Softbank Group Corp. is currently in discussions to invest more capital in WeWork Cos., The Wall Street Journal Recently reported. The proposed deal would value the shared-office company at $35 billion to $40 billion according to people who are familiar with the proposal.
This type of investment would close to double WeWork’s current $20 billion valuation, which was set last August when SoftBank invested $4.4 billion in the company. The investment would also put WeWork only behind Uber in terms of value for privately held, venture-backed startups in the U.S.
While WeWork and SoftBank discuss this multibillion dollar investment, there are people who caution that deal is in flux. Vision Fund, Softbank’s $92 billion tech-focused venture, led last year’s WeWork deal and would lead this deal too according to sources.
Rajeev Misra, head of Vision Fund, said at a tech conference in London that WeWork wants to raise money at a $35 billion valuation, according to a Business Insider report on June 13.
“Maybe it’s overvalued, but I believe they’ll be a $100 billion company in the next few years,” Misra said.
WeWork declined to comment, but according to people familiar with the situation, the company’s chief executive Adam Neumann recently traveled to Tokyo to meet with SoftBank Chairman Masayoshi Son.
WeWork has risen quickly since it was founded in 2010, and has left many wondering how a company focused on leasing office space is generating tech firm-like valuations. It appears WeWork investors are counting on the company dominating the changing global office market. These investors see companies will begin to forgo long-term leases and move towards WeWork, which has more flexible terms.
Currently, WeWork’s strategy is to sign long-term leases for floors or entire buildings, put in its own décor like coffee bars or avant-garde furniture and then split up the space and lease it individual workers, small businesses or larger companies on a month-to-month or year-to-year basis. The company’s concept has recently expanded beyond the office and has established dormitory-like housing, a fitness club and a school. WeWork also recently purchased a search optimization company and surfer wave pool manufacturer.
As WeWork continues to generate more revenue, it’s been able to purchase more buildings all over the globe and beat out some of its competition for them. WeWork’s bigger checks combined with the increased demand for flexible office space has allowed the company to double its annual revenue and membership totals for years.
Investors have been attracted to WeWork’s ability to sell mid-size and large businesses on leasing entire floors or buildings. Well-known businesses like Amazon and Facebook have opted for co-working spaces to fulfill short-term real estate needs and to create offices quickly for teams of employees. S&P predicts the short-term office leases will comprise half of WeWork’s revenue within two years, which would be double where it is currently.
No investment is without risk however, and the one WeWork faces is an economic downturn. Flexible office spaces were one of the things many companies got rid of during the 2001 recession in order to cut costs.
However, for SoftBank, this deal would help the company put additional money from its Vision Fund to work. Currently Saudi Arabia, Abu Dhabi sovereign-wealth funds and money from SoftBank are the fund’s largest backers.