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Really, We do.
Oh you know, just another quiet week at The We Company:
WeWork Mulls Governance Changes To Save IPO (Bloomberg, Sept. 11)
WeWork considers IPO valuation of as low as $10 billion (Reuters, Sept. 13)
WeWork loan modified to reduce lender risk ahead of IPO (Reuters, Sept. 13)
WeWork to launch IPO roadshow as soon as Tuesday (New York Post, Sept. 16)
WeWork’s top communications executives are jumping ship as the company struggles to go public (Business Insider, later on Sept. 16)
WeWork Parent Expected to Postpone IPO (WSJ, later still on Sept. 16)
We is in the business of elevating consciousness, but lately the collective consciousness may have been elevated above its liking. Investors are unhappy with how much control Adam Neumann (“Adam”) has over the company and all his weird financial entanglements with the firm. For once they seem perturbed at the idea that a company losing billions of dollars might expect the market to just hand it several more billions to lose (“invest”) to keep the growth story alive. People are not having it! “We is now expected to wait until mid-October at the earliest to start its investor roadshow following the conclusion of the Jewish High Holidays, which Mr. Neumann observes,” reports the Wall Street Journal, adding that “some existing investors, including SoftBank, have pushed the company to wait until next year to launch its IPO.”
We postponing its IPO caps a year of spectacular comedowns for once-buzzy tech startups. By far the best performer of the year has been Beyond Meat, which isn’t even a tech company but gets valued and grouped in with them so often that I put it into the list for consideration. Next is Zoom, which you might recall was actually profitable at the time of its IPO. Uber and Lyft aren’t doing so hot. SmileDirectClub, another company that is not really a tech company but somehow ended up being treated like one, debuted last week with one of the worst first days of trading for a major IPO this century.
It has not been a good 2019. And yet, WeWork still wants to go public, probably needs to go public, because, well, money. Late last year, WeWork and Softbank were in talks to have Softbank pump $15 billion to $20 billion into WeWork, taking a majority stake in the business. Then, in January, Softbank scrapped that plan after pushback from Saudi Arabia’s Public Investment Fund and Abu Dhabi’s Mubadala Investment Co., the two main backers of its $100 billion Vision Fund. WeWork got a couple more billion from Softbank and a new identity as The We Company (which, side note, cost it $5.9 million in fees to Adam that he recently returned) but that was a lot less than it had bargained for. It had aimed to raise $3-4 billion in an IPO, plus a related $6 billion line of credit.
We had about $2.5 billion of cash as of June 30. In the first half of the year, its cash from financing was $3.4 billion, it spent $2.4 billion on investing activities, and its cash from operations came in at negative $199 million. In other words, We raised $3.4 billion in cash and spent it mostly on investments like leasehold improvements (new paint job, nicer lighting), security deposits with landlords, and “strategic investments” and acquisitions, like buying the flagship Lord & Taylor building.
If We turned off all those investments and just ran its operations at their current pace, it would have about 6 years of cash left. If it continued at current expenditure rates without raising additional capital, it would have less than a year from June 30. Adam Neumann, a man with wild hair and wilder ideas, is used to tossing back tequila shots and collecting fat checks. But where can We go for cash now? Not the public markets. Not the junk bond market. Maybe not even Softbank.
Elsewhere in the WeWorld:
There is something beautiful about a company literally getting locked out of its WeWork office by something as silly as umbrella at the same time that We has been effectively locked out of its IPO by many things that seemed silly until they became quite serious. The umbrella situation was reportedly resolved a few days later after WeWork, feeling “the heat,” dispatched an engineer to drill a hole in the ceiling and feed a wire down. Here is the account as told by Mike Ponticelli, the man whose umbrella locked the office:
That day, WeWork brought in an engineer who specialized in getting in closed offices. The engineer tried the exact same things we did—jiggle the handle, tried to stick their fingers inside the crease. The engineer said this was beyond his pay grade and we were told there was an elusive, super engineer, that’s very rare and takes days to schedule. WeWork said it would be quite expensive, and that this was all beyond anything anyone had ever seen before.
…Tuesday evening, around 6pm, someone cut through the floor of the fifth floor and into our fourth floor office. Then they used a bit of wire to pry loose the umbrella. There’s still a hole in the ceiling now, about the size of a gherkin.
