- WeWork’s tumultuous autumn has prompted investors in other flex-space companies to take a harder look at the financials of their investments.
- Executives at four WeWork peers told Business Insider that investors are focusing more on profitability, downturn scenarios, revenue quality, and other considerations.
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Investors in coworking and flex-office companies are asking more questions after WeWork’s dramatic meltdown.
After the office company filed to go public on August 14, potential investors, analysts, and the media dug into its financials. They found no shortage of red flags, from wide losses to potential conflicts of interest.
That prompted a dramatic downfall that saw a SoftBank bailout as the company ran low on cash. Along the way, WeWork’s board ousted founder Adam Neumann, installed new leadership, shelved the IPO, and looked to reset WeWork by slashing businesses and staff.
That tumult has prompted other investors and boards at WeWork’s competitors to take a closer look at how the businesses are being run.
Business Insider held a recent roundtable with execs at some of the leading co-working and flex-office companies – Convene, Knotel, CBRE’s HANA, and Serendipity Labs, among others – to discuss industry trends. Here’s what they say investors are watching.
- Overall profitability: Convene’s board had been asking more specific questions about profitability even before WeWork went off the rails, partly in reaction to declines in shares of money-losing Uber and Lyft following their IPOs. Convene CEO Ryan Simonetti said the board saw the market moving from a focus on growth to value companies. “It was a big push for our budget process for profitability,” he said, which the company now forecasts for next year.
- Downturn scenarios: Most flexible space companies haven’t been through a recession, and investors are now starting to ask more about what their plans are for a downturn. “What’s changed, or what they’re digging into even more now is: what does the downside case look like and how do we prepare for that?” said Andrew Kupiec, CEO of Hana. His company is a subsidiary of CBRE, the largest commercial real estate company, and launched last year. “What does [a downturn] mean for pricing and price wars? What does it mean if there are higher vacancies?”
- Revenue quality: John Arenas, CEO of 36-location Serendipity Labs, has worked through four recessions in the flexible office industry. That experience has led him to focus on gaining and growing customers because of “trust and network and solving a problem,” rather than competing solely on price. Conversations with his board have focused on “the quality of the revenue” because “those same customers that use you on the way up use you on the way down.”
- Return on invested capital: Knotel co-founder and chairman Edward Shenderovich said that while “no one cares about WeWork comparisons any more,” ROI is king. Shenderovich said Knotel is investing 50 cents to get to a dollar of revenue. WeWork, by contrast, was investing $3-$4 to get to a dollar. That’s “ridiculous, it means that the business will never recoup those costs,” he said.
Post-WeWork, not all executives are having new conversations with their investors and boards. Mark Dixon, founder and chief executive of IWG – the only publicly-traded flexible office company – told Business Insider that not much has changed with his investors.
“We’re using the same measures we’ve been using for pretty much 20 years. They’re very clear because this was a new industry 20 years ago; it’s still quite new today,” he said. “And if you’re serious about being a public company, your investors need to understand what’s going on.”