account.
For instance, short term users, who pay the highest rates, could turn out to be a big part of the market. That could be business travelers, companies moving office or setting up offices, companies that need temp office work, etc. They may go for a well-known chain over an independent, just like business travelers often do with hotels. Similar with, as you mentioned, big companies that need to hire in a lot of different cities at once.
It's also possible a big chain could manage to offer better deals than a smaller player if they can negotiate with big, multicity landlords and other vendors or get some kind of special deals for members (e.g., discounts on software, or cheap lunch delivery/taxi service sharing drivers between members).
We also owns Meetup, and I could see WeWork or another chain finding ways to offer additional uses that we don't currently associate with coworking spaces. The advantage could be easy online booking for all kinds of meetings and events, maybe with added features like food and beverage catering.
A chain could also effectively become a marketplace for coworking and other temporary business space needs. Maybe you could book a spot for your company holiday party, or reserve a shopping mall kiosk for a week to do user testing, or even book space at a non-corporate-owned coworking space through your account.
> We also owns Meetup, and I could see WeWork or another chain finding ways to offer additional uses that we don't currently associate with coworking spaces. The advantage could be easy online booking for all kinds of meetings and events, maybe with added features like food and beverage catering.
> A chain could also effectively become a marketplace for coworking and other temporary business space needs. Maybe you could book a spot for your company holiday party, or reserve a shopping mall kiosk for a week to do user testing, or even book space at a non-corporate-owned coworking space through your account.
Much as WeWork could bring customers, I can't help but think Meetup would have been in a much better place to be that middleman for renting interesting and varied spaces without being lumbered with a branded workspace product...
> A chain could also effectively become a marketplace for coworking and other temporary business space needs. Maybe you could book a spot for your company holiday party, or reserve a shopping mall kiosk for a week to do user testing, or even book space at a non-corporate-owned coworking space through your account.
Much as WeWork could bring customers, I can't help but think Meetup would have been in a much better place to be that middleman for renting interesting and varied spaces without being lumbered with a branded workspace product...
Those are all good ideas. They're very much in line with the ways that airlines (United), credit-card issuers and hotels (Marriott) try to leverage their big customer pools. Execute them well, and you can pick up some "free" (or nearly free) revenue and push up your profit margins by a percentage point or two.
Agree that running a chain of co-working office facilities can be quite a decent business (QADB). But those tend to be valued much more conservatively by the stock market.
Agree that running a chain of co-working office facilities can be quite a decent business (QADB). But those tend to be valued much more conservatively by the stock market.
Question, because I don’t know how this works. Who sets the valuation on a company?
Does a CEO have anything to do with that, or is it wholly external?
Does a CEO have anything to do with that, or is it wholly external?
If you declare your company has a billion shares and I buy 1 for $1 then you have a valuation of... one BILLION dollars.
If I later buy 1 share for $2 then your valuation has doubled. That is basically SoftBank’s business model.
If I later buy 1 share for $2 then your valuation has doubled. That is basically SoftBank’s business model.
Basecamp even made a headline out of it a while ago: https://www.linkedin.com/pulse/basecamp-valuation-tops-100-b...
> Basecamp is now a $100 billion dollar company, according to a group of investors who
> have agreed to purchase 0.000000001% of the company in exchange for $1.
Just wow, this is gold.
> have agreed to purchase 0.000000001% of the company in exchange for $1.
Just wow, this is gold.
that article is hilarious!
Valuation is based on what percent of shares an investor buys for how much. eg; if I buy 5% (0.05) of a company for 100$. The company valuation would be 100 / 0.05 = 2000$.
It can be a little more complicated with post and pre buy valuation, but that is the general idea.
It can be a little more complicated with post and pre buy valuation, but that is the general idea.
It seems too late for this to make much of a difference in IPO valuation for investors (really SoftBank) to get the exit they want. Neumann's actions may have been a catalyst, but now everyone is really questioning the "tech startup" valuation and unit economics.
Surprised it took this long!
Ponzi scheme Hail Mary.
Edit: This isn’t meant to be flippant. There is literally no value in this company and its current owners are trying to dump it on a greater fool.
Edit: This isn’t meant to be flippant. There is literally no value in this company and its current owners are trying to dump it on a greater fool.
Does WeWork not have a crunchbase profile page? I'm curious about who all managed to get out before the Softbank fiasco. Were employees allowed to sell shares on the secondary market, or are they all effectively hosed now?
Thanks, not showing up in search for some reason.
Unless they're leasing out space at a loss, they should be able to turn a profit by reining in costs and slowing growth. Some of its harshest critics said it needs to be valued more like Regus and not like a tech company.
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Everyone likes to pile on WeWork, and I get it, but as someone who dealt with both startup and solo office leases in the pre-WeWork era: my God is WeWork's model comparatively amazing as a customer. The spaces are nice, there are no headaches, you can purchase the exact amount of space and duration you need, and you have a guaranteed decent place to do some work or just hang out anywhere you travel.
The "no competitive advantage / anyone can do this" crowd is sort of ignoring the fact that no one did, at least for folks that care about the things I mention.
The "no competitive advantage / anyone can do this" crowd is sort of ignoring the fact that no one did, at least for folks that care about the things I mention.
There's definitely pay per 6 minute desks in every city I've worked in in the USA, did you mean something else?
No one discusses it, but I thought a bit reason WeWork got this far is that when they started, the financial crash meant commercial leases were very cheap. Since they lock those in for 10+ years, but then their contracts with the clients are 1m month plus, they have seen revenue rise with the economy but costs stay roughly the same.
Its sort of the opposite of the problem banks have where they borrow short term and lend long term.
Its sort of the opposite of the problem banks have where they borrow short term and lend long term.
I am randomly bombarded by negative things regarding WeWork on the internet lately. Some posts linked to negative news coverages about WeWork appeared on my facebook feed (business insider articles) I saw somewhere else that how some WeWork division manager wanted employees fired because she didn't like their energy.
I have no opinion about the company neither I want to but I definitely feel pushed to have a negative opinion about them!
I have no opinion about the company neither I want to but I definitely feel pushed to have a negative opinion about them!
Yeah when the CEO is basically profiting off borderline fraudulent name licensing and leasing agreements there tends to be some moral outrage
I wish a company going public could only release one class of shares. One vote per share.
I've seen on crunchbase and this app blind that there could be many layoffs. As many as 5000. Whats going on?
Are the extreme cost cuts true?
Are the extreme cost cuts true?
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Just like Theranos, investors once again fell for the personality and didn't do their due diligence. Sure, the idea is great, but they have losses exceeding $1.5 B. That in itself would scare me.
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Playing Devil's advocate imagine having potentially millions of dollars invested in tearing you apart - going through every piece on online history, video, etc., trying to find something juicy to tank the company you've tried so hard to build.
Imagine trying so hard to build a company and getting to the 11th hour before the IPO and being stymied by something as simple as basic corporate governance.
That’s like trying to launch a tech company but “forgetting” to set up the servers and hoping if you talk about your vision and say “We” enough no one will notice/mind.
That’s like trying to launch a tech company but “forgetting” to set up the servers and hoping if you talk about your vision and say “We” enough no one will notice/mind.
What company? What was built? It's a money destruction machine, not a business. They have no plans or experiments or research moonshots that they expect to be profitable, ever.
I see your point but WeWork hasn't IPO'd yet. So there are no short sellers yet.
blaming "short sellers" is a slightly more sophisticated sounding "haters gonna hate" in most situations, but in reality its equally as dumb.