
WeWork says will file to withdraw IPO - pseudolus
https://www.reuters.com/article/us-wework-ipo/wework-says-will-file-to-withdraw-ipo-idUSKBN1WF1NS
======
myth_buster
I'm just impressed by how well the fallout has been predicted by Scott
Galloway[0] and Matt Levine.

Has been an incredible learning experience for me on the unicorn class in
general. Looking forward to unicorn report for 2019 [1].

[0] [https://www.profgalloway.com/wewtf-part-
deux](https://www.profgalloway.com/wewtf-part-deux)

[1] [https://corpgov.law.harvard.edu/2019/03/20/the-unicorn-
ipo-r...](https://corpgov.law.harvard.edu/2019/03/20/the-unicorn-ipo-report/)

~~~
austenallred
Galloway always predicts that every tech company is a bubble. Every now and
then he's right.

~~~
aeternum
Right, maybe not every tech company but he is wrong more often than he is
right.

For example, he predicted both Amazon and Google would be 'losers' back in
2015.. oops:

[https://www.forbes.com/sites/stevedenning/2015/04/09/the-
fut...](https://www.forbes.com/sites/stevedenning/2015/04/09/the-future-of-
amazon-apple-facebook-google/#2b1b2dc6172e)

~~~
victor106
From the article “For Galloway, the winner will be Macy’s, which has
successfully gone online,”

Macy’s Stock [https://g.co/kgs/8KZ1Kj](https://g.co/kgs/8KZ1Kj)

Prediction is a hard business.

~~~
perl4ever
Prediction is very difficult, especially if it's about the future. - Niels
Bohr

~~~
inimino
I had previously heard this attributed to Yogi Berra, so I had to check.
Apparently[1], it's an old Danish proverb.

[1]: [https://quoteinvestigator.com/2013/10/20/no-
predict/](https://quoteinvestigator.com/2013/10/20/no-predict/)

~~~
quickthrower2
So non-future prediction is also difficult it seems!

------
aresant
This is almost too perfect but SoftBank is, at the moment, trying to hire a
valuations director:

[https://www.indeed.com/viewjob?jk=cf0378114e63aeb4&from=tp-s...](https://www.indeed.com/viewjob?jk=cf0378114e63aeb4&from=tp-
serp&tk=1dld0iag1430g802)

Sort of a "Never attribute to malice that which is adequately explained by
stupidity" kind of thing . . .

~~~
skrebbel
In their defense, Masayoshi Son made much of his fortune by applying the
greater fool theory (and lost much of it that way as well). There's a chance
they really just took a calculated risk here, and with many of their other
investments too. The risk being not so much the success of the company like
normal VC investments, but explicitly a "maybe we can profitably push this
through an IPO, let's see if the sheeple fall for it" kind of thing.

~~~
TheOtherHobbes
Hypothetically, if he was _really_ good at this he'd pick a highly leveraged
market segment, attempt to crash it with a ridiculously implausible high-
profile failure at the tail end of a bubble, and benefit by shorting
everything that wasn't nailed to the floor.

Or maybe he's just a bit gullible. It's hard to be sure.

------
roland35
Wow what a huge rise and fall in the past few weeks! What I don't understand
is how the S-1 filing ever saw the light of day? How could nobody reviewing
that see any of the red flags that were obvious?

I think this just shows how hard it is to be objective when there are so many
cultural/financial/etc influences affecting your judgement. Obviously their
team bought the hype (and as a sad Browns fan I can totally sympathize with
buying into hype then being disappointed!)

~~~
chii
> Obviously their team bought the hype

or nobody wanted to rock the boat. If you had pointed out this as a legal
grunt or rank & file finance guy, you would have looked bad for "ruining" the
exec's payday. Better to let the market decide and just keep your head down
and receive your pay check.

~~~
bcrosby95
Especially if it turned out the market loved it. Then you're truly screwed.
When you're working for a regular paycheck, better to be optimistic and wrong
than pessimistic and wrong.

