Bleeding Edge

As I had told you that it would happen this week, WeWork’s CEO Adam Neumann ceded his role as CEO of WeWork’s parent company yesterday on Tuesday and exited the company…

Yet, in a show of non-remorse, he will remain as the non-executive chairman of the board of WeWork, or rather its parent company the “We” company, that now is commonly called the “Wee-wee” company.

“Stifler” Neumann’s exit is seen as one of the many and much needed steps towards redemption of WeWork, if the company has got any chance of proceeding as an ongoing concern, but it seems that the better informed amongst us, tell me that the Neumann plan is to wind down the company and place it under the bankruptcy court’s protection, in order to be able to quietly erase the record of corruption, fraud, infidelity and malfeasance that this shit-show of a company has produced.

Because it would appear that the WeWork book of wrongs is far larger than the one that the secretive and sexy Theranos founder Ms Holmes ever dared to imagine…

So Adam Neumann’s  reshuffling and recycling himself into a senior position amid a continuation of the toxic culture of WeWork, may prove sufficient grounds for the launching of an SEC investigation and an Attorney General referral, because by now, all of WeWork’s investors have been burned, hosed and fleeced, in a show of criminal intent in defrauding investors by jacking-up the company’s core business and promoting stratospheric valuations, that are known to be false.

Because Adam Neumann and all of the WeWork leadership and it advisors, and underwriters at Goldman Sachs, knew all along that t rose real valuation of WeWork, was always less than a $ Billion USD since it’s much larger and publicly traded competitor Regus International, is valued roughly at $2,3 Billion dollars and is a far larger company in terms of income, profits, and in the real estate it controls than WeWork could ever be.

So after all is said and done, it would appear that some errant WeWork folks are going to be going to jail, but that will not be subject of the news for quite a while still, and the pundits will have a jolly good time comparing the Theranos meltdown with WeWork’s meltdown and the two founders, Ms Holmes and Mr Neumann, in a competition to the end, in order to prove who was the most corrupt amongst the two scofflaw CEOs.

Still the much ballyhooed corrupt WeWork IPO meltdown, never stopped a good party from blowing up, like the massive rave WeWork is hosting in London, after its current IPO collapse.

It would seem that WeWork sticks with its reputation for drug addled executives, a raving mad CEO full of ecstasy and LSD, regular vodka thrusts, tequila torpedoes, and gin infused strawberries with whipped cream partying, free beer for all in all of its co-working spaces, available especially for the underage geeks and their friends, and a general mood of soaking the investors with a wet T-shirt after wasting their money on frivolities.

So it is not out of place that while the Titanic asshat of a company is rapidly sinking having hit the iceberg of reality, yet the massive machine of celebrating failure is still chugging along, as evidenced of WeWork’s drunken launch party for its new European headquarters in London’s Waterloo district.

Because it is here in far away London, where 500 WeWork staff have been invited to mark the opening of what the company bills as the largest co-working space in the world, in a glitzy rave hidden in plain sight as a private affair…

The Titanic is going down and the band is playing on while staff rearranges the deck chairs as on this celebratory hedonistic extravaganza that will please all of the investors to hear that it will burn plenty of cash for a free open bar for all and drugs aplenty with live music running into the wee hours of the morning.

Barely a day since WeWork’s drunken founder Adam Neumann was forced out as Chief Executive amid vivid accounts of his hard drinking and harder partying deceptive management style and grievous concerns about the complete lack of corporate governance, his interim replacements have been continuing the party culture, while pretending to be bringing about slowly-slowly, the much needed adult managerial oversight for the company, in an attempt to keep the heavy losers, whom they call “investors” from bolting.

Of course it was these “losers” who masquerade as serious investors like Soft Bank’s CEO, who finally woke up from their alcohol and drug fuelled party stupor, and balked at WeWork’s losses and its toxic drug culture, and decided to kick out the errant to the point of criminality founder/CEO, slash the valuation of their investment in WeWork, scupper all plans for an initial public offering, incur all the giant multibillion dollar loses in their balance sheets, write off this company as a soon to be bankrupt startup, embrace the porcelain throne while vomiting bile for the remainder of the season, and keep on nursing a giant hangover headache for the foreseeable future…

Of course nothing stops a good party and therefore the London party will go on, at the building located on number 2 Southbank Place, where most of WeWork’s London staff are based, alongside customers including HSBC Holdings Plc, which rents more than 1,000 desks. The building, also known as 10 York Road, boasts a skate ramp, retro arcade games, basketball hoop, a live DJ and bed-shaped couches with blankets, and a hundred stall toilet, where the investors are provided with their own hopper to vomit into for the duration.

