WeWork stock market debut could mark a turning point in the venture capital industry

September 14, 2019 | 5:00 am

The We Company, owner of WeWork, could seek a valuation of between 10,000 and 12,000 million dollars in its initial public offering (IPO), well below the 47,000 million dollars in which it was valued in January, during its last round of private financing, according to sources close to the subject.

This means that it could be valued below the amount of resources it has received from investors since it was founded in 2010, totaling $ 12.8 billion, according to Crunchbase data.

It would also be a big blow to its largest investor, the Vision Fund of Softbank, at a time when it tries to raise $ 108 billion for a second investment fund.

The sources asked not to be identified as a decision has not yet been made. WeWork and Softbank did not respond to requests for comments.

The We Company is under pressure to carry out its IPO, despite the deep fall in the valuation, in order to fund its operations.

“Investors have expressed concerns about the business model of the shared office startup, which depends on a mix of long-term obligations and short-term income, which gives rise to questions about how it will withstand an economic slowdown, ”explains Reuters.

Despite the complications, WeWork is still aiming to debut at the Nasdaq this month and its roadshow could start even next week.

Changes in corporate governance

This Friday, the company announced changes in its corporate governance model, including a reduction in the power of its founder and CEO, Adam Neumann, to try to calm investor concerns about the lack of a path to profitability.

But the modifications are merely aesthetic, according to Charles Elson, professor of corporate governance at the University of Delaware. "You will still have control over the composition of the board of directors."

The actions of Neumann will now have a power of 10 votes per title, instead of the 20 previously established, but still retain the majority control of the company.

The CEO also agreed to deliver to The We Company the profits he obtains from real estate agreements with the company, because despite the possible conflict of interest, Neumann rents office buildings to the leading firm.

Likewise, a 10% limit will be applied to the amount of shares that may be sold in the second and third year after the stock market debut.

It is not Neumann's only questionable agreement. At the beginning of September, he said he would return a payment of 5.9 million made by the company to buy him the right to use the word "we", whose record he owned.

Disencounter with Softbank

Softbank chief Masayoshi Son has pressured Neumann to delay the IPO, but has not succeeded.

If it did, The We Company would have to issue debt to replace the bank loan package for 6,000 million dollars obtained last month, contingent to raise more than 3,000 million dollars in its stock market debut.

It is still unclear whether Softbank will participate in the IPO, although The Wall Street Journal reported that it could allocate up to $ 750 million to buy shares. The last investment he made in the company was in January, when he gave it 2,000 million dollars.

At that time, WeWork still assumed a valuation of $ 47 billion.

With information from Reuters