Since I wrote this piece last week WeWork, a heck of a lot has happened. The company has shelved the IPO, the CEO (Neumann) has stepped down and a lot of employees may soon be without a job. For a full reporting of the rapid and dramatic downfall, read this Business Insider column.
It seems easy to direct a level of schadenfreude at Neumann and management. Their corporate goals and mission statement seem preposterous as more of the dealings become apparent. They appeared to think they were smarter than everyone and could hide the weaknesses of the company from the public. But the fallout from this debacle will be large. It seems likely that 100’s of employees, if not 1,000’s, will lose their jobs, some building owners will have to eat all of the leasehold improvements they made and, of course, some bond holders will not be made whole. I again refer to Scott Galloway who was one of the first commentators (at least that I saw) poo-pooing the WeWork IPO. Here he is discussing who gets hurt in this.
The Larger Issue
I’m empathetic to those that will be hurt in this cluster, particularly the employees that held considerable WeWork equity. The bigger issue to me is that this stock nearly made it to the public markets at all. No more than a few weeks before it was scheduled to go public, Goldman Sachs, Morgan Stanley and JP Morgan had publicly declared an IPO valuation of $40-100B (that’s a B for BILLION). They looked at the same material that everyone else did and came to the conclusion that they could bring this stock to the market at that valuation. Now it appears WeWork might have NEGATIVE VALUATION and have to declare bankruptcy. One month later!! Thankfully the public markets did their due diligence. Had they not, the losses would have effectively been dumped from the founders and early investors into the public markets and those investors.
So either the elite Wall Street firms looked at WeWork and thought a) this looks like a sound, viable business model with sound financials OR b) they realized it was hot garbage and simply didn’t care. I can’t see any way to arrive at a different conclusion. In either case, it is not a good look for those firms. Many lawsuits, legislative inquiries and reporting will be done on this fiasco as it unwinds. It really is a rapid fall for a brand that a few months ago seemed to be bullet-proof. I, for one, look forward to the final accounting of it all and find the speed with which it happened incredible.