- WeWork has refused to renegotiate a lease for a struggling startup that was forced to lay off 70% of it staff because of the coronavirus lockdown, its VC says.
- The startup could be forced into bankruptcy thanks to the large rent payment, although it had enough funds to keep paying rent for a smaller space, the VC said.
- The VC, Charlie O’Donnell, founder of seed investor Brooklyn Bridge Ventures, is so frustrated by the situation, he’s vowed to advise all of his startups to avoid WeWork from this day forward.
- O’Donnell said other landlords are being flexible because squeezing tenants into bankruptcy isn’t good for anyone.
- “WeWork is, to me, acting like a company that doesn’t think it will be around in a year,” he told Business Insider.
- Visit Business Insider’s homepage for more stories.
Well-known New York VC Charlie O’Donnell, founder and sole partner of seed investor Brooklyn Bridge Ventures, is so angry at WeWork that he’s vowed to advise all of his startups to avoid the coworking giant.
This is after WeWork refused to let one of his portfolio companies move to a smaller office and pay less in rent after it was forced to lay off most of its staff in the wake of the coronavirus.
WeWork’s refusal to be flexible could force the company into bankruptcy, O’Donnell told Business Insider, rather than allowing the startup to hang on until the economy opens back up for business. WeWork declined comment when asked about policies that would allow startups to move into smaller offices during this time.
This portfolio company had just moved to a new, bigger WeWork office in January, right before the virus hit. At that time, it was thriving, revenues were increasing and it was hiring, O’Donnell told us. It had just grown to 20 employees.
WeWork had given the startup a price break for the new office in exchange for a longer-term commitment than a month-to-month lease, he said.
But, by the first week in April, the economic shutdown had forced it to lay off two-thirds of its staff, from 20 people to 6.
The founders still had enough cash in the bank to make it through several months until the economy could re-open, O’Donnell told Business Insider, so long as they cut expenses to the nub.
“They went to back to WeWork and said, ‘Listen, we’re not going anywhere and we’re not trying to get out of our lease. But we only have six people and we have space for 20. Can we just pay you for space for 6? And WeWork said no,” O’Donnell told Business Insider. “So, if this company is forced to pay for this space with a significant decrease in revenue, they might not be around.”
O’Donnell said there’s a lot of reasons why he’s particularly frustrated with WeWork over this situation. For one, WeWork bills itself as a flexible space-as-a-service company for startups. And, yet, many of his other portfolio companies who rent from other landlords have been able to strike deals.
“I have other companies,” he said “Most of the other real estate landlords have been playing ball.”
More than that, he’s astounded at the short-term thinking involved. Why push a startup into bankruptcy instead of taking less money? Or why encourage tenants into trying to break their leases altogether by invoking a force majeure clause (the clauses that void contracts for unforeseeable acts of God)?
“WeWork is, to me, acting like a company that doesn’t think it will be around in a year,” O’Donnell said. “Why would you ever try to squeeze a customer to the point of bankruptcy and lose them unless you really needed the money now?”
WeWork declined to comment on that assertion.
Like much of the real estate industry, WeWork is likely feeling some strain these days.
The coronavirus shutdown has caused mass layoffs among startups, one of the company’s primary markets. Since March 11, over 200 startups have laid off over 19,000 employees, according to Layoffs.fyi, a site that is monitoring such layoffs via employees self reporting them.
Meanwhile, WeWork has reportedly been trying to renegotiate some of its own lease deals, and may be behind in rent payments to some of its landlords, the Wall Street Journal reports. On top of that, WeWork is suing its major shareholder Softbank for not buying another $3 billion worth of its employees’ shares.
WeWork’s attempt at an IPO notoriously failed last fall and its other option for raising money isn’t fairing well either: Its corporate bonds were valued at about 37 cents on the dollar as of Wednesday.
