BY RICHARD BEALES

WeWork has lofty ideas and low defensive walls. Rival flexible-office provider Knotel just raised $400 million for expansion. Coworking upstart Industrious also pulled in more cash. Investors considering the initial public offering of WeWork parent The We Company can add concerns about the durability of its first-mover advantage to worries about its eye-watering $47 billion private valuation.

Beneath branding that emphasizes technology and a mission to “elevate the world’s consciousness,” what WeWork does is take space in office buildings, make it look pretty, and find sublessees. This “space-as-a-service” idea isn’t new – it’s what the $4.5 billion London-listed IWG has done through its Regus business and other units for years.

Knotel is one competitor focused on providing a similar service for corporate clients. WeWork started by offering space to freelancers and the like, but now 40% of what it calls its memberships are associated with enterprises. Knotel claims more sites than its big-name rival in New York, for example, according to a Bloomberg interview with co-founder Amol Sarva. There’s scope for real competition, even if WeWork is far larger overall.

Another challenger, Industrious, said on Thursday it had raised $80 million of fresh money and expects to be profitable in 2020. Both fundraisings suggest backers see the potential for more than one success in the sector. They may also see more sensibly priced investments – and the potential for earlier profit. WeWork’s operating loss in the first half of this year was $1.4 billion, on revenue of $1.5 billion.

Then there are the SoftBank-backed WeWork’s governance shortcomings. The influence of Adam Neumann, the co-founder and chief executive, is entrenched by supervoting shares, and he has had potentially conflicted dealings with the company – including, bizarrely, being paid nearly $6 million in stock for trademarks associated with its rebranding as The We Company.

Neumann also gets an out-of-whack 169 mentions in the IPO prospectus, as Scott Galloway, a professor of marketing at New York University, observed in a recent blog post entitled “WeWTF.” Cutting through the cultish features, investors are being offered a company last valued at a spacey 14 times its annual run-rate revenue as of June with no end to its huge losses in sight and active competitors. Focusing on that could genuinely elevate their consciousness.

First published Aug. 22, 2019

(Image: REUTERS/Kate Munsch)