25 September 2018

Now a $5 Billion Co-Working Startup

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WeWork Companies Inc., a provider of shared office space, believes it can be as transformational to its industry as upstarts like Airbnb Inc. and Uber Technologies Inc. are in travel and transportation. The four-year-old company, which divvies up rented office space and sublets largely to startups, said on Monday it closed a $355 million funding round. The deal values the company at about $5 billion, said people close to the matter. The valuation puts the small New York-based company in the same league as social bookmarking site operator Pinterest Inc. and media and Internet company IAC/InterActiveCorp.

Adam Neumann, WeWork’s 35-year-old co-founder, hopes to make the company a hothouse for new business formation—by bringing together entrepreneurs who share space, office services and, potentially, ideas. Unlike its closest competitors, WeWork has a new-era sheen, its own mobile app, and deliberately chose to place properties in hot areas like Washington, D.C.’s Shaw neighborhood.

Viewed as a traditional real estate venture, WeWork’s valuation wouldn’t be nearly as rich, Mr. Neumann acknowledges. WeWork’s investors see it as a force for upending small-business office rentals with a new model providing sleek furnishings and plenty of collaboration.

Mr. Neumann said the company’s app, which serves as an internal directory and allows WeWork customers to communicate idea and applicants, also provides information on events like regular happy hours—touchstones of the work community it aims to foster.

WeWork’s December revenue puts it on an about $150 million annual revenue run rate. It expects to grow significantly in years ahead, which would lower that ratio. Landlords typically trade between 18 times and 20 times earnings, according to Jed Reagan, an analyst at real estate consultants Green Street Advisors.

WeWork leased about 1.6 million square feet in New York, making it the fastest expanding company by footprint in the city since 2010. In all, it expects to have about 3.5 million square-feet globally by the end of 2015, total space larger than the Empire State Building. Also in the works is living space, akin to a high-end dorm for 20-something workers, people briefed on the company’s plans said.

Price depends on location. In the company’s Financial District headquarters, it charges $400 a month for a desk and $1,400 a month for a small two-person office, well above the area’s rate for such space. The business is a risky one in which its costs, fees paid to landlords, are fixed, but its revenues from startups and established businesses can fall quickly when the economy slows.

As for his company’s next steps, Mr. Neumann said he is focused on growing the business. He plans to expand WeWork from its current 23 locations to 60 in the next year. Landlords who have discussed the matter with WeWork executives say they have said it is planning an initial public offering sometime in the next two or three years.

Click here to access the full article on The Wall Street Journal. 

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