using VRIN framework, explain why their value plunged.

This decade has seen many startups that rose to new heights, and then some that never made it. However, maybe no story is as interesting as that of WeWork, the co-working space, which started off as one of the most promising startups of this decade but ended up being bailed by its own investors. At the peak of its journey, WeWorks valuation hit $47 billion but in less than a year, it needed an $8 billion infusion to avoid running out of money.

Bloomberg has summarised the startups entire journey in a video thats aptly titled The Spectacular Rise and Fall of WeWork. Here are some points to remember from the startups journey, in case you are planning on going big with your startup or if you want to avoid making the same mistakes. This is basically a case study of what happens when a startup with no effective oversight on how to spend gets its hands on too much money, too fast.

How it all started

The company started after its now ex-co founder and long-time CEO Adam Neumann came to study in New York. After trying his hand at a few businesses, he was struck with an idea of subdividing a space and renting it out with Miguel McKelvey who is a co-founder of the company and a trained architect. The two started their journey with a company called Greendesk, which was the first iteration of WeWork and was later sold.

In 2010, WeWork was born and it was a great time to start a co-working company in New York City. The startup actually had a solution for numerous landlords who were sitting on empty office buildings and the first building by WeWork started in Grand Street in downtown Manhattan. Soon after the business took off, they received some early investment from a venture capital firm called benchmark, and used the money to grow and take on new leases.

Explosive growth

By 2015 WeWork quadrupled its valuation to $10 billion with over 23,000 customers who were paying for its memberships in 32 locations. The startup rented out desks for as little as $45 per month and instead of standing out just as a co-working space, the company brought a sense of community for like-minded people who are working together. Now, more investors were turning its gaze towards the thriving startup.

SoftBank entered the picture in 2017 and invested around $8 billion in WeWork, which further increased the companys evaluation to a whopping $20 billion. Backed by SoftBanks investment, the startup quickly expanded its footprint around the world and in 2019, SoftBank floated a potential investment of $16 billion, which meant a controlling stake in the company.

However, during this time of growth, another company called IGW was doing well and trading at a fraction of WeWork. Looking at both companies, IGW was making profit whereas WeWork wasnt. However, with SoftBanks investment and the green signal to spend the money, the startup went ahead to open more offices around the world, investing in other companies and even opening up a private elementary school in New York City.

The Crash

While WeWork was expanding at an unprecedented rate and its valuation through the roof, there was no actual profit to be shown. This is being blamed on reckless expenditure by a company that made multiple bad investments. The startup announced in August 2019 that it is filing for an IPO and this was the first time that its investors were able to look into the companys performance metrics.

The filings also revealed that in the first six months of 2019, WeWork amassed losses of about $690 million, bringing its total losses to almost $3 billion in the past three years. The fact that the company was making huge losses changed a lot of things as investors started to pull back from the company and that it isnt ready to go for an IPO as a company that protects the value for shareholders. On September 17, WeWork officially pushed back its much-awaited initial public offering.

Adam Neumann resigns

After pushing back WeWorks IPO indefinitely, the companys board and its biggest investor, SoftBank decided that there needs to be a big change inside the company. Neumann was believed to a liability for the company instead of an asset. Late in September, Neumann resigned saying too much focus has been placed on him, realising hes a distraction to the company.

Senior WeWork executives Sebastian Gunningham and Artie Minson were appointed as co-CEOs. Neumanns $60million private jet was put up for sale, along with multiple WeWork acquisitions and the IPO was postponed indefinitely. WeGrow, the startups private elementary school was also shut down and thousands of employees were to be laid off.

It was reported that the Co-CEOs secured themselves multimillion-dollar severance packages when the company didnt even have enough cash to pay severance to its thousands of rank-and-file employees that it plans to lay off. At this time of uncertainty and unrest at WeWork, Softbank injected a $9.5 billion into the company, bailing it out. Now, WeWork is valued at less than $8 billion