Are the New Kings & Queens of Fintech, Actually The Court Jesters
What can the Neo-Banks learn from WeWork? An awful lot it would seem; and it is clear they will be looking over their shoulders and make sure they do not fall into the same trap.
WeWork will be taught in business schools for years to come as a hype bubble, a symbol of decadence and corporate naivety in the 2010s. For those of you who don’t know the story, let me retell it; it serves as a cautionary tale of hype followed by reality. WeWork is a shared co-working space; it’s very, very cool. Launched in 2010 in NYC, they popped up around London and many other urban centres providing a place for startups to hire spaces. They offer communal bars, ping pong tables and very nice leather sofas. The kind of people who like Soho House, like WeWork.
Anyway, WeWork was due to make its IPO (Initial Public Offering) last Autumn. This was off the back of a $2 billion investment from Softbank, the Japanese technology conglomerate; that valued the company at $47 billion. If it had gone ahead it would have been the second biggest IPO of the year…happy days for our hipster friends. Unfortunately, things did not quite work out this way. As part of their IPO before their stocks were made available, WeWork made an S1 filing indicating their intention to go public; essentially the first steps in the process of an IPO. However, as part of this they had to list their financials, which made clear in black and white, this company valued at $47 billion did not turn a profit, in fact very, very far from it. This and the negative media reaction to their CEO, Adam Neumann and his perceived ‘fratboy’ lifestyle (google it) caused things to implode in a big big way!
The IPO was postponed indefinitely, and SoftBank took control of the company on 22 October 2019, giving now Chairman, Neumann, $1.7 billion as a parting gift to leave the company. Since then, a corporate restructuring has been taking place, which on 21 November led to 2400 employees (20% of their workforce being laid off). Why is this relevant to the current CEOs of Revolut, Monzo, Starling, N26 et al? Well in short, it acts as a parting warning shot of the potential of ‘Emperor’s New Clothes’ syndrome – the heavily inflated price of having what can be perceived by the market as a ‘cool’ product which might not YET be profitable. The path to profitability for any fast scaling start up can often be full of pitfalls and WeWork is the ultimate case of this.
What brings this to mind is the, on paper, fantastic news last week that Revolut has raised a further £387 million ($500 million), taking its valuation to £4.2billion ($.5.5 billion). In total, Revolut has now raised £646 million ($836 million); a true UK Fintech success story! Revolut has been innovating from the start and its user base has continued to grow and grow as they in turn have continued to improve their UX. The key this year is the path to profitability. Without becoming profitable businesses, challenger banks can easily be compared to WeWork and others who have failed at this stage of their scaling. Reach profitability and the challengers are here to stay.
An exciting 12 months awaits.