|Resolution and Adventure with fishing craft in Matavai Bay by William Hodges (Wikipedia, public domain)|
Even if you've had anything to do with the business world over the last three years, you've heard of WeWork.
Their IPO has been massacred, from people like Scott Galloway (No Mercy / No Malice) to Ben Thompson (Stratechery). A big focus has been on the ridiculous valuation: $47 billion at one point — then last week readjusted to about half that amount, and then SoftBank, WeWork's largest shareholder, suggested putting the IPO on hold.
What's going on?
Personally, I think we're looking at the Pets.com of the modern era. In 2000, the online pet food company (great idea, poor timing) was the canary in the coal mine for the Dot Com era. With stratospheric valuations on negative margins, we're seeing companies like WeWork, Uber, and other unicorns defy logic.
As I noted last week, there's a mismatch of incentives. In this case, the only incentive investors have is getting the company to an IPO. As Galloway noted, the bankers "stand to register $122 million in fees flinging feces at retail investors visiting the unicorn zoo." The little investor has no chance.
There's something else going on: with the covers pulled back (thanks to the IPO prospectus), we began to see a pattern of unethical behavior, lack of governance, and sheer greed at work:
- WeWork paid its own CEO, Adam Neumann, $5.9 million for the “We” trademark when the company reorganized itself earlier this year (he has since returned the money). I would think that as CEO, anything he trademarked related to the company would rightfully belong to the company anyway.
- WeWork previously gave Neumann loans to buy 10 properties that WeWork then rented back from him.
- WeWork hired a number of Neumann’s relatives, and Neumann’s wife stands to be one of three members of a committee tasked to replace Neumann if he were to die or become permanently disabled over the next decade.
- Neumann has sold $700 million in stock prior to filing the prospectus. Now if that doesn't scream no-confidence, I don't know what does.
More than the questionable financials, there's something else afoot here. Yes, investors seem to be backing away. But it feels like there's more to it.
Call it something of an awakening.