Much the chatter surrounding the IPO of the We Company (aka WeWork) relates to the eye-watering valuation being sought. Yet recently there’s speculation that the IPO may end up closer to $20 billion, as opposed to the the $47 billion valuation SoftBank offered when they invested $5 billion in January 2019.

So is Softbank and Masayoshi Son heading towards a massive haircut, given they’ve put in $10.65 billion into WeWork to date?

Not quite. In January, Softbank also spent $1 billion to buy out earlier investors and employees. That secondary was done at a reported $20 billion valuation. The price difference is due to how we value the protections that come with mega-rounds. Softbank’s money put them on the top of the preference stack. And with that comes protections against a down-round, first right of capital distributions, board participation, blocking ability, and any number of other exotic terms to protect interests.

The secondary was a direct stock buy of ordinary shares, and so offered no protections. One may argue the protections were worth ~100% of the ordinary stock’s value. These protections evaporate on IPO. So don’t be surprised to see a delay in the listing in the near future.

This post was written from a WeWork office 🙂