I'm not saying I agree with this, but it's an interesting theory. It seems pretty obvious that this sometimes happens, as evidenced by Softbank and WeWork, the question is how pervasive is this mentality?
I guess I should probably attempt to answer my own question and analyze how many VC firms hold onto stock after the company goes public, although that will only provide data for late stage investors.
The $47 IPO crash is not a matter of accounting fraud, rather, a failure to project when the hype train would end.
The thing is there's incredibly leverage in some of these plays - they require funding for each successive step - if they don't get it, then even a spectacular business can 'crash'.
Like a rocket to the moon, each stage needs more fuel until it's 'in orbit' and without that even a 'great mission' can crash.
You could argue they could have conserved their dollars etc. but then they would just be some small, local business.
So the 'game' being played is/was all around what future of the business will materially look like. Because there's so much grey area in it, it's ripe for shenanigans but on the other hand, most fast flyers will look something like that.
My bet is that the rocket fuel for WW stops at stage 4 instead of stage 5 and they never really had a plan for 'orbit' (i.e. normalized profitability) so it's going to be a painful down-ratchet, but it will be turned into a normal company.
Paradoxically - we can't write off out important the hype was for inspiring people into their work. That inspiration was maybe poorly derived, but it was not fake. Rebecca Newman was apparently head designer and most of the aesthetic was probably her vision. Those things are not easily reproduced in a board room: without leadership that understands design, branding, such elements of marketing - it will crash due to a kind of ignorant negligence of a key part of the appeal. Maybe they should have kept her. Even the possibly money-loosing 'elementary school' is part of their brand vision without which they might have even more trouble getting the buzz and premium.
>"As part of the deal, SoftBank, which already owns about a third of the company, is to buy nearly $1 billion of stock in WeWork’s parent from Mr. Neumann, who was forced out as chief executive after pushback from prospective investors scuttled the IPO. The Japanese conglomerate will also extend him roughly $500 million in credit to help repay a loan facility of the same amount led by JPMorgan, and also pay Mr. Neumann a $185 million consulting fee, the people said."[1]
A $185 million dollar consulting fee?
To put some perspective on this level of greed:
All of this is on top of the $700 million that Adan Neumann cashed out back in July ahead of the IPO announcement.[2]
The credit line not withstanding Adam Neumann now has $2 billion dollars in cash in his pocket while WeWork's valuation is now $8 billion and in need of emergency financing.
Adam Neumann has spent 90 million dollars on 6 properties 4 of them are in New York, 2 of them are actually short walking distance from each other in Manhattan.
[1] https://www.wsj.com/articles/softbank-to-take-control-of-wew...
[2] https://www.wsj.com/articles/wework-co-founder-has-cashed-ou...
[3] https://www.wsj.com/articles/wework-founder-adam-neumanns-tr...
The whole side deal on bailing out Adam on his mega personal loans with the banks is interesting. Reporting suggests he effectively defaulted on those loans based on previous developments with We but banks gave him some time to sort things out before calling in the loans.
This whole thing is going to make for an interesting book when the dust settles.
