WeWork, the office-sharing startup backed by SoftBank, has filed for bankruptcy protection due to its failed bets on companies using its office space. The move signifies that SoftBank acknowledges the need to renegotiate WeWork’s expensive leases in order for the company to survive.
WeWork’s rise and fall
WeWork was founded in 2010 by Adam Neumann, who envisioned creating a global network of co-working spaces that would foster community and collaboration among entrepreneurs and freelancers. The company grew rapidly, attracting investments from blue-chip investors, including SoftBank and venture capital firm Benchmark, as well as the backing of major Wall Street banks, such as JPMorgan Chase.
At its peak in 2019, WeWork was valued at $47 billion, making it the most valuable U.S. startup at the time. It had more than 800 locations in 124 cities across 38 countries, serving more than 600,000 members. It also expanded into other businesses, such as education, wellness, and residential.
However, WeWork’s pursuit of breakneck growth at the expense of profits, and revelations about Neumann’s eccentric behavior, led to his ouster and the derailment of an initial public offering in 2019. SoftBank was forced to double down on its investment in WeWork, and tapped real estate veteran Sandeep Mathrani as the startup’s CEO.
WeWork’s challenges amid the pandemic
WeWork faced significant challenges amid the COVID-19 pandemic, which kept office workers at home and reduced the demand for flexible workspaces. The company reported a net loss of $3.2 billion in 2020, and its revenue declined by 6% to $3.5 billion.
WeWork managed to amend 590 leases, saving about $12.7 billion in fixed lease payments. But this was not enough to compensate for the fallout from the pandemic, which caused many corporate clients to cancel or reduce their contracts. Paying for space consumed 74% of WeWork’s revenue in the second quarter of 2023.
In 2021, SoftBank cut a deal to take WeWork public through a merger with a blank-check acquisition company at an $8 billion valuation. However, the deal was delayed due to regulatory scrutiny and market volatility.
WeWork’s bankruptcy filing
On Monday, November 6, 2023, WeWork filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the Southern District of New York. The company reported estimated assets and liabilities ranging from $10 billion to $50 billion, according to the bankruptcy filing.
The filing allows WeWork to restructure its debt and renegotiate its leases with landlords, who are expected to face significant losses. The company said it has secured $1.5 billion in debtor-in-possession financing from existing lenders, and expects to emerge from bankruptcy as a going concern.
WeWork said it will continue to operate its business and serve its members during the bankruptcy process. The company also said it plans to focus on its core business of providing flexible workspaces, and exit from non-core ventures.
“We are confident that this process will enable us to right-size our balance sheet and position WeWork for long-term success,” Mathrani said in a statement.