------
abledon
Waiting for Stripe's new API that adds GET/POST/PUT/PATCH/DELETE functionality
for your companies IPO.

------
martinald
Cannot understand how they can restructure this. Even one new building in
London which isn't anywhere near structurally complete WeWork has taken 18
floors on a 25 year lease (I think due to open 2020 or 2021).

Is there a way they can walk away from all these commitments? I understand
they have a SPE structure which potentially allows them to do that, but I
imagine there must be some costs or downsides to it, otherwise it isn't much
of a lease commitment from WeWork's PoV.

~~~
charwalker
Pay whatever cost is in the lease in order to break it or go bankrupt and pay
out creditors first. The building management will then either find a new
tenant and/or enforce other components of the lease and sue for their money
per the contract agreement.

~~~
chris11
I had also thought that they had set up some leases through their own legal
structures so they could limit some of WeWork's financial liability from the
lease.

~~~
toomuchtodo
The leases through the special purpose entities are still (supposedly)
guaranteed by parent WeWork. To shed the leases would require wiping out some
component of the equity through bankruptcy.

------
waterfowl
This whole thing has been nuts. It's clear no one who invested late ever
actually believed in the valuations -- matt levine says it better

"We came to market and public investors informally expressed some skepticism
and its private backers were immediately like “wait this company isn’t
profitable, why did no one tell us, burn it all down.” I am not saying that
the public markets are wrong, but I kind of wanted there to be a difference of
opinion; I kind of wanted the people who bought WeWork at a $47 billion
valuation to act like they meant it."

~~~
Hongwei
Even simpler: it's fraud and they got caught. Hopefully it doesn't paint other
great IPOs in a bad light.

~~~
harryh
In order for something to be fraud there has to be deception. This was never
the case with WeWork.

~~~
Hongwei
I think the shenanigans they were pulling (crazy governance, conflicts of
interest enriching the founder and wife, bad acquisitions) were obvious to the
HN and analyst community, but possibly they hoped it would be over the heads
of retail investors.

Now obviously, in this case, it was too blatant and stunk bad enough that even
retail investors shied away.

~~~
harryh
The vast majority of shares purchased at IPOs are by institutional investors
writing very large checks, not retail investors.

Retail investors shying away had nothing to do with the IPO getting pulled.
And even if this wasn't the case it's still not fraud: if retail investors
have all the data (which they did) but still want to buy something, it's not
deception.

------
notyourday
So this is what I do not understand: they burn through money like crazy. For
them IPO was not a path to liquidity for stock holders, rather it was a way to
do the next raise. The large market basically said "Nah, can't get that money
on those terms. Sorry". Their only private source of funding is Softbank.

How are they going to raise more money for opex? Go back to Softbank and get
another pile of cash at even higher valuation? Because it would be incredibly
dumb for Softbank to do that as they have no serious competitors on the next
round. So is softbank going to say 'This will be the down round and, we will
now own 95% of the company and all of you, previous shareholders, get whatever
is left? It is a down round with a wipe out, take it or leave it?'

~~~
goatinaboat
WeWork’s plan was to raise at least $4Bn from IPO which would unlock $6Bn in
bank loans, before the end of the year. Now they have a $10Bn hole in their
budget which coincidentally is almost exactly the same size as SoftBank’s
investment in them. They are in _a lot_ of trouble if SoftBank doesn’t double
down, and do it soon. Q4 starts tomorrow! And $10Bn may be more than the
entire company is worth!

~~~
notyourday
Which brings a question - could it be that this entire thing was Softbank's
play to control the entire company?

$6B to get the seat at the table.

$10B now as a down around for a wipe out?

