The infusion from its biggest outside investor comes as the start-up, which once had a $47 billion valuation, was on the brink of running out of money — as soon as November, by some estimates. WeWork was forced to delay its initial public offering in September after the company’s prospectus raised questions about its worth and the leadership of co-founder and then-chief executive Adam Neumann.
WeWork is now valued around $7 billion, a more than 85 percent drop from its peak.
“It is not unusual for the world’s leading technology disruptors to experience growth challenges as the one WeWork just faced,” Masayoshi Son, chairman and chief executive of SoftBank, said in a news release. “Since the vision remains unchanged, SoftBank has decided to double down on the company by providing a significant capital infusion and operational support."
SoftBank has now invested more than $13 billion in the cash-burning start-up, a move that has rattled investors. Its shares slumped 2.5 percent after the bailout package was announced, and they are down nearly 30 percent from their July peak.
“This sorry episode is also a searing indictment of SoftBank’s valuation and screening methodology which needs to shift towards being based on fundamentals rather than blue sky,” Richard Windsor, founder of Radio Free Mobile, wrote in a research note Tuesday.
Neumann was ousted as chief executive last month amid allegations of self-dealing and reports of erratic and eccentric behavior that put the company at risk. Now, Neumann will leave the company he helped found in 2010, his exit sweetened by $1.7 billion in cash and credit from SoftBank. Neumann will give up his voting rights while maintaining an unspecified stake.
SoftBank’s chief operating officer, Marcelo Claure, was appointed executive chairman of WeWork’s board of directors. The board will be expanded, the company said in a statement.
J.P. Morgan, one of WeWork’s biggest external shareholders, had been competing with SoftBank for WeWork’s financial rescue. The company met with more than 100 investors to cobble together $5 billion in bailout funding but refused to match SoftBank’s offer for Neumann, according to reporting from CNBC.
WeWork, which essentially is a real estate company that positions itself as a tech start-up, saw rapid success with its hip co-working spaces. Since 2010, it has expanded to more than 30 countries and is one of the biggest private tenants in Manhattan, London and Washington, D.C. It claims about a third of the flexible office space market, according to data from real estate firm CBRE. Yet despite its aggressive expansion, the company has never turned a profit.
“This financing provides WeWork with the capital to fully realize its objective of being the partner of choice to our members and landlords, while at the same time providing a platform for growth and capital returns for shareholders and employees,” Artie Minson and Sebastian Gunningham, co-chief executives of WeWork, said in a news release. “We will have the flexibility to continue streamlining our assets and stabilizing the business without sacrificing our global brand and exceptional products.”
WeWork is planning to lay off thousands of employees but had to delay because it couldn’t afford the severance costs, the Wall Street Journal reported.
WeWork’s spectacular fall stands out even in a year defined by high-profile IPO flops from some of the most hyped names in tech. Ride-hailing giants Uber and Lyft, and exercise bike company Peloton, have all seen their share prices fall more than 20 percent since going public this year. Though all have been praised for their innovation and growth potential, they continue to blow through money without a clear-cut path to profitability.
“Hopefully, this marks the beginning of the end of using IPOs on hyped-up loss-making unicorns as a profit-taking opportunity before the music stops,” Jeffrey Halley, a senior analyst with OANDA, wrote in a recent note to investors.