As Unprofitable Unicorns Raise Record Sums, WeWork Turns To Private Investors

Morning Markets: As expected, SoftBank may be ready to plow more capital into its WeWork bet, because sunk cost fallacy only impacts gosh darn quitters.

Following The We Company’s abortive attempt at an IPO, the parent company of the popular WeWork coworking brand is looking towards its old friends for the cash it needs to stay afloat.

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According to the Financial Times, SoftBank is “in talks” to provide more capital to WeWork. Business Insider writes that the Japanese conglomerate and investing impresario are considering providing WeWork with “a $1 billion lifeline.” Given the scale of capital that WeWork consumes, the money is needed. (More on WeWork’s fundraising history here.)

Few expected SoftBank and its Vision Fund to walk away from the troubled unicorn, especially after the company went through the painful process of getting rid of its founder-CEO (he’s now non-executive chairman of the board) in a very public manner. The now-former CEO’s antics, spending habits, unrealistic dreams, and inability to build a self-sustaining business ultimately doomed his tenure.

But not before the markets got the chance to vet his creation in a very public manner. The WeWork S-1 was masterfully opaque but also stark in its presentation of how much cash the company consumed to grow, and how unprofitable it remains.

The firm’s cash flow statement is art:

If you don’t spend time reading docs of this nature, let me help. Observe the final column. Those are the companies cash burn tallies for the first two quarters of 2019 (H1’19, if you will). So, WeWork’s operations alone burned just under $200 million in that time period. Its investing cash flow burned $2.36 billion during the same period. That’s a combined $2.56 billion, or about $14 million per day in the first half of this year.

And that’s just cash, mind, net income is something else.

I bring all this up to continue the point I made yesterday regarding unicorns, their health, and what portion of the asset class (startup cohort!) will survive a downturn. While it’s good fun to point out that WeWork spent lots of money working to “elevate the world’s consciousness,” it’s also worth bearing in mind how many unprofitable unicorns are successfully going public.

Indeed, as Bloomberg reported this morning, we’re at record levels of unprofitable IPOs, reporting that firms with negative net income are “raising money in initial public offerings at the fastest pace since the dot-com bubble.” The publication’s excellent digest of the matter (read the whole thing here) contains a wealth of charts, including this one:

Observe the rise in the blue bars towards the end of the chart. That is the sum of money raised by unprofitable companies over time. And it was in that very climate that WeWork couldn’t go out. That’s why you shouldn’t conflate every unicorn with WeWork. It’s nigh-uniquely troubled.

Perhaps another billion will do the trick.

Illustration: Dom Guzman.