WeWork was going to change the world. It was not just another co-working space provider, but a tech unicorn that aspired to ‘elevate the world’s consciousness’, according to co-founder Adam Neumann. Its huge liabilities didn’t matter because it was relentlessly pursuing growth and scale, with the backing of SoftBank, the world’s largest tech investor.
At least that was the promise when WeWork announced its IPO.
But within a few months of WeWork’s public filing, the company’s valuation crashed, the IPO was pulled, Neumann was out, and the company’s credit rating fell to junk status.
What happened?
Going public is a trade-off. An IPO provides a company with access to a wide pool of investors, but, in return, it faces onerous regulations and must open itself up to the scrutiny of the public markets.
WeWork’s filing revealed the scale of the company’s losses (which, last year, amounted to losing $220,000 every hour of every day) and investors were worried. The company’s business model relies on taking on the risk of long-term leases and providing short term contracts to clients; but what would happen to these huge liabilities if there was a downturn?
Then there were concerns over WeWork’s questionable corporate governance practices, ranging from the millions WeWork had lent to Neumann, to a complex capital structure that offered the co-founder substantial control after going public. It didn’t take long for the media to uncover further issues, such as the $60 million private jet the company bought to allow Neumann to go globe-trotting.
WeWork might have been able to get away with an extraordinary valuation, controversial financial metrics (including its self-styled ‘community-adjusted EBITDA’) and lax corporate governance standards as a private company, but it’s important that it did not survive the scrutiny of the public markets. The hope is that the tragedy of WeWork will force other tech ‘unicorns’ to shape up before heading to the public markets.
