Episode 006 – UNICORN-MANIA – WeWork & its Investors Confront Reality Distilling Venture Capital

 
Introduction
Welcome to Distilling Venture Capital.  I am your host, Bill Griesinger Distilling VC is a visionary podcast that provides an insightful and informed view of the key trends affecting the VC and tech startup world.  My mission is to cut through and go beyond the hype that tends to dominate the tech landscape.  And provide you with information you can use  
Opening Observations:
Hello everyone, and welcome back.  I promised you in the prior Episode that I would devote this Episode to distilling down one of the most famous poster-kids for Unicorns-aren’t-real; WeWork Today, I am going to provide you the insights and analysis that the technology and financial press, investors and others have failed to deliver to you over the last few years regarding this tarnished unicorn. To set the stage though, let’s do a quick timeline review of WeWork leading up to and then after its failed IPO of Sept. of 2019:   WeWork valued itself at a cool $47B by early 2019 and, that in fact would be its valuation leading up to its announced IPO WeWork filed its S-1 and IPO paperwork in mid-Aug. 2019 After more than a few I-Banks and others scrutinized its financial condition and bus. model and “questioned” the proposed go-public valuation the Co. made some, shall we say, “adjustments” to its valuation  After some consideration, WeWork suggested it would now go public at, uh, $10B-$16B Bam!  A greater than 65% vaporization of its valuation in a matter days - amazing Cancelled its IPO in Sept. 2019 when support waned By Oct. 2019, Adam Nuemann asked to step down after discovering a few “corporate governance” problems.  He received a total $1.7B golden parachute to go away. Bloomberg opinion writer, Matt Levine, put it this way in a late Oct. 2019 piece, writing tongue-in-cheek suggested how the news was communicated to employees at the time:  It was explained, “We had to give him a billion dollars to go away because we couldn’t afford to have him stick around,”  So, his value to the Company was negative a billion dollars. Levine continues, in other words, “We can’t pay you for your good work because it was more urgent to pay your boss a billion dollars to stop doing his bad work.”  Sounds about right. By Oct. 2019, life support was needed.  The Co. accepted (as if it had a choice) a Softbank rescue pkg. where SB took control of the Co., valuing it at $8B (about $19/share, which, as it turns out, was still too high) More recently (April 2020), SoftBank pulled the plug on and backed out of a planned tender offer of an addl $3B to bail out, er, I mean plan to shore up, WeWorks shareholders. To a lawsuit; Following the termination of that agreement, WeWork Board voted to sue the only thing that was keeping it alive…SoftBank’s money.  Great strategy Then came the question;  Who should lead the Co. post-A. Nuemann?   After being led by such an irreplaceable visionary as Adam Nuemann (according to the S-1), surely a similarly disruptive, forward thinking genius would be required.  Or, you could hire this guy: in Feb. 2020 WeWork announced it had named Sandeep Mathrani, a senior executive with RE Company Brookfield Properties, as its new CEO. Wait, what?  An experienced RE executive from one of the top companies in the field? A sordid mess, I know…but this is what passes for reality now when you are dealing in the land of unicorns, right?  Things get a little distorted
Let’s get back to reality and restore some meaning to this mess:
I told you my main objective is to cut through the hype that tends to dominate… With a bit of cursory, basic diligence, I’ll point out and highlight a few of the basic risks of the WeWork bus. model.  Something one would have expected from the analysts, I-Banks, INVESTORS, lenders and, oh yeah, the tech and financial press, to have done – but they didn’t. It’s not really that complicated to determine what WeWork is and understand its k