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Interesting that Goldman Sachs pumped up their valuation to $60-90 billion at one point, but now won’t give them a lifeline: “ Goldman Sachs, one of WeWork’s i

Interesting that Goldman Sachs pumped up their valuation to $60-90 billion at one point, but now won’t give them a lifeline: “ Goldman Sachs, one of WeWork’s investors, advisers and customers, had been among a consortium of banks willing to lend $6bn had the IPO succeeded but has so far sat out the new financing discussions out of concern about the level of uncertainty surrounding the company, one person said.”

jiofih 7y ago
My first thought was related to this: hhow is it possible that one moment the company is ready for an IPO, with all the due diligence that comes with it and backing of financial giants, and then next month be desperate for cash? Isn’t there some sort of fraud going on in this situation?
- jartelt 7y ago
  The company believed it was ready for an IPO, but all the potential IPO investors disagreed after reading the S-1 and doing some diligence. In a sense the system worked well in that regard. The big issue was with the private investors letting the CEO do whatever he wanted and pushing the valuation up very high.
- mistymountains 7y ago
  It's clear that investment banks are incentivized to maximally value a company. Valuing a company is pretty simple, in that you can tweak certain values in, say cash flow analyses and depreciation projections to literally make billions of dollars appear on paper. They have complete deniability in that, at whatever moment, their proprietary analyses and due diligence appears in a prospectus that public markets are supposed to just trust in good faith. That way, when the banks capture the spread on an IPO (difference in price guaranteed to a firm vs IPO price), the banks can offload shares en masse to investors and gain the spread, only paying capital gains taxes. It's pretty much theft, unless you are a very very early investor, to sell stock in something like WeWork as an investment bank. Financial giants aren't like other companies. If they don't make deals every single day, they will die. They have no product, nothing to offer that improves and compounds upon previous products (save, perhaps, for algorithmic trading software). Are we really surprised that this bloated corpse of an industry known for churn, extreme burnout, and grift would overvalue an IPO when it serves them?
- dehrmann 7y ago
  > how is it possible that one moment the company is ready for an IPO...and then next month be desperate for cash? An IPO is fundamentally a fundraising event, so it makes some sense. The harder question would be why is some successful, well-funded company looking do dilute shareholders for even more funding.
btmills 7y ago
Matt Levine at Bloomberg had an excellent explanation of the dynamics at play in his newsletter recently [1]. The bankers are incentivized to inflate the valuation in order to win the IPO mandate and all the fees that come with it. They then run into the awkward step of walking back that number to something that the market might accept. [1]: https://www.bloomberg.com/opinion/articles/2019-09-09/we-might-not-be-working#wewhoosh https://www.bloomberg.com/opinion/articles/2019-09-09/we-mig...

jiofih 7y ago

My first thought was related to this: hhow is it possible that one moment the company is ready for an IPO, with all the due diligence that comes with it and backing of financial giants, and then next month be desperate for cash? Isn’t there some sort of fraud going on in this situation?

jartelt 7y ago
The company believed it was ready for an IPO, but all the potential IPO investors disagreed after reading the S-1 and doing some diligence. In a sense the system worked well in that regard. The big issue was with the private investors letting the CEO do whatever he wanted and pushing the valuation up very high.
mistymountains 7y ago
It's clear that investment banks are incentivized to maximally value a company. Valuing a company is pretty simple, in that you can tweak certain values in, say cash flow analyses and depreciation projections to literally make billions of dollars appear on paper. They have complete deniability in that, at whatever moment, their proprietary analyses and due diligence appears in a prospectus that public markets are supposed to just trust in good faith. That way, when the banks capture the spread on an IPO (difference in price guaranteed to a firm vs IPO price), the banks can offload shares en masse to investors and gain the spread, only paying capital gains taxes. It's pretty much theft, unless you are a very very early investor, to sell stock in something like WeWork as an investment bank. Financial giants aren't like other companies. If they don't make deals every single day, they will die. They have no product, nothing to offer that improves and compounds upon previous products (save, perhaps, for algorithmic trading software). Are we really surprised that this bloated corpse of an industry known for churn, extreme burnout, and grift would overvalue an IPO when it serves them?
dehrmann 7y ago
> how is it possible that one moment the company is ready for an IPO...and then next month be desperate for cash? An IPO is fundamentally a fundraising event, so it makes some sense. The harder question would be why is some successful, well-funded company looking do dilute shareholders for even more funding.

btmills 7y ago

Matt Levine at Bloomberg had an excellent explanation of the dynamics at play in his newsletter recently [1]. The bankers are incentivized to inflate the valuation in order to win the IPO mandate and all the fees that come with it. They then run into the awkward step of walking back that number to something that the market might accept. [1]: https://www.bloomberg.com/opinion/articles/2019-09-09/we-might-not-be-working#wewhoosh https://www.bloomberg.com/opinion/articles/2019-09-09/we-mig...