WeWork Valuation Cut From $47B To $10B: Will There Be Contagion With Other Fake Private Tech Valuations?

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Co-working and incubation space in Lakeland, Florida. Photo: Josh Hallett/Catapult Lakeland/Flickr

Faced with lukewarm demand and growing investor concerns, office space-sharing startup We Work’s parent company is considering a valuation as low as $10 billion in its upcoming public offering.

That’s a steep reduction from the up-to-$47 billion private valuation it achieved nine months ago.

Valuing startups is tricky because they have little or no revenue or profits and less-than-certain futures, according to Investopedia. For mature, publicly listed businesses with steady revenues and earnings, normally it’s a matter of valuing them as a multiple of their earnings before interest, taxes, depreciation, and amortization.

In May, Business Insider used data from Pitchbook to compile the 26 startups in the U.S. with the highest valuations. We Work was No. 1 and Juul (still private) was No. 2 at $38 billion.

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Four months later, We Work said it was making changes “in response to market feedback”, New York Post reported. Earlier this month, the company added its first female board member, Frances Frei.

WeWork owner The We Company announced corporate governance changes Friday in an amended S-1 filing. It’s changing its high-vote stock from 20 votes per share to 10 votes per share, curtailing WeWork CEO Adam Neumann’s voting power, according to CNBC.

The IPO could be completed as early as this month.

Since the company filed for an IPO in August, its valuation has dwindled and its biggest outside investor, SoftBank, met with the company about whether to move forward with going public, CNBC reported.

Tech platforms — most tech companies have some form of a platform model — can be great businesses because their value grows exponentially with each new node, while the expense of maintaining them grows linearly, Matt Rosoff wrote for CNBC:

“But the deal breaks down when the outsiders who create much of their value no longer feel like they’re getting a fair shake. We’re seeing more complainers than ever these days, including content creators for Facebook and YouTube, marketplace sellers and buyers on Amazon and Uber and Lyft drivers…

“With gig economy platforms, workers are wondering why they’re scrambling to make ends meet while the companies are going public at multibillion-dollar valuations, making executives and early investors ridiculously rich. As the platform providers insist they have no control over these temporary workers, customers are increasingly worried about entrusting them with their safety.”

There at about 88 private startups each worth more than $1 billion in Silicon Valley. Some go public without making a profit, such as Lyft and Uber.

However, there has been a decrease in the number of public companies in the U.S., down 52 percent since 1997, according to a working paper from the National Bureau of Economic Research.