This Marie Antoinette moment of stupidity, simply shows how the public investors of WeWork are getting fleeced, as congresswoman Alexandria Ocasio-Cortez (Dem.-NY) exclaimed during an hearing of the U.S. House of Representatives Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets on September 11, 2019.

Indeed the comment of this Congressperson, was part of one of several interesting exchanges between lawmakers and a panel of experts, comprised of three academics, one securities regulator, and an attorney in private practice.

The thrust of the hearing was the negative impact that the ballooning private equity market is having on the dramatically shrinking pool of publicly traded stocks and the good of society in general.” Renee Jones of Boston College testified that there are half as many public companies in the U.S. today as there was a decade ago, and the number of public offerings was less than in the past. And that last year, there was twice as much equity capital raised in the private offerings as in the public ones.

Explanations for this trend are largely speculative because there is little data available on private equity transactions. That said, the panelists believed regulatory changes caused the private equity market to swell in recent years.

For example, the number of shareholders a company may have before it is subject to the disclosure requirements for a public company is now 2,000—it used to be 500. Another reason is that revisions to Rule 144 made it easier for stock in a private company to be resold—this provides a degree of liquidity to a company’s employees and private investors, easing the pressure they exert to go public.

Reasons for fewer IPOs were also discussed in this congressional meeting, but soon enough it became apparent that the present day abundance of liquidity and private money sloshing around looking for a place to “hide” from the negative interest rates governments promote everywhere — is another key factor of the false prophets of  WeWork’s StarUp propensity to malfeasance, carelessness with honest & transparent reporting, and downright criminal intent to defraud and steal investor’s money.

Another issue is that companies feel that the emphasis on public markets with quarterly results reporting, and the cost to comply with reporting requirements, do not benefit their businesses at the earliest stage, and they use that tired trope to hide their malfeasance behind. Because indeed, for small companies, the cost of a Rule CF (crowdfunding) offering — which is limited to about $1 million dollars, still represents a significant proportion of the sought-after proceeds, and it must be paid before a company knows if it can sell its offering.

Of course the topic of “StartUp Valuations” was discussed several times, because naturally, this topic is of particular interest to all investors such as yours truly, and most all of you, because it’s all about how we built great Companies out of simple StartUps who all they have is a wing and a prayer, and yet they are expected to fly all around the world.

So maybe we ought to institute “StartUp Valuations” that are performance based, and keep those as the main capital structure for venture capital backed IPOs that are now simply horse shows for Public Offerings by the Big Investment Banks.

Am suggesting this methodology for StartUp IPOs, because there is an endemic and rather systemic unfairness in the IPO market, where the Big Banks, and their preferred private investors such as SoftBank, routinely secure “price protection” when they invest, but all the subsequent IPO investors never get it, nor do they get informed of the price levels of it.

This obvious favoritism and the biased application of it’s pre-IPO price protection, is a big secret kept far away from the regular investors, since it describes the dirty dealing, deal terms that can retroactively reduce the Bank’s and the Institutional investor’s buy-in valuation, in order to deliver a higher rate of return.

And since public investors buy-in at a far higher valuation than the Banks and their Institutional “private investors” counterparts — they get hosed a second time, with a double dose of valuation risk, because they buy-in at a higher valuation, and they are obviously not even given a whiff of a safety net.

In the congressional hearings, representative Ocasio-Cortez brought up the parent company of WeWork which reportedly was valued at $47 billion in January 2019, when a private round of financing took place. At the time of the hearing, its potential IPO valuation was in freefall, due to concerns about the drug and alcohol culture within the company, its business model, the potential for the founder/CEO Adam Neumann and his spouse to control the company, and evidence that he had engaged in numerous and massive self-dealing transactions behind the scenes, such as renting his own buildings to the company, selling stock at the top of the market knowing that the company was going to go in freewill, siphoning off cash and other extreme instance of plundering the WeWork kitty, just before the world found out about his imminent ouster…

Naturally Representative Ocasio-Cortez waved a news article about WeWork and she said: “WeWork had raised Venture money on a previous valuation of $47 billion. And now they just decided overnight — we were just kidding — we are worth only $20 billion. They’ve cut it by over half. Correct?”

