What Companies Going Public Can Learn from WeWork’s IPO Disaster

By November 7, 2019 Corporates
What Companies Going Public Can Learn from WeWork's IPO Disaster

Depending on how you look at it, WeWork’s botched IPO was a brutal failure… and a resounding success.

No, it’s not some quantum paradox nor a case of Schrödinger’s Listing.

There’s no question that WeWork should never have tried going public in its current state. The predicament forced its major investor to own up to a big miscalculation after SoftBank reported a quarterly loss of US$8.9 billion – a loss that Insight Provider Kirk Boodry highlighted in a recent Insight.

At the same time, as NYU professor Scott Galloway pointed out on the Pivot podcast, the whole debacle is a triumph for capital markets regulation and public disclosure requirements.

Another good thing comes out of this whole situation: Much like the Titanic shipwreck, WeWork’s mighty fall serves as a warning to other companies sailing the IPO waters. Here be icebergs, so you’d better plot your course carefully.

Read Kirk Boodry’s full Insight: Softbank G: We Company Deal Is Wrong on so Many Levels

Clear View

The (already well-documented) fall from grace did not happen overnight, or in a vacuum. It was the result of several problems piling up and finally spilling over. But it was the S-1 disclosures that brought everything to light and opened the company up to scrutiny.

Since private companies aren’t subject to the same disclosures as public ones, it’s hard for outside analysts and investors to have a clear idea of their inner workings. 

In fact, this suits some private company founders and executives just fine. Even if you don’t have WeWork’s severe governance problems, disclosure obligations and being accountable to shareholders might be a distraction for some company heads.

But here’s the thing: If your company is on its way to the public markets, you can’t just batten down the hatches and ask everyone to take you at face value. You need objective third parties who can spread the word about your company – especially if you’re a smaller cap without a universal brand. 

This includes analysts who write about your company because they genuinely found positives there, and investors who are interested in supporting your journey because they are confident that your success can be beneficial to all parties involved.

Being available to answer questions, set the record straight, and take control of the narrative around your company can be a powerful tool leading up to your IPO.

House in Order

For transparency to work in your favour, you must have all your ducks in a row. Ideally, those ducks must be nicely lined-up and single-file by the time you go to IPO, and not all over the pond and sometimes underwater, as WeWork’s ducks were. 

But what this overlong duck metaphor means to say is, it’s never too early to work on your governance. Few companies will have the near-parody-level problems of WeWork, but that’s no excuse for shaky management structures, weird debt situations, and unhealthy workplace cultures.

This is especially important since the WeWork wreck could make investors think twice before going into the next fancy big thing. Speaking on online video outlet Cheddar (as spotted by IR Magazine), Jason Paltrowitz, director of OTC Markets, predicted that investors will dig deeper into companies in the coming year. 

“Investors are really looking below the surface to see what is profitable, what the ownership is doing in a company, and what its plans are for growth and for revenue and for getting to profitability,” he said. “You don’t necessarily have to be profitable, but you have to have a clear plan toward profitability.”

The question of whether to even go public at all, or go public through a direct listing (as per the latest trends) is also something to keep in mind.

Read our blog: The Direct Listing Has Shaken Up Public Markets. What’s Next?

As more private companies have better access to funding, raising extra capital might not be as strong an incentive for them to go public. But the transparency and discipline, not to mention the legitimacy, the public markets bring can make all the difference, especially for small- and mid-cap companies. 

So even as WeWork is going through a major crisis of its own making, there is no reason why others can’t learn from its mistakes. It’s an ill wind that blows nobody any good, as they say.

What if there was a network where companies could be connected to analysts and investors and were able to publish and share news and information about themselves? Luckily, there is! Learn more about how Smartkarma helps you do just that – sign up for a FREE account on Smartkarma’s Corporate Solutions, a brand-new range of services for C-Suite and Investor Relations personnel of listed companies that’s been designed to help IR professionals establish and maintain valuable connections to the investment and analyst communities.

Lead image by Eloise Ambursley on Unsplash

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