WeWork

[Baron von Lotsov]

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There's an interesting story around about a company called WeWork. It is an American firm and it deals in what they call real estate, which in English is office space. Wework had this idea that you could buy/build offices and share the space out, such that if you were a self-employed person running a one-man business on a computer then you did not need to rent a whole office, but just a table, and when your business expands you could rent another table and so on, and by the economy of scale you could rent a table for as little as 10 dollars/week.



Wework was run by an young entrepreneur with an exceedingly big and snake-like mouth. He peddled the idea on the basis that Wework was a revolution in global business and brought in a new paradigm of work, where people work harder when working together. Laughably he was the new Mao of the business world. They were particularly impressed when he integrated this concept with the idea of a technology company. Naturally all of this stuff would be computerised, like the Uber taxi firm, but not with taxis, but desks.



This is more poignant than you might have thought, since over in the City, the merchant banks rate business in different categories. Of particular interest is that you have a real estate category and you have a tech category, like Google, Amazon etc. Now the business model for these two are markedly different in that property firms do not make for fantastic growth. They are stable safe low return business which is in stark contrast to a successful tech firm that can increase 1000 times its size. It's because tech firms can revolutionise us, e.g. the invention of the blue LED had massive global consequences, where someone opening a new office block does not. So tech is high risk high return and property is low risk low return (safe as houses in fact).



So what happens is this. The investors were taken in by this snakeoil salesman and valued the firm as if it were a tech firm, but if you think about it, every firm uses computers now, so this was more spin than reality. They looked the part but were running at a loss. One thing led to another and the investors kept on piling in more cash. In particular was a Japanese investment bank called Softbank. You can look up the figures if you like, but the main point was that the total value of the firm was $45bn. It's nothing like that now, as the investors suddenly woke up to realising what they had done.