Question

4.WeWork, a New York company that subleases office space, announced that it withdrew its IPO on 9/30/2019 after facing sharp criticism from investors following the release of its IPO filing. The company has raised billions of dollars from private investors, including SoftBank Group Corp., at a $47 billion valuation. But when the company announced an IPO plan on August 14, it was considering seeking a valuation of about $20 billion, which is less than half of the valuation estimated by its private capital. Its co-founder, Adam Neumann, stepped down as CEO on 9/24 and gave up his majority voting control. So, based on what you have read, how has the company managed to raise significant amounts of capital from investors and ever-increasing valuation levels? What went wrong in WeWork’s valuation in IPO? What would you do now, given the cash flow requirements of WeWork going forward (move ahead with an IPO at a lower valuation, subscribe to equity directly to support We's efforts to raise a loan, etc.)?

Answer 1

Answer:

a)what you have read, how has the company managed to raise significant amounts of capital from investors and ever-increasing valuation levels?

Investors faith in following prompted increasing valuation:

• Increasing brand name of WeWork among shared business spaces.
• Combination occurring in industry.
• Increasing number of organizations or startup searching for dynamic work spaces.
• Economies of scale and economies of extension.

b)What went wrong in WeWork’s valuation in IPO?

Business model imperfect or flawed. Gross operating profit not practical enough to take into account brought together or centralised costs and capex necessities.

c)What would you do now, given the cash flow requirements of WeWork going forward (move ahead with an IPO at a lower valuation, subscribe to equity directly to support We's efforts to raise a loan, etc.)?

For next 5-6 years, WeWork has noteworthy cash flow necessities to take into account increase grounds of business space or consider development by means of inorganic course. Since current conclusion isn't acceptable in market, I exhort against proceeding with IPO right now. Additionally cost of raising fresh equity  is likewise extremely high. It should change to taking development/working capital credit with long ban and begin generating profit. After it has turned beneficial, it should search for raising private equity to pare down the obligation and from that point search for IPO