Little did she know that real life valuation events, indicated that the Congresswoman from New York, was even more right than herself could have imagined, if she had succeeded in getting fresh data from Wall Street for her mathematical calculations to be accurate

Because unbeknownst to her, Goldman Sachs, the underwriter for WeWork, eyed an even lower IPO valuation, at around or even bellow the $10 billion high water mark, which represents only a fifth of what it had been just a few weeks earlier!

Of course as expected there is no rest for the wicked and the hangover suffering investors got another jolt, after the WeWork company’s announcement that it would postpone its IPO altogether and indefinitely. Read: WeWork IPO scuppered.

To continue the saga, early next week, WeWork announced that Neumann would no longer be its CEO, trying to save face for SoftBank’s drunken spree and culpability on this dog & pony show, or rather SoftBanks enablement of the massive WeWork Ponzi scheme, that is worthy of Bernie Madoff…

A Ponzi scheme it was because apparently, all those investment committees of SoftBank, and its pocket size Napoleon-complexed SoftBank CEO, Masayoshi Son, whose venture accountants and suspender wearing Goldman Sachs eager beaver, banker-wankers, and boot lickers, evaluating WeWork’s balance sheet and peculiar business model — must have sensed higher-than-expected failure risks, and ought to have warned investors due to their fiduciary responsibility, seeing all the reasons to doubt the company’s fabricated reports, or it’s CEO’s promises that it could achieve the stratospheric performance goals that it continuously promised.

Yet, it was right then, that many institutional investors were being asked to buy in at a very high valuation, because SoftBank had bought it at those marks, and thus Goldman’s pushed WeWork and presented it as if it had zero, or very little valuation risk for it’s upcoming IPO.

Smells like a RICO conspiracy to me… SoftBank and Masayoshi Son, in bed with Neuman and the minions of Goldman Sachs, all conspiring to fleece the investors and the public as Congressperson Occasion-Cortez so elegantly put it.

Maybe the SEC can throw a couple of its lapdog investigators into this inquiry in order to make some sense out of it and maybe, just maybe apportion some blame to the greedy POS that once again bested Bernie Maddoff in the Ponzi scheme game, thinking that they will always find a greater fool to sell their rubbish shares to…

Well, it now seems that they run out of greater fools, or simpletons, and just old plain fools, as it is.

Because when other companies start on the IPO path, and choose to “go public” using the type of super-voting shares for it’s CEO founder, of the type that WeWork had created, along with other toxic aspects of its governance, and culture — all of these dirty moves provide another reason for investors to pass. And as cracks in WeWork’s “valuation dam” appeared, the concerns grew and the “pumped-up-pre-IPO-value” poured out.

WeWork’s governance concerns were never addressed so it is obvious that any new management will find it harder to re-engineer the business model before it refiles for an IPO — if that is even possible now that the SEC will launch it’s investigations into the Ponzi scheme.

But given the stupidity and unethical drug & alcohol culture prevalent, within all of WeWork’s executive rank and file, it is almost a certainty that they will try for an IPO again and quite soon, because Goldman Sachs wants it’s shares to be unloaded and it craves for commissions, same as all of the other bankers involved…

Additionally, WeWork regardless of all the now deflated hype is still a venture stage company, and as such — it still requires humongous fresh infusions of capital in order to simply survive.

Yet, as the last venture financing barely squeezed through in January — in what was its eighth private round — after this IPO debacle unfolded, it became quite apparent that WeWork will not be able to attract any more private rounds of finance at any valuation. Now it is obvious that their shares are toxic and therefore, only a full scale bankruptcy, and a nice “long term government owned hotel room” for the corrupt founders and their banker wanker friends, courtesy of the SEC & of the Federal government, might set the record straight.

Because justice must be served and netted out appropriately so that we keep the public markets liquid and clean, in order that they will continue to serve public and private companies and individual as well as institutional investors best they can, in an environment, clean of corruption and self dealing.

