US giant We Co, star of "coworking", bends under controversy

Which American startup is currently worth the most expensive? It's not Airbnb, SpaceX and even less Palantir, the controversial Big Data giant. The one that stands out in the lead, with a market valuation estimated at $ 47 billion, is much less known to the general public. It's called The We Company (We Co), and is riding the wave of coworking by renting workspaces in 111 cities around the world.

In mid-August, it whetted the appetite of investors around the world by announcing its intention to go public in October 2019. The listing of We Co was announced as the stock market event of the year. But a month later, the leaders of this startup have decided to aim for a valuation of about $ 20 billion, or half of its current value, reported the Wall Street Journal and Bloomberg, Thursday, September 5 .

A downward revision of stock market ambitions unpublished in the history of startups IPOs since the Internet bubble of the early 2000s. However, this change did not take the microcosm Tech by surprise. After dances so many summers to the sound of easy money that has long flowed into Silicon Valley, The We Company found itself quite helpless when it came to convincing institutional investors who make the rain and the beautiful time in the financial markets.

WeWork to We Co

The We Company was founded in 2010 as WeWork. Its raison d'être - the renting of "coworking" spaces - is not innovative. But Adam Neumann, his charismatic CEO-founder, has an idea that will prove essential to the growth of his company: WeWork will be presented to investors as a startup Tech unlike its competitors, all of whom are portrayed as real estate companies. "When I contacted them in 2013 for an article, one of the first things they said to me was' you're a real estate journalist, we do not think it's a real estate topic. You would not have someone who deals with everything related to societal transformations? ", Recalls Eliot Brown, a Wall Street Journal reporter. In the financial documents provided, on August 11, to the American policeman of the Bourse, the word "Tech" returns 123 times.

"You can not raise so much money if you look like a real estate company, but if you succeed in dressing up your business, a Silicon Valley start-up, dynamic and who knows how to talk to the millenials, all dreams are allowed, "says Wall Street Journal Barry Sternlicht, a fund manager.

Adam Neumann, the charmer ...

Adam Neumann knew how to sell his dreams to raise money. After discussing three hours in 2010 with the young entrepreneur, then just 30 years old, Joel Schreiber, a Manhattan investor, agreed to lend WeWork $ 15 million, "without negotiating. I simply said yes because I loved Adam Neumann's energy, "he tells The Wall Street Journal.

Many have fallen under the spell of the entrepreneur known for his eccentric manners, his taste for the party and the good tequila. Adam Neumann even managed to seduce the very rich fund of the Japanese giant Softbank. Doped with Saudi money, this financial vehicle of nearly $ 100 billion has invested about $ 10 billion since 2014 in WeWork.

However, as of 2014, some directors of the Japanese fund question the financial viability of The We Company. A skepticism shared by economists and bankers who have looked at financial documents, published in August 2019. "This is the most overvalued startup of all time," summarizes Scott Galloway, economist at New York University, who peeled the group's financial indicators into a blog post.

#hottake #WeWork gold, better yet, What's the F ** k? pic.twitter.com/IZeh5O5olv

Overrated?

He can not understand why this young push would be worth 26 times its turnover while its competitors, already listed on the stock market, are worth between 0.5 and twice their turnover. The Financial Times also analyzed that if The We Company were treated as a traditional real estate company, it would be worth between $ 3 billion and $ 5 billion, not $ 47 billion.

Since its inception, The We Company has never made a profit. It has even accumulated nearly $ 3 billion in losses over the past three years. But this is not the biggest handicap. Other startups, such as Amazon, have indeed built their growth on the back of colossal losses that allowed them to finance investments and ultimately generate profits.

The main problem comes from the economic model: The We Company leases long-term supermarkets, which are then divided into smaller, more expensive rented spaces for companies looking for temporary offices. The concern is that the startup "has not put money aside to cover the rents it has to pay in the long run," notes Scott Galloway. Clearly, in the event of a turnaround in the economy that would negatively affect the startups' appetite for coworking spaces, The We Company may quickly run out of money to repay the $ 47 billion it owes in long-term rent .

Adam Neumann, the "financial risk"

Investors are also worried about what they modestly call "good governance" problems. In fact, this is the way Adam Neumann manages the money of the startup that challenges. For several years he had several apartments rented to The We Company to be transformed into a coworking space. The group he founded was therefore his tenant, and paid him several million dollars between 2016 and 2017.

The founder has also registered the brand "We" that he has agreed to resell for nearly $ 6 million to WeWork at the name change to become The We Company in 2019. "Impossible to invent something like this!" Scott Galloway notes. The We Company assured in the financial documents made public that Adam Neumann had repaid the money.

Finally, Adam Neumann resold at least $ 700 million in shares he held in his company in 2017. For Scott Galloway, it's a funny message to send to investors while Adam Neumann put The We Company in market order for its IPO.

These are all elements that tell the technological site The Verge that Adam Neumann may have attracted investors early WeWork history, but today, "he became a major risk factor" in their eyes.