WeWork was supposed to be one of the most high-profile Wall Street debuts of the year. Instead, it’s rapidly shaping up to be one of the most high-profile IPO debacles in recent memory.
In the month since WeWork’s parent company first publicly filed paperwork for an IPO, it has attempted to defuse investor concerns and outside criticisms by promising to add new board members, announcing an overhaul of its corporate governance structure and having its CEO repay millions for a trademark he had sold to his own business.
If that’s not enough, every day seems to bring reports of the company’s potential IPO valuation falling further and further from its private market valuation of $47 billion. Last week, The Wall Street Journal reported that The We Company’s IPO valuation could dip below $20 billion. On Friday, CNBC reported the valuation could fall below $15 billion. Not to be outdone, Reuters reported Friday that it could be as low as $10 billion.
The coworking space provider’s apparent willingness to move forward with its public offering, even at such a steep discount from its prior valuation, suggests the money-losing business feels pressure to raise money now. The We Company reportedly wants to tap a $6 billion credit line that is contingent on it raising at least $3 billion in an IPO completed before the end of the year.
A spokesperson for WeWork declined to comment for this story, citing quiet period rules ahead of a public offering.
WeWork is effectively fielding intense scrutiny and criticism less for being an anomaly in the tech industry than for the many ways it is a poster child for the worst excesses of other tech unicorns – the term used for private companies valued at $1 billion or more – going public this year.
Like Uber (UBER), The We Company lost well over $1 billion in the year before it went public. Like Lyft (LYFT), Pinterest (PINS) and others, WeWork’s parent company looked to give its founder outsized voting control over the business. And like these and other companies, WeWork had a lofty private market valuation that proved to be a harder sell on Wall Street.
Wall Street investors might have been “more tolerant” of these red flags if WeWork’s IPO wasn’t coming after a series of lackluster public market debuts this year, according to Kathleen Smith, principal at Renaissance Capital, which manages IPO-focused exchange-traded funds. Shares of Uber and Lyft are both hovering around all-time lows, well below their IPO prices, as investors worry about their path to being profitable.
WeWork had other issues, too. The company confirmed in its IPO prospectus that it had “entered into several transactions” with its CEO Adam Neumann, “including leases with landlord entities in which Adam has or had a significant ownership interest,” which it said could “present potential for conflicts of interest.” Neumann’s wife, Rebekah, also sits in the C-Suite and was originally empowered to form a committee to pick her husband’s successor as CEO under certain conditions.
“Investors are saying: ‘You are showing me by the way you set up the governance that you don’t care about me. You haven’t shown me I can trust your business yet’,” Smith said.
On Friday, in its latest attempt to keep its IPO from capsizing, WeWork’s parent company announced it had scrapped the plan for Rebekah Neumann to set up a committee to pick the next CEO, instead relying on the board. The company also said its founders, including Neumann, would receive super voting shares with 10 votes per share instead of 20, an improvement but still potentially allowing for a disproportionate influence over the company.
Whether WeWork ultimately goes public at a $20 billion valuation, a $10 billion or not at all, its turbulent road to Wall Street – and the flurry of changes announced in recent weeks – could prove to be a reality check for the wider startup industry. For years, Silicon Valley has enabled, if not outright encouraged, startups to seek stratospheric valuations, bleed eye-popping amounts of money and institute little to no checks on a founder’s power. Now, the public market is signaling that yes, in fact, there are limits to what they’ll back.
“Maybe this is a wake-up call for others who want the opportunity for the public market to be an outlet for raising capital,” Smith said. “Investors kind of care.”
Sara O’Brien contributed to this report