Aldo Agostinelli

American start-ups look a little less shiny than before. And their future is no longer as bright as the one of  unicorns with rainbow manes galloping happily across valleys the same green as dollars, making money every step of the way. Those start-ups established rashly following a digital idea and developed fast thanks to investors’ relevant injections of cash, have been plummeting and, eventually, their trot is slowing down.  

Let’s take the case of  WeWork  as an example. A story which is worth telling.

The bubble has exploded!

WeWork is a company self-defined as technological while its actual core business consists in managing about 4 million square meters of co-working space in 29 countries in the world. Its CEO and co-founder, Adam Neumann, is a good-looking 40-year-old guy who has got nothing to do with the stereotypical nerd from the TV series entitled “Silicon Valley”. After his company worth had been estimated in 47 billion dollars, Neumann decided to enter the stock market. But – surprise! – a few issues arose just before he could do it. First of all debts: many and huge debts. Allegedly 1,4 billion dollars only in 2018. Neumann has apparently not been so good at managing his business. Rumours talk about unreasonable expenditures, conflicts of interest ( apparently he used to buy properties for renting them to the company while receiving incentives both as a landlord and as a tenant), parties, an active social life and even drugs. For sure, the business expansion has been wild, without a clear plan, and now the Pandora vase has been uncovered revealing a pretty unsettling scenario  (How Adam Neumann’s Over-the-Top Style Built WeWork).

80% of such co-working spaces  are unused, losses are relevant. Just to give you an idea: over the past three months the company has recorded a turnover of 934 million dollars and losses for 1,25 billion dollars.   
Japanese bank SoftBank, the giant of tech-investments which has a participation in Uber and is WeWork main investor, is risking a shipwreck. Consequently, they started  injecting more money into it to try and save it, but WeWork is still plummeting.

Last September JP Morgan and Goldman Sachs assessed the worth of the ex unicorn to be 20 billion dollars, against the initial 47 billion dollars. Soft Bank has estimated it to be only 8 billion dollars. A huge drop.

In the meantime WeWork has announced they will cut 19% of their labour force, i.e. 2.400 employees (WeWork is going to fire over two thousand employees). Neumann, instead, has stepped down from his CEO position. He is going to maintain a pro-forma role with less power both vis-à-vis the board and the whole group. SoftBank has reduced his voting rights from twenty to three per share. Nevertheless, he still owns 1,7 billion dollars. Definitely a better parachute than the one of those employees who are risking to be made redundant (Adam Neumann gives up most of his voting power and steps down as WeWork’s CEO).

 The crisis of overestimated businesses

However, WeWork is not an isolated case. And, according to many people, it is the evident symptom of the deep crisis of US start-ups, due to their fast and apparently miraculous growth and uncontrolled management even by their investors. Such was the case with SoftBank, which allowed Neumann  to do whatever he wanted and now is full of debts ( 4,6 billion dollars only in the last few months ). Nowadays, the Japanese investor is no longer the biggest in the world. They are preceded by the American Sequoia Capital, and also by the Chinese Tencent.

Meanwhile, among American unicorns, the shares of Slack the instant messaging platform, have dropped by 47%; Uber shares value has dropped by 40%; Lyft’s by 41%; Pinterest by 44%; while Chewy, the e-commerce platform for pet items, has recorded an amazing +70% against the initial +6%.

And so? Asset management businesses are buying it all like users on Black Friday.

A chinese overtake

While the USA are crying, China is laughing. Currently,  Chinese unicorns- Ant Financial by Alibaba, ByteDance owner of TikTok, Didi Chuxing car sharing business – represent a market worth 1.700 billion dollars and are top of the list of global start-ups.

Nowadays, the United States boast  203 start-ups, while China owns 206 worth over a billion dollars each (WeWork and not only. The fall of unicorns).

China is now leader, and time has come to burst the bubble of tech unicorns to look at them as a valuable reality, not to be overestimated ( especially financially ) but to be developed through a vision and with grano salis.

What do you think about the crisis of WeWork and the tech unicorns system as a whole? Tweet @agostinellialdo.

To find out more about the digital world, you may read my new book: “People Are Media” 

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Aldo Agostinelli