Incidentally, “quite expensive and beyond anything anyone had ever seen before” would also be a good tagline for WeWork’s IPO.
Investors are cooling on micromobility tech, according to the latest data from PitchBook. The sector, which includes shared e-scooters and bikes, has raised $795 million from investors in the current quarter across 7 deals and $1.3 billion so far this year across 33 deals. That’s compared to $4.8 billion in the first three quarters of 2018 over 48 deals, a decrease of about 73% in dollar terms. Part of the reason for the drop is that there haven’t been any “mega” deals to scooter companies recently, versus 2018 when Bird and Lime raised $385 million combined in the first half of the year. Bird’s June 2018 $150 million funding round made it then the fastest company ever to become a unicorn.
The drop in financing suggests investors may have grown warier of the scooter proposition, after the off-the-shelf consumer scooters many companies initially rolled out turned out to have short lives and poor economics. Bird, which started out with rebranded Xiaomi devices, posted a $100 million loss in the first quarter of this year, which its CEO attributed to a “one-time accounting write-off from old retail scooters.” Companies are now designing better, more durable scooters for shared use, something investors probably want to see before handing over too much more money.
On a related note, I will be at the Micromobility Europe conference in Berlin on Oct. 1, and probably the day before too, moderating a panel on “Capital for Micromobility.” It will be a good time. If you will also be in Berlin, let me know! We can grab a drink or ride some scooters, but probably not both, because, well, that ends badly.
The gig is up.
California governor Gavin Newsom yesterday signed AB5, rewriting state employment law and the rules of the gig economy:
SACRAMENTO — California businesses will soon face new limits in their use of independent contractors under a closely watched proposal signed into law by Gov. Gavin Newsom on Wednesday, a decision praised by organized labor but unlikely to quell a growing debate over the rules and nature of work in the 21st century economy.Newsom, who signed Assembly Bill 5 in a private ceremony in his state Capitol office, had already committed to embracing the new law. Legislators gave final approval to the sweeping new employment rules before adjourning for the year last week.
The lawsuits are already rolling in. An Uber driver sued Uber in a proposed class action for misclassifying drivers as contractors. San Diego’s city attorney sued grocery delivery company Instacart for misclassifying shoppers as contractors.
As I said before, the huge unanswered question is what will actually happen to companies if their workers are found to be employees, and not contractors, under the new law. Fortunately in the delivery space we already have an idea: there are several delivery companies that operate with employees, including global parcel giant UPS and package-delivery startup Deliv, which made the switch from contractors just last month. You can read all about it in my Quartz story, but here is the key point:
Companies that rely on contractors have different concerns from those that rely on employees. In the contractor model, the main concern is the supply of workers. Companies need a big labor pool to draw from because, as contractors, workers are free to turn down jobs. Contractors get paid per delivery, which gives them an incentive to get more done (provided it’s ultimately worth their time). With employees, efficiency is the most important metric, because they earn an hourly rate regardless of how many deliveries they do. It’s up to the company to make sure employees are productive enough to make the hourly wage it pays them worth it.
The result is that, as Uber and others have warned, companies with employees do tend to exercise more control over their workers than those that hire contractors. Efficiency, usually measured in deliveries per hour, is everything. As Adam Price, CEO of delivery company Waitr, put it: “To reap the benefits of employees, you have to exert all the control.”
Uber raising $750 million in debt to fund Careem acquisition. Airbnb plans IPO for 2020. Airbnb says second-quarter revenue topped $1 billion. New York stands between Airbnb and an IPO. Uber to take seven floors at World Trade Center. Uber lays off 435 people. Postmates backs California commercial property tax reform. Denver a testing ground for Uber, Lyft. Grab weighs payments merger to compete with Gojek. Mercedes-Benz enters the scooter market. MoviePass shutting down, for good this time. Uber pulls Jump bikes from Atlanta and San Diego. Lyft raises scooter prices. Spanish city cracking down on scooters. Ditto Sweden. Drunk scooter rider rushed to hospital after crashing into police officer. Suspected bomb threat turns out to be scooter battery. Brooklyn restaurant has no chef, no trash. No-deal Brexit sandwiches. Silicon Valley’s Worst Nightmare Is Ready for Her Next Act.
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