While it’s generally agreed that many unicorn companies are healthy businesses, generating winsome gross margin against which they can array operating costs while growing neatly, not all highly-valued private companies are fairing well.

Subscribe to the SA国际传媒 Daily

Two unicorn stumbles are triggering writedowns, showing a slip in faith amidst some of their financial backers. Today, JUUL and WeWork are back in the news for reasons different than they might have hoped. Let’s start with JUUL. Here’s :

Tobacco giant Altria wrote down its $12.8 billion investment in troubled e-cigarette maker Juul by more than a third, recording a $4.5 billion pre-tax charge against its third-quarter earnings, the company said Thursday.

As SA国际传媒 News reported at the time of the JUUL-Altria deal last December, the deal came after vaping company had raised lots of money from other folks. Its then-attractive economics made it look like a safe bet. Things have gone sideways since, transforming Altria’s JUUL wager from a lucrative hedge against the future to a seeming example of overpriced optimism.

Continuing the theme, WeWork’s never-ending mess slopped onto other companies with a Fidelity fund taking a hit in the process. Here’s :

Fidelity Investments cut the value of Contrafund鈥檚 stake in WeWork Companies Inc by 35% in September amid turmoil surrounding the office-sharing startup鈥檚 failed initial public offering (IPO).

As Reuters goes on to note, the total value of the writedown is only a hundred million dollars. That’s a large loss, but not when compared to the value of the Contrafund itself which includes .

What It Means

We’ve seen large amounts of capital flooding in recent years, with funding round sizes swelling as investors make big bets on companies that look promising. High profile, seemingly sound companies stumbling so badly could change that in 2020. It could affect future valuations of startups, as investors have learned a hard lesson about what companies are actually worth through the WeWork saga (i.e. they were being far too optimistic with its valuation).

It’s also a lesson that shows just because a company’s economics look good, it doesn’t mean it will be a success. Juul could have healthy economics, but so long as there are outcries about its effect on public health, it will be very hard for them to succeed in the long term.

滨濒濒耻蝉迟谤补迟颈辞苍:听

The We Company, parent company to popular coworking brand WeWork, tried to go public this year, only to meet a fusillade of criticism after its filing became public. Obtuse financials, staggering losses, a messy CEO, and more led investors to pass on its shares, leading to their rapid devaluation during the IPO process.

Subscribe to the SA国际传媒 Daily

Rather than force its investors to take steep write-downs, WeWork’s CEO stepped down, the IPO was pulled, and the company is now in retrenching mode. As it works to focus, WeWork is shedding the companies it bought (), often featuring a software focus, and prepping to let some staff go.

How many people WeWork will lay off has been slightly hazy in recent weeks. Let’s examine what we know.

Layoffs

WeWork has executed layoffs before. How the company handled became a famous anecdote after it was reported in mid-September as part a flurry of articles that helped sink the WeWork CEO’s tenure. The company also earlier this year, though it claimed at the time that the cuts were largely due to performance reviews.

At the time, WeWork had a boast ready regarding its workforce:

Our global workforce is now more than 10,000 strong, and we remain committed to continuing to grow and scale in 2019, including hiring an additional 6,000 employees.

The claim that the company would wind up with 16,000 employees at the end of year will prove false. But the company was perhaps on cadence to reach the number earlier this year. According to , as of June 30, WeWork “directly employed more than 12,500 employees.” So, at the mid-point of the year, the company was about halfway through the 6,000 new headcount it said it would add.

Then reality set in. In September, even before the company backed by , , , , , and , considered laying off up to a third of its employees, :

In recent days, a group of executives from WeWork鈥檚 parent company and bankers have been discussing ways to reduce costs, including laying off as many as 5,000 employees鈥攁 third of its workforce.

This anecdote also lets us know that between the company’s S-1 filing noted, June 30-dated 12,500 figure that the company kept hiring at a rapid clip.

Then the IPO was pulled, completing WeWork’s metamorphosis from a butterfly into a grub. The company’s new leaders began prepping to divest non-core purchases and cut staff. On October 3, both and reported that big layoffs were coming. “about 2,000 [workers], including [those working] jobs in business units that may be spun off” could lose employment. that “between 10 and 25% of [WeWork’s] workforce” could be let go.

So the landscape for working at WeWork wasn’t looking good. This week, however, brought new bad news once again via . The publication :

WeWork expects to shed about 500 of the roughly 1,500 software engineers, product managers and data scientists employed in the company鈥檚 technology division, a person familiar with the matter said, as a result of layoffs and selling businesses.

It’s notable that WeWork had so many engineers, product people, and data folks on staff at a real estate company. Though, of course, it’s hard to get a cost structure as broken as WeWork’s without spending money in lots of odd places. Still, it seems that WeWork is following lead by cutting engineering staff.

Once viewed as essentially inviolable, engineering talent at some tech and pretend-tech companies is proving excisable. That, in and of itself, is a shift worth noting.

More as it happens, but you’re now caught up in the latest from WeWork and its work as a living cautionary tale.

滨濒濒耻蝉迟谤补迟颈辞苍:听

, better known by the name of its coworking brand WeWork, is shaking up its governance structure ahead of its hoped-for initial public offering. The deeply unprofitable, cash-hungry company’s anti-democratic voting structure has drawn censure from the investing public in the form of valuation cuts.

Subscribe to the SA国际传媒 Daily

When added to the company’s widely-condemned self-dealing by its CEO Adam Neumann, WeWork had set a high watermark for self-inflicted wounds ahead of an IPO. (Don’t forget the CEO’s large pre-IPO cashouts as well.)

