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Failed WeWork IPO Reveals Fault Lines of the Next Crisis

Over the past decade, private funding has driven the concentration of speculative capital to new heights, prompting many firms to prioritize high rates of growth above profitability. The limitations inherent in this model have been exposed in recent efforts to list massive loss-making firms on public markets. WeWork’s disastrous failed IPO last year drove shockwaves through the venture capitalist ecosystem.

WeWork is fundamentally a real estate company that rents commercial office space to companies and freelance workers. It entered the market in 2010, as the aftermath of the 2008 financial crisis led to a surge in vacancies, and rapidly acquired leases for a large slice of the world’s commercial real estate.

The bubble in tech-sector financing has allowed companies like WeWork to raise huge sums, despite technology playing only a small role in their business models. What these ventures actually represent is the aggressive insertion of finance capital into existing industries. Uber played this role in the taxi industry, Airbnb for hotel rentals, and WeWork for commercial real estate.

WeWork Real Estate Speculation
WeWork entered the market in the aftermath of the 2008 financial crisis and rapidly acquired leases for a large slice of the world’s commercial real estate. / Image: Daniel_Nebreda from Pixabay

Despite losing $219,000 per hour, WeWork continued to grow through the infusion of ever more venture capital, concentrating power with its CEO and founder, Adam Neumann. In the venture-funding process, ownership of the company is increasingly diluted through repeated rounds of funding by private finance capital. WeWork first raised $17.5 million in Series A funding in April 2009, and their valuation continued to grow with subsequent injections of cash.

One financier in particular, Japanese holding conglomerate SoftBank, was critical in this process. Softbank’s investment in WeWork began with a $4.4 billion investment in August 2017 and accelerated from there, increasing Softbank’s ownership stake, and consolidating control in Neumann’s hands with diminished scrutiny from outside funders. At its height, before WeWork’s failed IPO, Softbank engineered the company a massive valuation of $47 billion.

With each round of funding, the firm’s founders and executives must increasingly subordinate their priorities to the will of the finance capitalists who keep them afloat. These cash infusions allow firms like WeWork to operate without ever actually earning a profit. Instead, they focus their energies on increasing the size and scope of their business to crowd out present and future competitors. And, importantly, while paying relatively comfortable wages to their white-collar workers, they provide a lavish quality of life for the company’s top officers.

The payout for financiers at the end of the funding lifecycle is the “exit,” which can take the form of a merger, an acquisition by a larger firm, or an initial public offering (IPO). WeWork’s filing for an IPO in August 2019 was subject to widespread criticism by traditional investor groups, including mutual funds, pensions, and sovereign wealth funds, who are more conservative in outlook than the more freewheeling venture capitalists. Criticism focused on WeWork’s unprofitability and the personal excesses of its CEO. Neumann’s antics included withdrawing $700 million from the company, arranging for the company to lease buildings that he owned personally, and a host of deranged behaviors that startled investors. In one incident, he announced layoffs of 7% of the workforce at a party featuring tequila shots and hip-hop artists Run-DMC.

Under this scrutiny, WeWork’s IPO was withdrawn, and the $47 billion valuation—arguably always a facade designed to conjure paper profits for Softbank—collapsed to $8 billion. This resulted in Neumann’s ouster as CEO as part of a $9.5 billion bailout, again by Softbank. Episodes like this reflect a recent trend of companies choosing to delay public listings, in favor of keeping ownership private based on constant infusions of capital. This approach is less regulated and fits nicely with the current regime of cheap money and vast cash reserves held by the bourgeois.

Adam Neumann WeWork CEO
Criticism around WeWork’s IPO focused on the company’s unprofitability and the personal excesses of its CEO Adam Neumann. / Image: Noam Galai/Getty Images for TechCrunch

The current bubbles in tech, finance, and real estate, are underpinned by a machine in which founders and executives become personally wealthy in exchange for serving as proxies for the direct rule of industry by finance capital. This undermines the claim that a competitive “free market” is somehow good for the whole of society. The extreme separation of decision making from the interests of workers and consumers ensures that these companies are capable only of making stupid, distorted decisions that contribute virtually nothing to the public good.

Whether these “unicorn” companies will survive the current turmoil on the markets remains to be seen. But the changes in the market mean founders will depend increasingly on private investors, and those investors will increasingly pressure the founders to show a clearer path to profitability. The founders and executives, in turn, will pile these pressures on to the workers at their firms. Far from representing a new and more stable phase of the system, its advanced financialized state only exacerbates capitalism’s core instability and alienation of workers’ labor power. It is the foundations of the system, rooted in private ownership of the means of production, which must be uprooted to secure a real future for the working class.

Increased regulation and calls for the break up of large monopoly firms, as politicians including Sanders and Warren have demanded, are insufficient echoes of the failed antitrust efforts of the 20th century. A rationally planned economy, in which the critical levers of production are publicly and democratically owned and administered on behalf of the majority, is the only way out of the chaos of capitalism.

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