WeWork has failed. Like a lot of other tech startups, it left damage in its wake

 

The unicorn startup once worth billions filed for bankruptcy protection last week

The worksharing giant WeWork was supposed to fundamentally alter the future of the office. It raised billions of dollars, signed leases in office towers across North America but filed for bankruptcy protection last week.

Analysts say it collapsed, at least in part, because it never had a viable business model.

"It didn't really have a clear path to profitability. It never made any money," said Susannah Streeter, head of money and markets at the financial services firm Hargreaves Lansdown.

Streeter says WeWork is just the latest in a string of high-profile, well-funded ideas that failed spectacularly.

"This is a lesson for would-be investors not to believe the hype," she told CBC News.

But the collateral damage of startups celebrated for "disrupting" traditional industries can go far beyond investors — hurting not just the old guard but also customers who are stuck with what's left.

The damage in its wake

WeWork's first location opened in New York in 2010, founded by tech entrepreneurs Adam Neumann and Miguel McKelvey.  

They built the company on a promise to reshape office culture and used the funds from the sale of their previous co-working startup, Green Desk, to get started.

When it was launched as a publicly tradeable company in 2021 — after Neumann was ousted and McKelvey left — the company's stock shot up to a market value of $9.4 billion.

In a pre-pandemic world, the idea generated a lot of hype. Big institutional investor SoftBank pumped $6.5 billion US into WeWork and eventually injected another $9.5 billion US in an attempt to save it.

But by then, WeWork was beyond saving. It had stacked up $16 billion US in losses and was paying 80 per cent of its revenues on rent and interest.

WeWork had more than 18 million square feet of rentable office space in the United States and Canada at the end of last year, according to a financial filing.

"It will be years before that space is occupied again," said independent commercial real estate consultant John Andrew.

In a weird twist, he says, the WeWork model would actually make more sense now than it did five years ago, because there's more openness to flexible work arrangements. But because the company piled on so much debt and focused on growth over quality, it simply ran out of time.

"They were up to their eyeballs in debt, and then we know what happened with interest rates," Andrew said.