However the alcoholic drug addicts masquerading as line executives at the helm of WeWork, still think that they can ride the wave to an IPO, because obviously the general market always offers the best prospect for an attractive exit for private shareholders, hoping to find many more fools amongst the millions of American and International small time shareholders who might be fooled into believing the hype of a simple real estate leasing company that masquerades as a technology company trying to fool the world into believing their shitte.

And that is the big story here: A bunch of hucksters, rip-off artists, and Ponzi scheme scammers, operating WeWork, have found their brethren inside Goldman Sachs and SoftBank’s and that enabling relationship, illustrates the bigger problem with capital market-makers and the Big Bank forces of Evil, that are never honest enough to resist the banality of evil amongst their ranks and thus cause a clear disservice to the average investor — big or small.

And since unlike many areas of commerce, during the pre-IPO process and especially during the “quiet period” and obviously during the IPO itself, companies don’t compete for investors by offering lower valuations and/or better deal terms, since any valuation disclosure requirement is voluntary — public investors routinely get hosed, fleeced, or at the very least, get a lousy deal whenever they invest in an IPO of a public startup.

In conclusion, all StartUp venture stage investors, private and public, assume a far greater risk than the banker-Wankers, and suffer from a far greater exposure to the two basic risks of StartUps on the IPO track; “failure risk” and “StartUp valuation risk.”

In WeWork’s case, since fraud is not a unique form of risk, it is classified as “failure risk” and the “valuation risk” is what comes when the data room is garnished with false and/or misleading disclosures, and through lack of transparency, the company engages in plain fraud & theft, by omission of disclosures of relevant information — the prosecuting attorney of lower Manhattan in New York, should step in with a special investigation immediately.

Although “failure risk” is when a company does not achieve the operational goals that investors anticipate, in the WeWork case the company knowingly offered fraudulent projections, that a simple due diligence could have helped investors assess it, and accordingly estimate the valuation of the company independently. Therefore it is with WeWork that failure risk is omnipresent.

Still as all private investors in the failed unicorn, Theranos, learned the hard way — they themselves are responsible to know all that and since they had conducted notably poor due diligence — same as in the WeWork case, they did not discover that the company’s technology was grossly unable to perform as the founder/CEO claimed, thus they also badly misjudged its valuation, and as a result they lost everything.

Talk about getting tossed… hosed, & fleeced, in a big way.

Because valuation risk is the risk of overpaying for a position, and one cannot overpay for a company that has no failure risk, but customarily overpays for the pigs like WeWork that have got a lot of “rouge” on the cheeks and plenty of red lipstick from all the kisses of the banker-wankers of Goldman Sachs and from the rest of the soy boys of SoftBank and beyond…

And since the fundamental problem is that it is difficult to perform due diligence on the valuation of a venture-stage company. In part, it’s because it is hard to get valuation data on comparable private companies. But the most significant reason is that no one knows how to reliably value a venture-stage company, and that’s because such an endeavor relies on datasets, on analysis, and on wildly optimistic projections that are usually really rally wrong.

Take the hockey stick curve of financial projections of all startups as an example…

For that reason, sophisticated private investors rely more on getting the right deal terms, than on getting the right valuation. Such deal terms provide price protection, often is ways that are unclear to entrepreneurs who are happy about the apparent valuation they got.

Indeed the late stage venture investors in WeWork’s January of 2019 last financing, will benefit from a deal term known as a price ratchet, which “could give them $400 million worth of additional shares (for free) in the event of a weak IPO performance. This is expected to be the biggest of that type of protection in history if and when the start-up goes public, although the prospect of that IPO for WeWork happening, is now null and void, because I hear that the Feds and the SEC along with the lower Manhattan prosecuting attorney are looking into this company’s malfeasance with a magnifying glass…

Yet, if we wanted to hypothetically consider the route of WeWork’s IPO as still unblocked, it would appear that all the last venture finance investors in the deal of January 2019, were satisfied with its business model, untroubled by corporate governance issues, and willing to accept a unicorn valuation of $47 billion because they believed that public investors would soon accept an even higher valuation so long as they received price protection. And that assumption will come back to bite them in the ass, as the lawsuits that have already started flying, indicate — once the people involved awoke to the light of dawn after the party ended and they nursed their serious hangover.