Now the company is working to unwind the mistakes, . If the changes will be enough to alter the narrative surrounding the We IPO isn’t clear. The following steps, however, are pointed in the right direction.

Here’s our digest of what The We Company is changing:

• The appointment “of a lead independent director” in 2019;
• Reducing the voting rights of select stock from 20 votes per share to 10;
• Maintenance of a board that is made up of “majority […] independent directors,” and no members of the CEO’s family will serve on the board;
• Greater board diversity;
• The CEO will give the company “any profits he receives from the real estate transactions he has entered into with the company;”
• Reductions in the CEO’s ability to sell shares after the IPO to “no more than 10% of his shareholdings” in the second and third years following the offering.

Previously the CEO promised to give back the payment he received for WeWork’s use of the “We” trademark that he inexplicably owned, and decided to charge his own company for access to; it’s been a wild run for WeWork, one of the worst-run companies I’ve ever read an S-1 from, judging the company from a corporate governance perspective.

I doubt that the above will salvage WeWork’s IPO valuation to a SoftBank-approved figure. But it’s worth recalling that all of the above was predictable and unnecessary. The company didn’t have to get into this mess. It was poorly managed into this situation.

For startups the lesson in the above is clear. If you aren’t growing at 100 percent per year while generating GAAP profits and positive cash flow, maybe drop the supervoting stock and build a company with regular checks and balances. Those things are best practices for a reason. Your unicorn is not unique.

滨濒濒耻蝉迟谤补迟颈辞苍:听.

Subscribe to the SA国际传媒 Daily

If WeWork does debut for a price lower than its final, privately-sourced valuation, it will not be the first company to do so. Indeed, it won’t even be the first company to pull off the feat recently. Several other companies in the current technology cycle have managed a similar result.

Let’s remind ourselves who did.

: 2017

The seeds of Hadoop-focused Cloudera’s down IPO were planted in its enormous聽 that took place in early 2014. Worth just $765 million (post-money) after that brought the firm $65 million in new capital, Cloudera later raised a two-part Series F.

The first traunch, a , represented quick value growth in the two years since Cloudera’s Series E. The second part of the Series F, , mentioned previously, pushed the firm’s valuation to over $4.1 billion. ( led the first, took on the second.)

The firm’s real worth never caught up. After its March, 2014 Series F rounds, the company grew but not enough by the time it went public. Here are our notes from its IPO pricing cycle:

In its most recent fiscal year, which wrapped January 31st, 2017, Cloudera reported aggregate revenue of $261.0 million, up 57.2 percent from its preceding fiscal year. In that year, Cloudera鈥檚 revenues were a more modest $166.0 million. Cloudera also lost $187.3 million鈥攄own 7.8 percent from its gut-busting prior-year loss of $203.1 million. Those are GAAP results, mind, not adjusted figures.

It wasn’t enough. The company priced at $15 per share, valuing Cloudera at around $2 billion, a massive discount to its final private price. The company is worth just $2.3 billion today, years and a merger later.

: 2018

Ah, the Domo IPO. Amidst a successful and increasingly interesting Utah startup scene, Domo’s IPO was a rare misstep. The firm’s debut came after posting an impressive fundraising history. However, that fundraising wound up being more indicative of the company’s ability to raise, instead of its ability to grow.

Domo is worth $681.6 million today, according to Google Finance. According to SA国际传媒 the company . You generally want to see a multiple of the latter when you calculate the former. Domo is still underwater, quarters after its public offering.

And its sub-unicorn valuation is a fraction of the $2.3 billion it was once worth. The firm’s last private round, , did not provide enough space for the business intelligence company to grow into its valuation. Our review of its S-1 filing and constituent financial performance was largely incredulous. .

The market wound up pricing the high-burn, low-growth company at . In terms of percent declines from private valuation to IPO worth, this may be a record.

: 2019

Uber’s IPO, did you hear about it? If you’ve ever read SA国际传媒 News, you have. But just in case, a reminder.

In terms of a startup’s rise, Uber’s growth from startup to behemoth is now legend. From breaking rules around the globe, to raising billions and billions of dollars, to VC-CEO intrigue, Uber’s story is a distillation of the Unicorn Era.

Its IPO, however, was more comedown than comeback. The company, once expected to be worth over $100 billion when public, wound up pricing at $45 per share, valuing it at (higher on a fully-diluted basis). That figure was towards the low-end of its IPO range, making it a disappointment for the company.

Notably, an with that brought Uber $500 million . So, Uber’s IPO valuation was a hair under the company’s final private valuation (SA国际传媒 , but hang tight.) Regardless of how we value the firm (diluted, not diluted), or which final private valuation we peg to the firm, Uber’s shares opened lower than its $45 price and closed down on their first day.

The company’s quick share price declines wound up continuing. Today Uber is worth about $55.5 billion, and we’re including it in this list as it managed to barely meet its final private valuation while聽pricing its IPO but opened $3 per share lower. That’s down.

And given that Uber is now worth a fraction of that fabled, and now ridiculous-sounding $120 billion IPO guesstimate (bankers!), it’s a down IPO in spirit if not also in name.

Short List

It’s not a very long list of companies we can recall caring about and going public at a down valuation. If WeWork prices where it now seems likely, the company will have a lot to prove ahead of it. That said, Uber and Cloudera are still worth billions despite IPO troubles. Perhaps WeWork will manage a good debut, and find some positive momentum when public.