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WeWork May Slash Valuation, Delay IPO After Prospectus Underwhelms Investors

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WeWork May Slash Valuation, Delay IPO After Prospectus Underwhelms Investors

The We Company has reportedly been humbled by the chilly reception to its IPO filing.

WeWork's parent company is considering slashing its valuation to as low as $20B in reaction to investor skepticism about its private investment-driven $47B figure, Bloomberg reports. Its initial public offering, targeted for September when the prospectus was released in August, may be delayed to October or later as executives do damage control.

Japanese investment platform SoftBank has been the primary driving force behind WeWork's sky-high valuation through billions of dollars from its venture investment vehicle, Vision Fund. WeWork co-founder and CEO Adam Neumann recently met with SoftBank CEO Masayoshi Son in Tokyo to ask for another round of investment that would allow the IPO to wait until 2020, The Wall Street Journal reports.

The We Company is looking to raise as much as $3.5B with its IPO, which would make it the second-largest of the year behind ride-sharing startup Uber. Uber, which also scaled up rapidly thanks to SoftBank Vision Fund investment, and competitor Lyft have both failed to reach the stock values they targeted with their offerings this year.

The stakes may be higher for WeWork as its predecessors' poor performance has led to heightened skepticism, according to the WSJ. JPMorgan Chase and Goldman Sachs are leading WeWork's IPO and have promised two lines of credit worth $6B — provided the startup can raise at least $3B.

WeWork and SoftBank executives also discussed the possibility that SoftBank could serve as an "anchor investor" in the IPO and buy a significant portion of the shares on offer, according to the WSJ.

WeWork CEO Adam Neumann
Former WeWork CEO Adam Neumann at the Creator Awards launch in D.C. in 2017

WeWork executives are reportedly about to set off on a roadshow where they will explain their business model personally to potential investors, but its top executive has become a focus of criticism in the wake of the prospectus.

Based on the structure of his ownership stake, Neumann would remain in control of The We Company after the IPO, though he has no employment agreement with the company and no legal obligation to stay long-term. He reportedly sold some of his shares in July, weeks before the prospectus was released, and took out massive loans using his remaining shares as collateral.

Neumann is currently working to extricate himself from several instances where WeWork is the primary tenant of a building he owns personally, which have drawn concerns over potential conflicts of interest. Neumann also held the copyright on the word "We" as used in The We Company's branding, and the company agreed to buy it for $5.9M. That deal was unwound in the wake of post-prospectus criticism, and The We Company said in an updated filing Wednesday that it owns all its related trademarks.

As a potential capital source to keep the company private for a little while longer, SoftBank may no longer be as reliable as it was in previous years. Its most recent investment in WeWork was much smaller than initially predicted, reportedly due to pressure from investors in SoftBank Vision Fund who were concerned about being overcommitted to the company. 

Masayoshi Son is currently raising capital for a second Vision Fund, the fortunes of which may be tied to WeWork's IPO. The first fund's investors, the biggest of which were Saudi Arabia's Public Investment Fund and Abu Dhabi's Mudabala Investment Co., are still smarting from Uber's overconfident IPO, the WSJ reports.