WeWork isn’t quite working out as some expected. The once high-flying startup canceled an IPO; forced its founder to step down; and is now reportedly laying off one-third of its tech staff.
The company’s struggles are already serving as a wake-up call for other startups, entrepreneurs, investors, and others.
“It’s all of a sudden forcing people to take a real look behind the curtains on everything and not just assume,” said Greycroft founding partner Dana Settle. “Going forward there will be a lot more scrutiny on business models and not just product market fit.”
Settle joined fellow investors Hope Cochran of Madrona Venture Group and Megan Quinn of Spark Capital on “The VC View” panel moderated by Amy Bohutinsky of TCV at the GeekWire Summit on Tuesday in Seattle.
Quinn said companies will still get funded, but how much they raise and with what frequency will change in light of the WeWork story.
“We were on a treadmill of Series B rounds five months after a Series A, and a Series C another five months after that,” said Quinn, the former Google and Square exec who has invested in high-flying companies such as Outreach, Rover, Discord and Glossier. “That entire process is going to draw out quite a bit. That will be a good thing for entrepreneurs, companies, investors, and the overall ecosystem.”
Cochran, the former Clearwire and King Digital CFO, noted that the industry goes through cycles “where we’re reminded that unit economics work,” citing a similar situation during the dot-com bust.
“If you didn’t use good, fundamental economics to begin with, you’re going to get caught,” she said. “The worst thing you want to do is be caught in one of those cycles where you have to raise money. Never let yourself get there; never let the economics go upside down.”
But it’s not all on the founders.
“It sort of comes from the top down. Investors are throwing capital at entrepreneurs into rounds that arguably don’t make sense,” Settle said. She advised founders to be mindful and diligent. “You want to make the right decision for your business, not what venture capitalists or others are telling you is the right thing.”
Bohutinsky, the longtime Zillow executive who just joined the investor ranks at TCV, said it’s also on the board. “I don’t know any other way to say it: the corporate governance was a shitshow [at WeWork],” she said.
“How does that get through?” Bohutinsky added. “Do investors and boards just have stars in their eyes with the stories and are not going back to the basics? I hope that changes.”
Regardless of what’s happened with WeWork or a potential economic downturn, Quinn said her firm has always had a mantra around focusing their portfolio companies around unit economics and efficiency. She said that startups should know what it’ll take the company to get to profitability — how much time and money that would require.
“It’s what we believe responsible businesses should be doing, particularly at growth stage,” Quinn said.