WeWork isn’t the only company whose value sank when the co-working giant stumbled.
Some firms it bought with a mix of cash and stock options are suddenly worth a lot less, at least on paper.
And now they are on the chopping block as the office-space startup tries to right itself after weeks of turmoil and an abandoned IPO. WeWork is also looking to cut costs and raise capital, potentially by laying off thousands of employees and severing ancillary business lines.
Among those measures is the sale of three startups — Managed by Q, Meetup and Conductor — that WeWork acquired in recent years in part with stock options that are now worth much less. The Information first reported that the startups are for sale.
“The companies will trade at a discount because WeWork is trying to shore up its finances,” said Jeff Berman, a general partner at venture capital firm Camber Creek, which targets real estate technology investments. “It stands to reason that their holding is worth less.”
The startups are among 14 acquired by WeWork since 2014, including six this year, according to VentureSource. Other acquisitions could be cut loose too.
“It’s devastating. They trusted and believed in WeWork’s promise and their valuation,” said Eric Schiffer, chief executive of investment firm Patriarch. “Many of these companies had alternative routes to go without decimating their valuation.”
WeWork declined to comment.
Managed by Q, an office-management platform, raised $97 million from investors including Google Ventures, RRE Ventures and Kapor Capital before it was acquired by WeWork in April for $220 million.
That acquisition consisted of $100 million cash and $120 million in preferred stock priced at WeWork’s $47 billion valuation. With estimates of WeWork’s value now ranging from $10 billion to $15 billion, Managed by Q’s acquisition value is now closer to $140 million — an $80 million discount on its purchase price six months ago.
A source familiar with the matter said Managed by Q is raising funding to smooth its exit from WeWork. A spokesperson for Managed by Q declined to comment. Investors Google Ventures and RRE Ventures did not respond to requests for comment. Kapor Capital declined to comment.
Another startup, Conductor, a marketing software company that provides search engine optimization, was founded in 2006 and by 2015 had raised $60 million from investors including Catalyst Investors, Investor Growth Capital Limited and Matrix Partners.
WeWork acquired it in March 2018 for $113.6 million, which included $16 million in cash and $98 million in stock priced at WeWork’s $21 billion valuation. WeWork’s recent drop in valuation discounts that acquisition price by almost $40 million.
A person familiar with the matter said that Conductor had begun discussions to break away from WeWork months ago because of a lack of “synergies” between the two companies. The source added that the company is in discussions with a potential investor to finance its split from WeWork. A spokesperson for the company declined to comment. Conductor’s investors did not respond to requests for comment.
Other startups up for sale won’t be as affected. WeWork acquired Meetup — a platform that facilitates thousands of group meetings — in December 2017 for $156 million in cash. Meetup’s CEO, Scott Heiferman, did not respond to a request for comment. WeWork declined to comment.
WeWork’s minority investment in The Wing, a female-focused co-working firm, is also said to be for sale, according to Bloomberg. It took a 25 percent stake in 2017, which in June 2019 WeWork valued at $58.8 million, according to the prospectus for the larger firm’s ill-fated IPO. (The Wing said it was valued at $400 million in December).
Investors have even bristled at Wework-owned companies not said to be on the market. SpaceIQ, a workplace management software company acquired by WeWork in July, was purchased with cash and stock that matched WeWork’s $47 billion valuation. One investor told the Wall Street Journal that the acquisition was initially protested and that “the $47 billion price is ridiculous.”
For companies purchased with stock that manage to avoid WeWork’s fire sale, there may be an upside to sticking with WeWork’s stock, said Eric Frank, founder of Lightbox, a real estate technology company that has acquired multiple firms.
“There’s nothing to say that if you hold onto it for four years, it won’t go up,” Frank said. “But at the moment it’s not looking great.”