~~~
vkou
$16B is a lot to pay for a turkey, even if you wipe out all the other
shareholders in it.

~~~
notyourday
True, but consider:

1\. They want some turkey.

2\. WeWorks is a turkey that already exists, in a good enough form and, should
non-wanker management be installed, fat trimmed and the co being returned to
real estate business rather than technology business, it seems to be a pretty
tasty and immediately available one.

3\. Buying it outright would have been a lot more expensive.

Is it any different from Softbank investing in Sprint? They could have
invested in smaller company and built it themselves but instead they dumped
money into someone who was already there and slowly reshaped the management

~~~
goatinaboat
WeWork is not worth $16Bn. IWG is only worth $3.6Bn and is many times the size
by sq ft under management. I don’t believe that WeWork is even worth $1Bn
using similar valuation.

~~~
notyourday
Err... that's not an accurate comparison. If Softbank gives WeWork $10B for
100% of the company then its book value will skyrocket as its liabilities
won't increase even by a penny but it will get 10B on its balance sheet.
There's not a single company in the WW lines business that has this kind of a
prospect. Regus simply can't raise this kind of money -- if they could, they
would have.

~~~
goatinaboat
Well sure but why would they pay 10x as much as it’s worth? Remember they have
_already_ invested $10.5Bn. So they would be paying a grand total of $20.5Bn
and what would be their exit strategy from that?

~~~
notyourday
Lets presume that for some reason Softbank wants to play in this space. What
are the plays that are at its disposal?

1\. It can buy Regus. Regus does not need money to survive, has poisoned pill
and does not have a brand recognition. With 3B yearly revenue. Anything below
8x the revenue probably won't get a board's automatic stamp of approval and
anything below 10x won't get a board's enthusiastic "Yes, please!". So that's
35B. Regus with Softbank money would definitely crush everyone. It will take a
_long_ time just to get the 35B back.

Pro: Definitely a solid play Con: Really expensive.

2\. They can create their own competitor - it will take 3-5 years or longer to
assemble the entity comparable to WeWork with the same level of name
recognition. It will also cost more than WeWork already burned. During that
time Regus may restructure and become a real competitor ( they are in a
different market now ) and whoever picks up a corpse of WeWork could become a
competitor in the juciest markets.

Pro: cheapest Con: longest, and most unclear -- Regus may pick up WeWork
corpse making it the undisputed leader.

3\. Basically do a hostile takeover of WeWork. If that was the play, it seems
to have worked very well. It was as if a biker was taking candy from a baby:
neither VCs nor C-suite, not ibankers seemed to have caught on.

Pro: No WeWork corpse for Regus to pick up cheap, no other competitors show up
from it. Cheaper than buying Regus. Con: ~10B spent already + 10B to buy the
rest.

> what would be their exit strategy from that?

They may not be looking for an exit at all. At those sizes cash equivalents
without good investment prospects aren't a good asset.

~~~
goatinaboat
_They may not be looking for an exit at all._

But they have to. Like all VC funds Vision Fund has a set lifecycle. In their
case they have 5 years to invest (starting on the day the fund closes to new
investors, which has already happened) and then 7 years until maturity at
which point it dissolves and returns capital to investors. The clock is
ticking.

~~~
notyourday
It depends on how their fund is structured. Based on what I have read the
minimum life of their LPs is 12 years. At the scale it operates, and
considering from whom it raises money it does not make much sense to structure
it as a typical VC fund.

------
Solar19
Why is WeWork considered a tech company?

And what exactly is wrong with their business model? That's not clear to me
from the article. It says they take long-term leases and sell short-term
leases. That seems straightforward and potentially lucrative if they're adding
value, making it easier to find suitable short-term office space, etc. Is it
just that they're not making money doing this? Why not?

~~~
Traster
I think the reason you don't get an answer to this is because this is article
number 100352752. WeWork isn't a tech company because there's no unique
technology they use to rent out office space- which is how they make money.
Their business model is "Sign long term contracts cheap, rent out to short
term tenants expensive". Which is fine, but it doesn't justify their valuation
(which is predicated on them 'disrupting' the office rental industry) and
isn't fine - because so far they spend more money renting the office space
than they do leasing it out to their tenants. So their real business model is
"Rent $1 worth of office space out for 50 cents". They had no compelling path
to profitability.

~~~
streb-lo
Isn't airbnb similarly disqualified under your definition?

