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The cancellation of the WeWork IPO by the We company is expected. The big question is: will WeWork survive this? Apparently, too many bad management decisions have a lot to do with the problems that Wework finds itself in.
Finally, after much expectation that it would occur, it is hoped by the investment and venture capital community that the We Company owners of corporate space company WeWork would put its plans for its Initial Public Offering on hold. This comes after serious doubt existed as to the original valuation of the company which went down sharply from $47 Billion to less than $15 Billion in recent weeks.
The Wall Street Journal reports that investors had already started to query the initial valuation and the many reports of impropriety and corporate governance issues by the co-founder and CEO Adam Neumann.
Firstly, one major issue that has worried many has been the valuation revisions. The basic question that surrounded the company that most could and still cannot answer is: Exactly how much is WeWork worth? This, of course, raises questions concerning the bookkeeping systems and methods that the company employs which is a basic test of the integrity of the business and its sound financial health. Things got so bad that Softbank reportedly pressured WeWork to delay the IPO until all issues had been sorted out.
In normal practice, as a start-up approaches its IPO stage, the losses are supposed to start receding to regular levels due to the emergence of a business model that brings in a predictable profit. WeWork’s losses, however, rose in tandem with their revenues leaving little room for expansion. While it may sound sweet at the innovative and disruptive stages of businesses, some growing up must occur so that the business can become a brand that takes its place in the market.
While Adam Neumann is indeed a genius in putting together the best of concepts and strategies, when it comes to issues of basic management and corporate governance investors have felt that he doesn’t quite cut it. This comes after he allegedly cashed out over $700 million of his own stock pre-IPO which is a move that has led to less than expected confidence in his business model.
Other issues which have rattled nerves include the payment of $5.9 million for the use of the word “we” by the company to him. Although this amount has already been paid back it has led many to question his real motives for some of these actions which point to a lack of confidence by him in his own idea.
These among several other corporate governance issues have led many to shy away from investing in the startup.
With a series of debts and the inability to raise funds pending a successful IPO, it is rather doubtful that WeWork will be able to stay afloat as a startup. Pending its final valuation as a company which is still a subject of hot debate, the company will still have to do things as it has always done: out-innovate. This time, however, it may not be enough to turn the tide as the management may have made one mistake too many.