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WeWork's Valuation Slides and IPO Postponed

It has just been reported that WeWork will likely postpone its IPO road show to October. WeWork was expected to seek a valuation of a more modest $10-12 billion for its upcoming IPO - a reduction from the lofty $47 billion valuation in January. This would mean its valuation is lower than the $12.8 billion in capital it has raised since 2010. 

Criticisms have been numerous with the largest being The We Company's finances: they lost $700 million in the first half of 2019. Their balance sheet shows long-term lease obligations of $17.92 billion and the company describes a future value of cost obligations totaling $47.2 billion. Despite the growth prospects for the coworking space the business model has not been tested during a recession which is disconcerting.


But there's other pockets of concern that WeWork has been rushing to address and many of them center around founder Adam Neumann. For starters he has sold or borrowed against $700m in stock which reduces investor confidence - no matter how the company performs in public markets a share of his personal fortune won't be tied to its failure or success. Also he has ownership stake in several buildings that are leased to WeWork which raises conflict of interest concerns - the company owes Neumann $236.6m in “future undiscounted minimum lease payments.” He also just returned $5.9 million that was paid to him to rebrand the company around the word "We" which raised another red flag of self-dealing. Finally he has voting power that is 20x the voting power of ordinary shareholders so additional investors will be limited in their ability to influence decision-making at the firm.  


Major investor SoftBank (also a backer of Compass), has reportedly argued against pressing ahead with the IPO sale, a delay that threatens a $6 billion loan needed to fund an aggressive global expansion of the brand. This debt deal is contingent on the We Company raising at least $3 billion in its IPO (Reuters). Further WeWork just addressed concerns of all-male governance by appointing Frances Frei to its board of directors making her the sole female. 

Today's VC-backed culture is creating valuations that aren't meeting the standards set by public markets as we saw with the IPOs of Lyft and Uber. Whether or not The We Company succeeds in its mission of "elevating the world's consciousness" Adam Neumann (He) will be just fine. And this should concern prospective investors.


Thoughts? 

Best,

Corey 


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