~~~
ravenstine
AirBnB is convenient. WeWork isn't really more convenient than existing
competitors. It just has the wow factor.

~~~
dreamcompiler
The wow factor being embodied primarily in a Charismatic Young Narcissist
(CYN) CEO. See Elizabeth Holmes.

------
wgerard
I see lots of cheering which, to some degree, I understand given the public
persona of Adam Neumann.

I'm more interested in the ramifications, and I don't just mean the obvious
ones like "potential tech recession" (maybe, who knows) or "more due
diligence" (unlikely, or if so likely to swing completely the other
direction).

Given that "private markets are the new public markets" I wonder if this will
just encourage more companies to stay private either indefinitely (e.g.
MailChimp though obviously I realize they are an exception) or for a period
far beyond the norm (AirBnB) to wait for a more favorable time to IPO. Maybe
we'll see companies switch to RSUs instead of ISOs as this becomes more
common.

~~~
ineedasername
Staying private longer in the face of capital markets skeptical of money
losing businesses isn't much of an option. Eventually, in order for the
private investors to make money, they either need to get profitable or go
public. AirBnB is a poor example of staying private longer in these
circumstances because they are profitable. [0]

[0] [https://www.cnbc.com/2019/01/15/airbnb-sustains-profit-as-
it...](https://www.cnbc.com/2019/01/15/airbnb-sustains-profit-as-it-heads-
toward-ipo.html)

~~~
wgerard
> Eventually, in order for the private investors to make money, they either
> need to get profitable or go public.

Most (but not all, obviously) unicorns could easily be profitable if they
chose to be. It would come at the expense of growth and R&D, but they would be
profitable nonetheless. Growth is just valued much more heavily in the current
market.

If you look at S-1s or even recent public unicorn earning statements, most of
their losses stem from outsized increases in R&D/etc. expenditures despite
healthily increasing revenues. The most recent example I can think of off the
top of my head is Dropbox.

~~~
ineedasername
Yes, the thing is that profitability in that way would cost them their IPO,
whose value would plummet. And private investors that bought in at 10x or 20x
revenue would not be happy with 0.2x profitability. More or less what happened
with WeWork once they issued their offering & the CEO's behavior caused
scrutiny on the whole thing.

------
yawaramin
I'm just curious about something ... do WeWork employees work in their co-
working spaces? Or do they have their own office?

~~~
lwb
I recently interviewed with them. They have their own regularly leased office
spaces like the rest of us.

~~~
pas
There are full-remote companies too :)

------
mharroun
Incoming layoffs... between wework and uber the market will be "flooded" with
talent.

I wonder if having wework on your resume is a good or bad thing.

~~~
dcchambers
How many engineers does WeWork actually employ though? From everything I've
read on here they're not really a tech company. I can't imagine that, even if
it all goes up in flames, there will be many SWEs looking for new jobs from
this.

Uber is another story. They've got a sizeable engineering force.

~~~
bjtonline
WeWork has done a significant amount of hiring in New York City for SWEs with
very generous compensation, and honestly hasn't really had much for them to
do.

~~~
JohnJamesRambo
Should have made them get their realtor licenses.

------
samstave
Here is the “how I built this” for ‘we work’

Listen to this, to compare to the current state of WeWork

[https://www.stitcher.com/podcast/national-public-
radio/how-i...](https://www.stitcher.com/podcast/national-public-radio/how-i-
built-this/e/50511717?source=post_page-----3e13e479e672----------------------)

~~~
winslow
Oh nice find! This is going to be an interesting listen.

Sounds like from the intro blurb that this was potentially recorded in June
2017 and this is a replay of that episode Sep 2 2018.

------
S_A_P
What I don't understand is how do things get this far down the road before a
good old fashioned sanity check happens? I have got to think that Soft Bank
knew/knows the valuation was off. The fact that they pushed on means they
either intended to try and get away with it/take the money and run as I cant
believe incompetence is the reason here. How did this get so far along???

