A New Era In Growth – WeWork at 10 Billion
WeWork Doubles Valuation in 5 Months, Now Estimated at $10 Billion
On Wednesday June 24, WeWork CEO Adam Neumann announced the company is now estimated at $10 billion dollars, placing it in the top 10 most valuable private tech companies currently in operation. Wednesday’s press release stated that existing investors, including companies such as JPMorgan Chase & Co., Goldman Sachs Group Inc., and Benchmark Capital, placed $400 million in capital into the company, doubling its estimated valuation. This expansion comes just five months after the Coworking firm completed a Series D round of investments that placed the company at the $5 billion mark in December of 2014. Early in 2014, WeWork was estimated at a worth of $1.5 billion.
This new bump in valuation ties WeWork sixth place on the list of most valuable private tech companies in the United States as of June 2015; it’s tied with AirBnB and Dropbox. WeWork falls behind Uber at number 1 with $41.2 billion and Snapchat at number 2 with $16 billion, according to the Wall Street Journal. But with great money comes great responsibility: co founder Neumann was hesitant at first to accept the new investments, and claims the company did not go searching for additional investments. “This is an increase in responsibility, an increase in expectations,” Neumann said. “A higher valuation with more cash invested by investors just means you need to deliver higher returns.”
While the company has quickly exceeded expectations, there remains room for failure with both its business plan and the new influx of investments. At approximately 3.5 million sq. feet of office space for lease in the U.S., WeWork is less than 8 percent of the size of Boston Properties Inc., the largest publicly traded landlords, estimated at $19 billion. With the size discrepancy, there is a margin for failure if WeWork doesn’t meet the growth rate its investors are anticipating. In addition, the company sets long-term leases with landlords but subleases on a monthly basis to workers; thus their revenue fluctuates on a monthly basis, but their fees are fixed.
WeWork’s business model is simple but appears to be catching like wildfire: rent space from landlords, break it down into small, incubator offices with trendy common areas to foster community. Add free tap beer and ping-pong, and startups and smaller businesses are clamoring at WeWork’s feet to be a part of their Coworking model. But unlike most Coworking spaces, WeWork offers extra packages, like health insurance. Coworking has been targeted to young professionals, popularizing it specifically in startup and tech crowds, and those looking to break out of the stuffy, traditional corporate office space into a more interactive atmosphere.
While WeWork is the fastest growing business by footprint in the Manhattan area in the past few years, competitors across the country aren’t concerned with being edged out by the $10 billion company.
“I don’t worry about [WeWork] one bit,” Martin Selig said. Selig is the owner of one of Seattle’s largest office spaces, clocking in with approximately 4 million sq. feet and more to come. He cites WeWork as the incubator for companies who will later join his real estate offices.