WeWork raises $1 billion from SoftBank

Miguel
McKelvey (L) and Adam Neumann speak during the WeWork Celebrates
The Detroit Creator Awards at Cadillac Square on May 25, 2017 in
Detroit, Michigan.
Scott
Legato/Getty

• WeWork is raising $1 billion in debt from its existing
  investor SoftBank.
• It’s already raised billions of dollars in equity,
  including $4.4 billion from SoftBank alone.
• WeWork also revealed its financials for the first half
  of 2018, showing that revenue almost doubled to $712
  million.
• Business Insider understands the company is still in
  talks to raise a new equity round at a $35 billion
  valuation.

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Shared office startup WeWork is raising a further $1 billion in
convertible debt from one of its existing investors, SoftBank.

The unusual mechanism gives WeWork an immediate cash injection as
it continues to funnel money into expanding its shared office
business globally. In an interview with Business Insider, WeWork
chief financial officer Artie Minson described the financing as
“the ability for us to opportunistically add a billion dollars to
the balance sheet.” Minson said WeWork had around $4 billion in
cash and commitments.

Minson said the loan note would convert from debt to equity under
three scenarios: If SoftBank leads a billion-dollar round, the
note will convert at the valuation of that round. If the
billion-dollar round is led by another investor, the debt
converts at a minimum valuation of $42 billion. And if WeWork
goes public, the debt will convert at the IPO price, he said.

The
lounge area of WeWork on the South Bank.

WeWork

What is unclear at this stage is how the loan note relates to a
separate equity round WeWork is
thought to be raising at a rumoured $35 billion valuation,
potentially from investors including SoftBank. It’s possible the
loan note has come about because the pair can’t agree on a
valuation for that round.

WeWork also shared some of its financial metrics for the first
six months of 2018 with Business Insider. WeWork is a privately
held company and so isn’t obliged to disclose its financials, but
has shared some numbers with the media.

Here are the key numbers for the first six months of 2018:

• Revenue increased to $712 million, from $361 million in
  the first half of 2017.
• Adjusted negative EBITDA of $247 million, from a
  negative EBITDA of $63 million last year.
• Occupancy rates up to 84% from 78%.
• Total WeWork memberships of 268,000.
• Enterprise accounts for 25% of WeWork’s
  members.
• Adjusted EBITDA before growth investments of $64
  million, up from $24 million in 2017.

According to the figures released to Business Insider, WeWork
expanded to 12 new cities and five new countries since the
beginning of 2018. The office-sharing company made its name
renting offices to small startups, but the numbers show a big
chunk of its revenue comes from larger, blue-chip firms. WeWork
said a quarter of its members were in that enterprise segment.

WeWork also included in its figures a non-standard metric it
calls “community-adjusted EBITDA,” which has drawn some
skepticism from pundits. This figure is essentially intended to
show that WeWork would be profitable if you excluded all the
costs it requires to create those profits. WeWork reported
community-adjusted EBITDA of $202 million, up from $95 million in
2017.

Minson defended the metric to Business Insider, and said he had
never received “negative comments” about the term in meetings
with institutional investors. “I think they all got it,” he said.
“I will tell you all the snarkiness came from the financial
press.”

He added: “The reality is what we’re building is a global
community, and it really does [reflect the] profitability of the
global community… I’m 1000% comfortable with [using] this
metric in how we look at the business.”

WeWork attributed the jump in adjusted EBITDA — the closest
indication of WeWork’s losses — to its spend on sales and
marketing and expansion into new markets.