The Upside

Last week the markets did what they were supposed to do and cut the legs out from under WeWork, the horribly overvalued, unprofitable, freight train of corporate ego.

It was a justified, yet shocking judgement on a company that was once touted as yet another shining example of America’s ingenious corporate startup community. Yet now we are left looking at the ashes of the company wondering how such an “ingenious” company was able to take it’s investors to the cleaners.

So yes, the upside. The market did work. Before WeWork was unleashed onto the world of regular human investors in an IPO, it had to file an S-1. This is a document lists all relevant information about the company, it’s audited financials, projections, risks and conflicts of interests. And wow!! The market HATED what they saw.

investors saw that We work is bleeding money, it has no path to profitability, it has massive liabilities, and its leader is a self-dealing egomaniac who has unrealistic expectations of a company which is basically just re-renting office space. It also kept changing its numbers and forgot to disclose other issues (like the how the CEO sits on the compensation committee!?) Ouch.

The upside to all of this is that regular investors like you and me were saved from investing in this overvalued fiction. The reality of WeWork came to light before too many people got fleeced. And it’s thanks to the S-1 and the investors who read it that the IPO died. Pheew…

The Downside

The dowside falls squarely on those who invested time, money or their careers into this corporate train wreck. For the VCs who poured money into the company, I have NO sympathy. They absolutely should have known better.

But I truly feel terrible to the hard working WeWork employees who invested years of time and energy into this company. They bought into the vision that Adam Neumann espoused. I’ve rented WeWork office space in its early days and I can say that there are terrific, hard working humans who invested their lives in this company. And I’m sure they were already planning on what to do with the boon of money that would have come out of the IPO. Now, only weeks later, they not only have to flush those aspirations, they may also be looking for a new job.

And let’s be blunt here. The story of We Work is not about a failed IPO. It’s about a failed company. WeWork is in huge trouble. It needs to shut offices, fire thousands of employees, cease it’s growth strategy, and spin off businesses. Essentially, they need to build a functioning business out of the fictional startup they once were.

They also need to find more money. Now. At the moment they are burning so much cash, they may run out of money before the end of November. It will be very telling when (and if) any new money comes in, and at what valuation the new money comes in at.

The Upside Down Side

Remember that WeWork was once valued at $47 billion. We will find out what it’s really worth when the company raises more money. But the bond market for one is not optimistic. WeWork bonds are trading at 82 cents on the dollar, which means that the bond market for one, believes that there is a substantial risk of a bondholder hair cut.

The implosion of WeWork also puts a huge hole in the US startup world. The easy flow of money to ego driven ideas will stop. Which is probably a good thing.

Also remember that regulators have been trying to loosen rules preventing unaccredited investors (you and me) from investing in pre-IPO startups. The idea was to allow regular investors to “cash in” on growing startups. But if anything, this event serves as a huge warning about the difficulty in valuing private pre-IPO companies. If a massive investor like SoftBank can get fooled, maybe it’s good to keep restrictions on regular investors from investing in this opaque market.

And the biggest upside down? Adam Neumann. Poor guy lost his company right? Yes. But shed no tears for the egomaniac. Poor Adam, dedicated believer in WeWork cashed out some of his shares before the implosion. And although he had to give up a comma in his slide from billionaire status, he is still worth more than $600 million. Boo hoo…

The next few weeks will deliver a shake up of WeWork. So give those ex-employees a break if they come to your door looking for work. They got conned. And their world was turned upside down. Look out for them.