As for Adam N, I have to think some part of him knew that it was a bullshit
valuation and all the hand-wavy "we are a tech company that also happens to do
real estate" doesn't pass the smell test to me. He has personally enriched
himself quite a bit so even if the whole thing falls apart he will be ok. I
don't know if there is a bubble in SV or not, but it seems that the last
couple of really huge unicorn companies have all been based on BS(We Work),
Fraud(Theranos), and untenable business models (Uber). I'm far removed from
that whole scene so maybe I'm showing my ignorance by stating this. I am,
however, very curious to hear about any startup unicorns that are profitable
or at least have a clear roadmap to profitability and not based on a business
model that will be outlawed in a few years.

~~~
JohnJamesRambo
“There are three ways to make a living in this business: be first, be smarter,
or cheat.“

-Margin Call

SV ran out of the first two because they are much harder. We are left with the
dying gasps of companies trying the third way.

~~~
djsumdog
> or cheat

This is called "Being disruptive." Basically, just ignore the law, but make
sure you get enough workers and customers that love you so that they turn
against politics when you break the law.

~~~
SAI_Peregrinus
This gets called "being disruptive" but it's possible to be disruptive without
ignoring the law. For example see SpaceX: successful disruption of the launch
industry, without breaking any laws.

The issue is that not every industry is so inefficient as to be possible to
legally disrupt profitably, so people try to do an end-run around the law.

~~~
nonconvergent
The CEO of SpaceX did commit a couple crimes in the same podcast.

Uber's autonomous car fatally collided with a woman, raising questions of
negligence and liability in automation.

Uber acquired some of Alphabet/Waymo's trade secrets when they aqui-hired one
of their former engineers who apparently kept a bunch of Waymo's IP he worked
on. That engineer himself is now facing a federal indictment, and Uber and
Waymo have settled.

E-scooters are facilitating a number of city-specific crimes (it's usually
illegal to operate a vehicle, bike, or skate on a city sidewalk and the
e-scooters do not provide helmets but neither do the riders). To say nothing
of the legally dubious use of public property to deploy them.

Move fast and break stuff indeed.

~~~
caconym_
I guess I'm not sure what Musk smoking pot on Joe Rogan has to do with
SpaceX's unquestionable success in a market dominated practically since its
inception by pork-armored incumbents.

If anything, I'd expect it to work against them.

What was/were the other crime(s)?

------
butterfi
Its been interesting reading the various takes on WeWork. I have my own casual
rating -- I walk past a very fancy WeWork space in Levi Plaza and I rarely see
people in it. I often wonder how they manage to survive given the high rent.

------
lgats
WeWork withdrawl letter
[https://sec.report/Document/0001193125-19-258913/](https://sec.report/Document/0001193125-19-258913/)

------
undefined3840
At their current burn rate they only have enough cash on hand through early
next year.

------
quantumfoam
Literally an office landlord. What a joke.

------
peter303
During late 1990s it was common for IPOs without much revenue and no profit.
After the crash, Google and Facebook didnt go IPO until there were profits.
This year there many IPOs with big revenues but no profits. The market isnt
buying that.

------
ixtli
I feel bad for the stary-eyed kids one year out of college that are going to
get mass fired. They're all really young and naive :/

~~~
JumpCrisscross
> _They 're all really young and naive_

And now they'll be a little less of each.

The lessons they can learn from this experience could put them ahead of the
pack. We have an entire generation that knows nothing but post-crisis bull
markets. When the next downturn comes, those tempered by bad experiences have
the opportunity to position defensively and react nimbly. (Or at least more
defensively and nimbler than their peers.)

~~~
vkou
Could you define: "Position yourself defensively and react nimbly" means to an
IC?

~~~
JumpCrisscross
> _Could you define: "Position yourself defensively and react nimbly" means to
> an IC?_

Depends on specifics. Broadly speaking, having been an IC, the lessons I
learned the hard way were:

(1) Pay your taxes early and often. Keep your credit and channels open fixed-
cost obligations low. (Nimble and defensive.)

