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New York/Bengaluru — WeWork owner The We Company has postponed its initial public offering (IPO), walking away from preparations to launch it in September after a lacklustre response from investors to its plans.
The US office-sharing start-up was getting ready to launch an investor roadshow for its IPO this week before making the last-minute decision on Monday to stand down, said informed sources.
The company has been under pressure to go ahead with with the stock market flotation to secure funding for operations.
In the run-up to the launch of its IPO, We Company has faced concern about its corporate governance standards, as well as the sustainability of its business model, which relies on a mix of long-term liabilities and short-term revenue, and how such a model would weather an economic downturn.
Reuters reported last week that We Company might seek a valuation in its IPO of $10bn-$12bn, a dramatic discount to the $47bn valuation it achieved in January.
“The We Company is looking forward to our upcoming IPO, which we expect to be completed by the end of the year. We want to thank all of our employees, members and partners for their ongoing commitment,” the company said.
Were We Company to have pressed on with the IPO at such a low valuation, it would have represented a major turning point in the growth over the last decade of the venture capital industry, which has led to the rise of start-ups such as Uber Technologies, Snap and Airbnb.
It would have meant that We Company would be valued at less than the $12.8bn in equity it raised since it was founded in 2010, according to data provider Crunchbase. And that would have been a blow to its biggest backer, Japan’s SoftBank Group, at a time when it is trying to amass $108bn from investors for its second Vision Fund.
SoftBank was discussing supporting the IPO by snapping up shares worth $750m-$1bn, the sources said. However, We Company decided on Monday that even with SoftBank’s support, the IPO would have raised a little more than $2bn, short of its target of at least $3bn.
This target is tied to a $6bn credit line We Company secured from banks in September, that calls for an IPO to take place by the end of 2019 and raise at least $3bn, said one of the sources.
Were the New York-based company to fail to meet this target by the end of the year, it would need to secure alternative funding.
The Wall Street Journal first reported on the potential IPO delay.
The sources who spoke to Reuters requested anonymity because the matter is confidential.
The last time SoftBank invested in We Company was in January at the $47bn valuation, injecting $2bn in cash. It had been pushing the company to delay its IPO.
JPMorgan Chase & Co and Goldman Sachs Group is leading We Company’s IPO as underwriters.
We Company’s decision to delay its IPO indicates it did not feel confident that the corporate governance changes it unveiled on Friday, slightly loosening CEO and co-founder Adam Neumann’s grip on the company, was enough to woo investors concerned about its lack of a path to profitability.
We Company had said it is making the changes “in response to market feedback”. It said Neumann’s superior voting shares will decrease to 10 votes per share from 20, though he will retain majority control of the company.
Neumann will also give the company any profit he receives from real estate deals he has entered into with We Company. He will also limit his ability to sell shares in the second and third years after the IPO to no more than 10% of his stock.
No member of Neumann’s family will be on the company’s board and any successor will be selected by the board, scrapping a plan for his wife and co-founder, Rebekah Neumann, to help pick the successor.
The WeWork brand is strongly tied to Neumann, a freewheeling 40-year-old Israeli-born entrepreneur who has said that We Company’s mission is “to elevate the world’s consciousness”.
Rebekah Neumann is chief brand officer.
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Published by Arena Holdings and distributed with the Financial Mail on the last Thursday of every month except December and January.