WeWork's aborted IPO may mark the end of the current "unicorn" bubble as the merged merger between Yahoo and eBay signaled the start of the dotcom crash in 2000. After becoming CEO of Nasdaq in 2003, I saw up close the damage caused by the growth-over-profit philosophy of the earlier era, and WeWork's spectacular fall – from this year's most anticipated IPO to a speculative credit rating company that could run out of funds over a year – gives many watches.
Back in the late 1990s, boasted by the technical director of innovative user interfaces, millions of eyeballs and empowered cultures; what they lacked were business models that could deliver shareholder returns. Similarly, WeWork has added a flashy "user interface" to an everyday activity ̵[ads1]1; office rental in sub-letting – and wrapped itself in the world of improvement and community jargon to cover a business vision that lacks basic credibility.
Need more parallels? Consider:
In the late 1990s, venture capital firms competed to shower dotcoms with millions based on little more than a three-page business overview. The resulting valuations had little correlation with realistic expectations of returns. Today, large private equity and venture funds are chasing a limited amount of investment opportunities, but their efforts have ballooned to billions. SoftWank, WeWork's top investor, has plowed more than $ 10 billion into the company, which fits well into its model to put a quick scale on profits. WeWork, which lost $ 4.2 billion since 2016 but boasts 200% plus "member" growth at that time, could be a poster for SoftBank's philosophy. As now deposed WeWork CEO Adam Neumann told Forbes in a 2017 profile, "Our appreciation and size today is much more based on our energy and spirituality than it is on a multitude of revenue."
"We want to change the consciousness of the world," proclaimed Neumann in WeWork's IPO filing. This goal would seem like a stretch for a company that congregates shared workspaces, but Neumann seems blind to hubris. WeWork has dared to transform everything from education (with a startup aimed at unleashing children's "superpowers" by teaching them entrepreneurship and farming) to homes (through cohabiting apartments) to diet (the company banned meat from the office menus) to, perhaps more modestly, surfing (investing in artificial wave company Wavegarden).
Governance is for saps
As ESG (environmental, social and corporate governance) investments gain prominence, the focus tends to fall on sustainable practices on "E" and "S" fronts. WeWork shows why "G" is the most important element of that formula: good governance cannot guarantee a superior return, but poor governance guarantees pretty much disaster. In recent months, a litanium with control no. From the CEO as the company's landlord by renting the properties he owns to putting friends and family in leadership positions. But no one rates more than the board agreeing to pay Neumann's personal company nearly $ 6 million for the "We" brand – hardly a new term.
Ho-hum in sexy packaging
In the dotcom era, startups got tremendous value judgments by just adding ".com" in one product category. WeWork has also not invented anything. That's not even the first thing: Belgium's IWG (formerly Regus) has been in the same business for decades. Unlike Airbnb or Uber, which introduced truly innovative businesses, WeWork became a unicorn by packing a regular offering in fancy decor and language. Its trademark Physical Social Network is known to the rest of us as … a workplace. Even office equipment goes back to the early 90s culture, featuring arcade games, ice skating, and couch sofas.
Unsustainable business model
Perhaps the biggest parallel to the Internet bubble is the lack of a business model that makes sense. WeWork essentially signs long-term leases and leases space for shorter periods at higher prices. If the values for commercial real estate decline or the expected recession finally hits, this model may collapse. As billionaire real estate investor Sam Zell recently told CNBC: "They should have just changed the name of the company to & # 39; savings & loans. & # 39; That's really what you're talking about, creating long-term debt and short-term assets. the story when they create it, the results are predictable. Why is this any different? "
I hope the market's decisive rejection of the WeWork story marks new skepticism for today's unicorns. If you are profitable and growing, WeWork's fate will not affect your value. If you have a clear path to profitability, this will be a miss. But if you lose billions endlessly on the site, the opportunity window has closed. So try to get an invitation to WeWorks bash that opens European headquarters – and party like it's 1999.
Robert Greifeld is one of the founders of Cornerstone Investment Capital LLC and chairman of Virtu Financial, Inc. Author of MARKET MOVER: Lessons from a Decade of Change at Nasdaq (Grand Central Publishing, October 8), he previously served as CEO of Nasdaq from 2003 to 2016, and Chairman of Nasdaq Stock Market LLC ("Nasdaq") until May 10 2017.