-investors questioning valuations
-corporate governance questioned
-business model under scrutiny
WeWork, postponed its initial public offering after investors questioned how much the company is worth and raised concerns about its corporate governance. Its roadshows for the week were cancelled and reports are emerging everywhere as to questions about the company’s credibility in all aspects.
The shared-workspace company, which had planned to begin a roadshow to market the shares as early as Monday ahead of a trading debut next week, postponed the offering until at least next month with some saying that it might be postponed indefinitely as lots of new questions about its valuations and governance are surfacing.
The company is facing extreme difficulty getting the offering off the ground, even after reducing its valuations and reorganizing its corporate structure. Many are saying that its founder and CEO has lost all credibility in running the company.
Coupled with massive losses the company has reported in the last few years along with many irregularities that has surfaced, many are even question whether the company’s valuations or even its books are real. Companies that had initially seen it through its various initial stages of funding are now questioning whether they had been hoodwinked.
It is a major setback for a company that had been one of the most richly valued of a raft of startups planning to go public in a banner year for IPOs, but has been dogged by doubt over whether it can thrive as a public company.
We Co., as the company is officially known, had been valued atUS $47 billion in a fundraising exercise this year with Softbank Group, but in recent days its executives and underwriters had become resigned to something closer to between US$12 billion and US$15 billion or even possibly lower.
In addition to lowering the fundraising target, the company had spelled out a series of governance changes, including adding a lead independent director and ratcheting back the potency of Mr. Neumann’s super voting rights.
Those changes however did not appease investors who questioned Mr. Neumann’s outsize control and the hundreds of millions of dollars he has reaped from selling his shares and other transactions with the company. Investors have also been unnerved by deepening losses at the company, which last year bled US$1.67 billion in red ink, nearly equal to its revenue of US$1.8 billion.
Another factor complicating the offering is the disappointing debut of another startup, SmileDirectClub Inc, a teeth-straightening startup that fell 29% on its first day of trading last week. It was the year’s worst stock-market debut for a U.S. company valued at more than us$1 billion,and that spooked some big IPO investors. Many are now claiming many startups are exaggeratedly over valuated.
The delay could also last longer and some existing investors, including SoftBank, have pushed the company to wait until next year to launch its IPO.The nine-year-old company, which rents space, renovates it, then divides it up and subleases it, expects that results for the current quarter will showcase its rapid growth and get investors more excited about its prospects hopefully in the future and then it might be a better time to list rather than now, according to a company source.
If the IPO doesn’t take place soon, WeWork may have to look elsewhere for much-needed funding as the company is currently ‘bleeding.’ The share sale was expected to raise at least US$3 billion and trigger a US$6 billion loan package.
One potential source of new funding is SoftBank, WeWork’s largest investor, which was planning on kicking in at least US$750 million more as part of the IPO. SoftBank’s planned investment was expected to help shore up demand for the offering by limiting the supply of shares to be sold to outside investors and signaling Sotbank’s continued support of the company, but apparently that failed to boost any confidence. The postponement is the latest problem for the IPO market in a year that is set to be one of best ever in terms of money raised in new issues.
A number of big technology startups that, have gone public such as Lyft and Uber, have struggled as investors question businesses with big losses. Many are also question professional ethics and procedures in startup valuations and accountings and are questioning whether it is all just a massive ‘fraud’