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There is a lot of money flowing into proptech but does that suggest a market bubble or just a few wild unicorns casting doubt on the rest of the herd? Those are the kind of questions being asked in the industry as the wildest unicorn of all – WeWork – reveals increasing signs of falling apart under the weight of its own unjustifiable valuation.

The idea of WeWork being overvalued is nothing new to those in the industry. Long before the company reached its $47 billion valuation, there were doubts about the company’s ability to live up to its hype and survive a downturn. Those who believe WeWork’s valuation is justified, do so on the basis of the firm as the pioneer of a new era for work itself, one of innovation, collaboration, flexibility, and craft kombucha on tap. The $10 billion of investment from Softbank, led by the enigmatic Masayoshi Son, also creates an air of potential success but even he seemed to be reining-in WeWork as the firm built up to its now delayed IPO.

According to a Wall Street Journal article yesterday, WeWork’s parent company, We Company, has “postponed its initial public offering” due to strong concerns from investors over how much the company is actually worth, as well as lingering questions about its corporate governance. The IPO, which was scheduled for this month, is now expected “mid-October at the earliest,” while some reports suggest that the key investor, SoftBank, is urging WeWork to wait until 2020 amid some very troubling news emerging from the organization, largely focused on CEO Adam Neumann.

Take, for example, the $5.9 million that Neumann was clearly pressured to pay back after We Company paid him for the “We” trademark that he had personally retained separate to the company. Or the over $700 million in shares that Neumann cashed out of the company, combined with the IPO documents revealing that Neumann owns and rents four buildings to WeWork, making him both landlord and tenant in properties seemingly purchased on money from WeWork’s investors. Actions that are being criticized as a betrayal of investor trust and a potential conflict of interest.

“The related party section of this prospectus reads like the Trump administration. Adam owns 10 buildings, several that he leased to WeWTF at a handsome profit. Adam also owned the rights to the “We” trademark, which the firm decided they must own and paid the founder/CEO $5.9 million for the rights. The rights to a name nearly identical to the name of the firm where he’s the founder/CEO and largest shareholder. YOU. CAN’T. MAKE. THIS. SH*T. UP.” wrote Scott Galloway, New York University marketing professor, when analyzing the IPO.

Neumann’s suspicious activities aside, WeWork is leaking money at an incredible rate. The firm recorded $1.8 billion in revenue and a loss of $1.6 billion in 2018. In the first half of this year, the company reported a $1.3 billion loss on revenue of $1.5 billion. This is not necessarily a sign of failure in the long-term for a rapidly growing startup, of course. Amazon, for example, burned through hundreds of millions of dollars on the way to disrupt the retail sector and become one of the world’s biggest companies. Amazon classify themselves as a tech-company in the retail space, similar to WeWork who consider themselves a tech-company in the office leasing business.

However, the doubts in WeWork’s valuation are justified when you compare them with their competitors. IWG is an established publicly-traded company that rents co-working spaces to companies and individuals, just like WeWork, but IWG has a market cap of $3.5 billion, more than 13 times less than WeWork’s valuation. Furthermore, IWG is profitable, recording an operating profit of $62.8 million on $1.6 billion in revenue for the first half of 2019. The two are comparable in terms of services and revenue but worlds apart in terms of valuation. WeWork is doing something different but not that different.

Amazon emerged during the dot.com bubble, riding the wave of online shopping that left many retailers behind that were slow to adapt. WeWork could be said to be riding the proptech wave, driven by smart technologies in the fourth industrial revolution. “The growing interest in proptech from traditional industry giants, which have been historically conservative in their adoption of new technology, reflects a culture of thinking that if we stand still on proptech we’re going to get left behind,” according to Shoosmiths partner Mehar Patel.

Opportunity creates boom markets but it is that kind of fear that creates market bubbles. When you take WeWork out of the equation, the growth of the proptech market looks relatively steady and robust. There’s also little doubt about WeWork being a disruptive force in the office leasing market. However, after recent controversy, continued huge losses, and an IPO of less than a quarter of its valuation (and more than its funding) is making even WeWork biggest investors question the situation. The key question for the industry is – is this a proptech bubble or just a WeWork bubble?“

“The adoption curve is up significantly. Up until a year and a half ago, it was a push market. It was venture capitalists and early-stage companies getting good funding because of the wide-open nature of our industry,” says Bob Courteau is chief executive of property software firm Altus Group. “What’s started happening is the large global players have begun getting into the game and accelerating their investments in proptech companies and that has created another level of opportunity.”

Company valuations are primarily based on sales revenue, customer numbers and customer retention. However, some weight is given to investment figures, market potential, and the firm’s potential within that market. In the case of WeWork, too much weight may be being placed on potential and investor interest, but that doesn’t mean they won’t be a roaring success. The reality is that proptech is an emerging market and it is too early to make concrete predictions about boom, bust or bubble.

“We’re not done yet on valuations on real estate technology. It feels like there’s more opportunity there,” says Patel. “There has yet to be a sufficient number of public offerings to know for certain whether there is a bubble developing. Many of the proptech companies are so small that the investment is happening privately,” he adds.

We know enough to say that proptech is a growing market and here to stay, we also know there will be numerous failures, just like in every other new market. Once you remove WeWork from the discussion, the proptech market looks as stable and prosperous as we might expect within the wider real estate related technology landscape. What might happen to WeWork in the coming months and years is another story.