(2) Save aggressively. Rule-of-thumb liquidity advice doesn't apply to you; I
learned to keep 2 years of cash in Treasuries _et cetera_. (Defensive.)

(3) If you can't do (2), favor full-time offers, even those with lower face-
value economics. (Defensive.)

(4) Don't over-negotiate. (Nimble.)

(5) Don't feel overly committed to your current gig(s). You can keep grabbing
drinks with old colleagues from your new job. When the ship goes down, the
captain gets commended for going down with it; everyone else just drowns.
(Nimble.)

~~~
wil421
How does an Individual Contributor (IC) have to worry about paying taxes? I’ve
never worked at a company and had to worry about the timing of my taxes.

Save enough for 2 years? Only a very small percent could actually save 2 years
worth of salary. For a family I’m not sure if anyone able to do this. The
standard advice is 6 months.

~~~
vkou
> Save enough for 2 years? Only a very small percent could actually save 2
> years worth of salary. For a family I’m not sure if anyone able to do this.
> The standard advice is 6 months.

You don't need to save 2 years of salary.

You need to save 2 years of your expenses.

As a SWE, you make _at least_ ~3x what lower-income people in your area make.
If you live with the same expenses as those people, you should be saving 2
years of expenses, every year that you work. It's clearly possible to live
that way - most people do it just fine.

If, however, you are a good participant in the consumer economy, and spend
every dollar that you make (and two pennies besides), a downturn may be tough
to weather. You might even have to... not renew the lease on that second
Tesla.

------
ganitarashid
There is already talk of fraud in mainstream publications:
[http://nymag.com/intelligencer/2019/10/marketing-expert-
scot...](http://nymag.com/intelligencer/2019/10/marketing-expert-scott-
galloway-on-wework-and-adam-neumann.html)

------
marcrosoft
The page barely loads on decent hardware. These large news sources are making
themselves irrelevant.

~~~
cnst
Reuters.com isn't usually that bad. At least they don't have screen-wide
popups.

------
totaldude87
Am sure the Wall street bankers who gave glaring $40B - 75B valuations are
crying for their bonuses..

~~~
user5994461
Depends if they bank the fees before or after the IPO.

------
buboard
I just wonder if We is being used as a scapegoat here, or if it s an actual
turning point for “tech” investments

~~~
IshKebab
It's not a tech investment though.

~~~
buboard
Then why is it here?

~~~
gbear605
It acts as a tech company, so it gets treated as a tech company, but
financially it isn't actually a tech company and doesn't deserve the valuation
of one.

~~~
buboard
Yeap thats what i m trying to say. The herd thinks/thought of it as part of
the tech ecosystem

------
kumarski
All that Saudi money down the drain.

They raised ~11bn from what I've read.

------
zarmin
Sorry, but this is hilarious. No schadenfreude lost here.

------
foobaw
Is this another Theranos/Bad Blood kind of situation?

~~~
quux
Not quite. I'd say Theranos was fraud while WeWork is a pile of BS that
finally imploded under its own weight.

------
einpoklum
Think of this as an example of the rationality, or lack thereof, of modern
stock exchanges as sociali resource allocation mechanisms.

Also of what financial institutions' investment-loan money goes towards.

------
huclejerry
Wow this is terrible!

------
rolltiide
Next up: every body fired!!

------
lp001
WeWorks appears to have cooked their books. Those responsible are, in my view,
trying to avoid further scrutiny.

~~~
rossdavidh
Man, if that's what their books look like _after_ they were cooked, they
should fire their accounting "chef".

------
circa
Well, that escalated quickly!

------
vladletter
I don't understand why we are talking about real estate on Hacker News.

------
ganitarashid
I wonder at what point the fraud charges come out. As opposed to Theranos, in
this case some insiders did very well.

~~~
rchaud
Theranos didn't go public, for good reason. WeWork OTOH doesn't appear to have
committed fraud. On the contrary, they've been extremely forthcoming in their
S-1 about how rickety their business model is.

