Co-working space provider WeWork issued a warning on August 8, saying its management needed to raise additional capital to keep the company afloat and maintain liquidity over the next 12 months. The company also said there was “substantial” doubt about its ability to continue as a going concern, and said three board members had stepped down.
Addressing their India business the co-working space provider has clarified that 'any development globally has no impact on our business here'. The company also said that WeWork India is backed by Embassy Group who holds the majority stake. The company reassured their claims by adding that despite the pandemic the company emerged profitable last year, ending FY23 with a revenue of Rs 1,400 crore & Rs 250 crore in
earnings.
Israeli investor Adam Neumann started the business in 2010 with designer Miguel McKelvey. Their vision was to lease office space and then rent smaller parcels to customers.
In this explainer, we take a look at why the co-working space provider is in dire straits.
Membership cancellations
As of today, the New York-based company is bleeding cash, and customers of its office rentals are cancelling their memberships in droves, according to WeWork’s statement. The company has also been impacted by the larger changes in the market as trouble brews in the tech sector, where mass layoffs have become rampant.
Also Read: WeWork raises going-concern doubt, shares tank
Messy IPO debut
Neumann attempted to take the company public in 2019. However, the attempt at an initial public offering crashed, despite considerable interest in the business.
Investors failed to agree with the company’s extravagant spending and Neumann’s power-hungry eccentricities. Disclosures in the prospectus showed he was leasing space to the company in buildings he owned and charged his own business $5.9 million for a trademark on the name “We”, which he owned. Nearly four years on from the abortive IPO attempt, the
company is yet to turn a profit.
Neumann’s departure and Covid
Neumann was ousted in late 2019 and the company went through with a series of layoffs. WeWork undertook a change in leadership and brought in former Brookfield Properties group CEO Sandeep Mathrani to lead the company, hoping for a turnaround. Mathrani took over as CEO in February 2020, promising to stop the money bleed and restore order in the company.
His term as CEO began during the onset of the Covid-19 pandemic. Offices were shut across the globe as the virus forced prolonged lockdowns. Offices resorted to work-from-home setups and occupancy plunged, impacting the entire office space leasing industry.
Exits by the top brass
WeWork seemed to have achieved a milestone in March when it struck a deal with some of its biggest creditors and SoftBank to reduce its debt load by around $1.5 billion and extend other maturities. However, Mathrani's sudden exit in May left WeWork without a permanent replacement for the role.
Mathrani suddenly stepped down for a job at Sycamore Partners. The company also witnessed the exit of top executives, including CFO Andre Fernandez in 2023.
Mitigation plan
In its release warning of difficult times ahead, WeWork also said that it was going to focus on reducing rental costs over the next 12 months. Additionally, the company is also looking at ways to negotiate more favorable leases, increase revenue and raise capital.
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