There was an article yesterday where Softbank was saying that they think they can renegotiate those LOCs to go forward even if there is no IPO this year. They might end up being a lot smaller and have worse terms for We though. I wouldn't be surprised if pushing Adam out was the first demand the banks made in that renegotiation.

Softbank wants to delay the IPO now because it would mean a massive writedown of their investment value.

I think it is clear they have to write it down anyway in any reasonable accounting.

Adam seems to be the scapegoat, somewhat justified of course, but the bigger problem of this company being an obvious scam with no way to make money has not been addressed.

I just don't see them wrestling control away from the deranged, cult leader. He truly believes he is destined to be president of the world and revolutionize.. well every thing. There best bet would be to drop the multi-class structure to get into passive funds.

It needs $8.1b market cap to get into S&P500.

>He truly believes he is destined to be president of the world and revolutionize.

I am not sure. He has been pretty methodical in siphoning the money out of the company (privately leasing the real estate to We, charging them for the trademark, etc), so he probably knows very well what he is doing.

Somehow, if you act this way, investors will perceive you as a charismatic and energetic leader and buy in even if your business model doesn't make much sense. IIRC, similar happened to Juicero, albeit on a much smaller scale: countless talks about expanding consciousness, changing the world, raw water bollocks, a completely unsustainable business model and questionable transactions to some external consultants.

It also needs to be ebita profitable for 8 quarters in a row before its added to the index IIRC

I think it's most recent quarter + 4 previous. I'm also fairly certain it's selected by committee. I'm no finance expert, hence the securities fraud conviction. I don't really know which index it could get into with a high amount of passive investment.

Is this part of the business model of these large, unprofitable VC-backed companies? Build a valuation to meet the 8.1bn threshold, then sell the shares to passive investors in S&P 500 index funds?

No. The S&P 500 is selected by committe. And it's 6.1bn, not 8.1bn. Mabye that's the plan for the Russell 3000, though.

But it doesn't really matter except when the stock gets added to the index. The index funds and ETFs are going to rebalance their positions based on market cap and will not affect the price. These funds could affect the volatility though, since it's conceivable that with a lot of the shares locked up, these stocks are going to be more thinly traded than they would have otherwise been. This could create price instability, though I'm not sure there's any proof that it's true.

Not true. [0]

>...Unadjusted company market capitalizations of US$8.2 billion or more for the S&P 500..... are required.

[0] https://us.spindices.com/documents/methodologies/methodology...

Hmm. I guess it just changed this year. My bad!

I saw $6.1b first as a Google given answer. It said different on Wikipedia so I investigated the source. I knew my high school teachers were wrong about Wikipedia!

> But it doesn't really matter except when the stock gets added to the index

It does matter when there are inflows, if there is new money coming into index funds all the stocks in the index benefit (they funds also sell all the stocks in the index when there are outflows). Non-indexed stock are less coupled to flows in and out of trackers.

And for VC's to build a story and evaluation interesting enough for SoftBank to buy in? Because it sometimes seems like it...

Corporate governance was definitely a factor, but getting cut down from $47B to $10-15B is... a lot. Public market investors clearly have a much worse opinion of We's fundamentals than SoftBank did.

You are presuming that SOftBank believed in the fundamentals, and not in the proposition that if you carefully stage a series of cash injections at increasing valuations, the charismatic founder's PR halo will impart a shine onto the company's shares.

In which case, the major failing of We was that it did not go public fast enough. I wonder if we'll see this translate into time pressure for future startups to go public a little earlier before the bloom is off the rose.

I don't think speed would help. If Softbank were the only people putting in the last few rounds, that suggests that nobody else wanted to invest in this business with this governance.

People already knew what kind of business WeWork was. Sure, they were getting press, but when actual institutional investors looked at it, they must not have liked what they saw.

That has been going on for the last few rounds, so I suspect that they couldn't have gone public then, either. Nobody was buying what they were selling, except Softbank. And once the S-1 dropped, the press and social media saw all the red flags together in one document.

Those red flags would have been just the same if they'd gone public earlier.

Uber's lackluster IPO factored in to the decision. An IPO by We before Uber means there's less data on how much investors value a brand.

> if you carefully stage a series of cash injections at increasing valuations, the charismatic founder's PR halo will impart a shine onto the company's shares.

Can you give some examples where this has worked in the past?

I'm not claiming it ever worked, what I actually wrote was that perhaps Softbank believed in the proposition that it could work.

The alternatives are either that Softbank believed in WeWork's fundamentals, which honestly feels unlikely, or to believe that they went in early, then discovered that nobody else would invest, so they kept putting more of their own money in to avoid closing the business and taking a write-down.

Yeah - these institutional investors have a lot riding on "the market was responding to weworks governance structure" and I don't think that is really representative of the facts.

I mean, it likely doesn't hurt anything. I'm sure the underwriters (JPM etc.) have spoken to their institutional clients and no one has said "getting rid of Adam will make my valuation go down."

So you get rid of Adam (and his supermajority voting rights) have some quiet conversations about how people value the company now. Then you decide if you're willing to take whatever haircut the market is offering from the last private round.

If We is to be believed the other option is to halt all expansion. They claim that mature locations are cash flow positive. If that's true then you don't necessarily need to take a haircut, you just stop expanding, prove to the market that you actually do have a business, and then either start siphoning off the cash or try to IPO again.

> corporate governance was one of the main factors why the market refused to accept anything close to their last private valuation

That’s not at all clear.

> slow 30-year-old companies like Regus

Unless I am completely misunderstanding the value of WeWork, this ship seems to have already sailed. At least locally, Regus has offerings that are substantially the same in price and features to what WeWork has.

Also, smaller, regional real estate companies are doing this (generic co-working spaces) with empty office space, often on the ground floor. I visited a startup at one such location and was impressed with it. It's a strategy to capitalize on unused assets.