Sep 11, 2019

The battle over WeWork's IPO

Dan Primack, author of Pro Rata

Illustration: Sarah Grillo/Axios

WeWork is moving forward with its IPO, as this space has repeatedly predicted, despite recent reports that major investor SoftBank was pushing for a delay.

Between the lines: It's unclear if SoftBank leaked word of its own resistance. But lots of people think SoftBank was the source, which might as well be the same thing in terms of future perception among founders and venture capitalists.

It makes little sense for executives within WeWork (i.e., people with stock options) to tell reporters that investors don't want the IPO. It makes even less sense for the bankers. And that leaves SoftBank, which knows it overpaid earlier this year without strong anti-dilution protections.

  • If WeWork doesn't go public, SoftBank needn't write down the value of its investment. Or at least not until after Vision Fund 2 finishes fundraising.
  • SoftBank already is dealing with Uber's public market flop.
  • It has added pressure with WeWork, given the perception that SoftBank pushed an accelerated expansion plan that led to nearly $2 billion in 2018 losses.

But, but, but: The trouble, of course, is that WeWork needs cash. From somewhere.

  • It only gets to access a fully-committed $6 billion credit facility if it raises at least $3 billion in the IPO by year-end.
  • WeWork theoretically could restructure the loan based on a similarly-sized private infusion from SoftBank, but it's unlikely given that Wall Street wouldn't be able to play the trade's other side.
  • SoftBank likely would prefer to be WeWork's bank, maybe even as a structured deal that wouldn't create a public mark (at least not yet).
  • Sure it might be overpaying yet again, but that delta would easily be swallowed up by Vision Fund 2 fees. So why not dish that the IPO is on the road to perdition? Or, if WeWork still persists, create the conditions for road-show failure, so that SoftBank can catch the ashes with a highly-structured pillow?

The bottom line: Late-stage venture capital has always been more about the money than the mission. This may the the starkest and highest-stakes example to date, and is playing out on front-pages instead of in backrooms.

Go deeper: Dissecting the customer acquisition costs of the latest unicorn IPOs

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