Why 'WeWork' Successfully Failed in its Initial Public Offering (IPO)

A lot of businesses make money via different methods, one of which is taking a debt, where the business pays back over a period of time on installment. A company can issue equity where the ownership of the company is exchanged to a new shareholder for money. The money doesn’t have to be paid in interest. Raising money privately is always helpful for startups and the company do not have to make announcement about it. In cases where companies with private cooperation company need to go public to trade shares in market, an Initial Public Offering (IPO) is expected.

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What is an Initial Public Offering (IPO)

When a private corporation goes public and sell shares to the public for purchase. The process involves a bank underwriting the IPO which determines the value of the company, buys the shares from the company at a given price, distributes the shares and help the company get listed on exchange.

What Made WeWork IPO fail?

WeWork, an office rental startup was said to be a super unicorn with company shares value of about $47 billion only to end up at less than $10 billion and down to the ground. Silicon Valley had a strong hype around the startup shares and I am sure that it former chief executive Adam Neumann would have been really energetic before the sales began. The IPO was to be the next hottest thing after the successful IPOs from Uber, Lyft, Slack and Peloton earlier in 2019.

Unlike a private company not going public, people do not get concerned with who is running the company or who is being employed but once the company is going to get in the market, people start to find out a lot about the company, and for WeWork, it was seen that a case of Nepotism was found. The business runs like a family business.

Company History was another reason why investors didn’t trust WeWork in the market. When WeWork was growing, it was said that it’s former chief executive Adam Neumann (Who was executive until after market trade) decided to change the companies trademark to We. The company needed to buy the trademark and the trademark was sold to the company by its chief executive Adam Neumann for $6 million.

The ship wrecked

Excessive funding from investors the major which was Softbank. The Investors kept on pumping money into the business because they did not want the company to fail and this lead to excessive spending like the company private jet (Why will a company that isn’t public buy a $16 million private jet). Public investors will be looking at the company’s history and will based their reasons to buy the shares on it.

Excessive Valuation on the company due to numbers of location which affected the price of the shares. Shares from Uber and Lyft had started dropping which made people start to ask if investing in WeWork was worth it.

The success of an IPO I dependent on the market appetite and the condition of the IPO window, as well as stories from equity investors. Those two were not in favor of WeWorks. It took WeWorks 6 weeks to start declaring bankruptcy after it was valuated $47 Billion.