The saga of WeWork is the stuff of hubris – a financial folly built upon a hope and a dream, financed by a mountain of debt.
Once a Google-esque darling of the hyper-hipster Technorati, the office sharing wunderkind saw its valuation tumble from $47 billion to $10 billion to whether it is even viable in the span of a few short months.
According to Market Insider,
[WeWork] had $4 billion in future lease commitments from customers as of June 30, less than a tenth of its $47.2 billion in future lease obligations to its landlords, according to its IPO filing. Its annual revenue is only $1.8 billion. That imbalance could leave it in a bind if revenues drop off and bills start to pile up.
But the fall-out from WeWork may have reached far beyond its many four walls.
According to a detailed analysis from PitchBook, a leading repository of all things venture capital and private equity related, in what appears to be the wake of the WeWork fiasco, the valuations of many high-flying VC backed companies have toppled. See chart below.
The article goes on to say,
Maybe [these declines are] just a coincidence. But there’s reason to believe that WeWork’s incredible collapse has already begun causing investors to reconsider the way they think about the financials of loss-making unicorns [emphasis added]. Even if slipping stock prices are due more to each company’s own individual financial metrics, the WeWork saga has changed the context in which public investors view those metrics. In the post-Neumann era [WeWork’s now-ousted founder], there may be a new level of skepticism baked into the valuations of companies betting on their ability to generate exponential growth in the future.
So, are we about to enter a post-unicorn environment? An environment where, you know, valuation isn’t based upon a multiple of losses?
Well, probably about as likely as Marvel pumping out British costume dramas.
One only need remember that we’ve been down this road before. Remember 2001? Pets.com?
The half-life of Wall Street’s institutional memory is only marginally longer than the full-life of a mayfly.
The unicorns may catch a cold, but they’ll live.
Another WeWork is on the horizon.
But maybe, maybe, the street may think twice about beatifying yet another T-shirt clad no-profit-prophet.
At least that’s something.