The WeWork IPO is in shambles
So, there's been a lot of chatter recently about the big ticket IPO for WeWork and how it's about to set a new precedent for all startups in the future.
Unfortunately, it seems as if that plan is now in serious jeopardy. So what went wrong?
The Backstory
For the uninitiated, WeWork takes buildings on long term leases, they then spruce it up and rent the space to startups like ours. And since a shared workspace can be rented out at a lower price than buying your own space, it makes sense for smaller entities to take up a spot at WeWork.
The problem, however, is that WeWork’s business model is still largely unproven.
Meaning people still can’t see how WeWork is going to turn profitable the way it’s currently running its business.
Considering that it borrows inordinate amounts of money, people are skeptical about its ability to stay afloat if a recession were to hit the US economy. What happens when people simply won’t pay top dollar for a WeWork co-working space? What happens when the company will still have to pay large lease amounts, originally agreed upon when the economy was booming? What happens when the funding stops?
There is definitely a lot of uncertainty
And this brings us to the second half of the issue.
The Money trail
A significant chunk of money that’s been pumped into WeWork comes from SoftBank’s Vision Fund — a fund that propels the dreams of the future. And WeWork apparently fits the “Vision Fund” Bill, although, many people have contested there’s nothing really visionary about running an upscale co-working space.
Anyway, the last time WeWork raised money, it was valued at a whopping $ 47 Billion and SoftBank alone has about $ 10 Billion tied up in the company.
But as is the case, this is a world where startups burn cash. And with more burn, you need more funds.
And this brings us to the IPO. WeWork’s latest scheme is premised on raising money from the public. But from the moment it made its intentions clear, the public has been scoffing at the issue. The gigantic losses, the founder's dodgy transactions with the company, and the absurd valuations of the company have put off even the optimists. And this is a problem.
For SoftBank, it means looking at one of its biggest investment fall apart right before its eyes. What happens if the public decides WeWork ought to be valued at $15 Billion Dollar as opposed to $47 Billion.
Well, we will tell you, SoftBank will probably be looking at a loss of close to $4 Billion.
And so, the rumour is that SoftBank wants WeWork to postpone the fundraising effort until sentiments improve. But more importantly, they want it postponed so that this mess does not affect the company’s latest effort to create another ~$ 100 Billion Vision Fund.
Unfortunately, WeWork sees things a bit differently. It wants to borrow an additional $6 Billion to take it through the next few years as it continues to burn money. And lenders will only go through with the proposal if WeWork manages to raise at least $3 Billion from the public through its IPO. So, WeWork isn’t exactly gung-ho on scrapping its plans because its future rests on the IPO.
And with this, we seem to have reached an impasse. How this will unfold over the coming days, we don’t know. If you have any thoughts on the matter, however, do write to us :) Would be glad to hear.
What else happened?
In other news, there was an interesting opinion piece on Bloomberg Quint.
The story goes that out of all people who signed up for a credit card last year, only 3% were from highest category of creditworthiness (read as people who are most likely to come good with their payments). So what does that tells us about the rest? Are private banks now trying to chase customers who are inherently more risky? Surely this is bad for the banking ecosystem overall isn't it?
Well, these are some of the questions that the author tries to answer in the article and it’s best you read the whole thing.