So even thong for themselves they had negotiated what appeared to be a good deal — their WeWork pre-IPO startup price protection seemed to be a great idea, because it could ensure that these investors would stand to make money even when they fail to accurately assess WeWork’s “failure risk” they still got fleeced because the whole thing was an unashamed Ponzi scheme perpetuated just as much by Goldman’s eager beavers, and by Softbank’s banker-wanker par excellence Masayoshi Son.

Still as more and more sophisticated private investors routinely ask and routinely get price protection — by rights this service ought to be also provided to the regular Mom & Pop public IPO investors too, because the massive WeWork failure model shows how this could happen again and again, when the inducements of false security makes people close their eyes to the inherent risks of this sophisticated game, where the fraudsters await you behind every corner and hidden doorway in this dark and dank alley called the road to the IPO that is lined with good wishes and yet it often leads to hell in a hand basket.

Obviously the institutional investors with their legions of accountants and valuers, need no price protection. And if they were able to do their job of proper due diligence — well, and properly — they wouldn’t ask for any of that, because the “real value” investors always “know.” The “real value” investors “grogg” the value of a StartUp best… But the high street public investors need that protection far more so … because as our new Angel and Venture Capital markets adapt to the VC investment model, which limits valuation risks, to the IPO market, so we can be more transparent and follow the same playing field for all investors for a better model of an IPO, that is not clouded by false cherries at the top of the special cake offered to the preferred investors, while the regular public investors are fed manure and are kept in the dark as if they are some kind of mushrooms.

Indeed, in my mind the institutional investors should never be given any inducements that are not offered to the public because that favoritism is akin to fraud and self dealing, as it provides a comfortable King-sized “bed of graft” and corruption, for the colluding bankers to roll in with the Ponzi scheme operators, fraudulent CEOs, and fake Founders, to lie-in and frolic the night away, at the expense of the public investors who are getting royally and forcefully “screwed” in broad daylight.

And that is the everyday rape of the public investor that suffers in all the IPO and pre-IPO as regular Joe-Schmo investors agonize to buy the IPO stock. Employees with stock options also get screwed by the malfeasance of WeWork, and as they try to cash in their stock options and they find them to be underwater too, because the actual performance of WeWork, will never match the astronomic expectations and predictions of the CEO Neuman, making shit up with Goldman Sachs’ errant boys, along with the greedy soul of Masayoshi Son, CEO of SoftBank, always out there looking for the “greater fool” — all working together overtime for the well oiled mutual benefit RICO cabal they had inadvertently set up and operated for far too long.

Yours,
Dr Churchill

PS:

So for the future, let us assess the performance of a StartUp company as venturers do, and then refrain from making any valuation predictions for the pre-IPO market, but rather use our brain to make reasonable predictions of valuation, only based on milestones, who are business measures of return on investment, and let’s nurture companies and Founders who understand that this world is best based on multiple bottom lines that include the general market’s well being, the social good, all investors’ equal protections, and training for CEOs in ethics, so that they can learn to avoid being Ponzi scheme operators like the WeWork’s CEO Neuman did.

Let us engage in refreshing the moral sentiment of our markets, and let us be rather vigilant on that measure, at least until venture capital backed Startups and their IPOs come with a certain degree of equal handling and perhaps a measure of valuation failure price protection for all the investors or for none.

The Wall Street stock bilkers need no protection whatsoever because they are the ones setting up the Ponzi scheme in the first instance…

And, until such time when StartUp failure valuation price protection has been instituted for all investors — I suggest that as a value investor, you exercise the ancient, strict and unfailing method of “Caveat emptor”

“Buyer-Beware”

Meanwhile the fleeced WeWork investors hope that there will be prosecutions in this nasty case of systemic fraud because without it we are certain that the Capital Markets for StartUp IPOs, for the Unicorns or for the run of the mill Science and Tech startups will dry out…

Either we do all that, or we are going to kill the goose that lays the golden eggs of StartUp IPOs inside our much misaligned Wall Street…

Because methinks it is high time for REFORM…

Anyone else agrees with this assessment?

Or should we bring out the musical instruments and invite the band to keep playing on, while the ship is going down with all souls inside?