WeWork learns lesson from IPO fail

Two years ago, a failed initial public offering made WeWork Inc the poster child for startup excess and corporate governance failure. Today, the shared-office provider finally joins the public markets, having completed a merger with a blank-check firm, BowX Acquisition. Its shares will trade on the New York Stock Exchange and the ticker is, of course, “WE.”
This has been a chastening experience for WeWork and it seems to have learned its lesson. But I fear the same isn’t true of startups and venture funding in general. Unbridled exuberance in today’s private markets means a WeWork-like disaster is likely to happen again. And, next time, it might come after the company has listed, meaning ordinary investors get hurt.
WeWork has been substantially reformed since its IPO was pulled in 2019 and chief financial backer SoftBank Group Corp had to bail it out. It’s parted ways
with free-spending founder Adam Neumann and appointed more sensible management, slashed costs, closed particularly unprofitable locations, and sold off a hodgepodge of non-essential activities and fripperies, such as its Gulfstream jet, often for less than it paid. Once valued by SoftBank at $47 billion, its market worth today — about $8 billion, excluding net debt — is also far more modest; notwithstanding, it still loses heaps.
Unfortunately, many of the conditions that enabled WeWork’s rise haven’t gone away: They include sky-high private market valuations, a surfeit of cheap capital chasing the “next big thing,” the idolisation of “visionary” founders with few checks on their power,
and the tech world’s
continuing fondness for
questionable accounting adjustments. Many startups, just as WeWork is doing, now choose to go public by merging with special purpose acquisition companies, a less rigorous process than a traditional IPO.

—Bloomberg