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WeWork Pulled the Plug on Its IPO. What Comes Next?: Term Sheet

October 1, 2019, 1:50 PM UTC

It’s safe to say we’re far from the days when the most egregious thing WeWork did was refuse to allow employees to expense meals containing meat.

Yesterday, WeWork officially pulled the plug on its initial public offering after announcing that it would withdraw its S-1 registration statement. Co-CEOs Artie Minson and Sebastian Gunningham said, “We have decided to postpone our IPO to focus on our core business, the fundamentals of which remain strong.”

They further said they have every intention to take WeWork public in the future. It’s unclear when that will occur, but it likely won’t happen before the end of the year. That poses several question marks for WeWork, one of which being the $6 billion line of credit contingent on the company going public before the end of 2019.

WeWork has been re-negotiating a new loan with banks led by JPMorgan Chase and Goldman Sachs to replace the loan it was expected to get after its public offering, according to The New York Times. The banks are now reportedly offering less than the $6 billion that was previously negotiated.

Santosh Rao, head of research at Manhattan Venture Partners, told Fortune that the major investors in WeWork are somewhat stuck. “I’m sure [the financing] can be renegotiated,” he said. “At this point, I think that the bankers have invested a lot already, so they’re not going to abandon ship at this point, they will stay the course. It may be renegotiated, maybe on different terms, and maybe they have to pay a higher rate … but it’ll get done. It’s in the best interest of the banks.”

Needless to say, cost-cutting is in order. WeWork had $2.5 billion in cash as of June 30. At the current rate of cash burn — about $700 million a quarter — it would run out of money some time after the first quarter of 2020, according to The Wall Street Journal. There are reports of mass layoffs, the sale of the company jet, and the offloading of some businesses that WeWork had previously acquired. 

It’s hard to say what’s next for WeWork. Could the co-working giant regain its footing following its whirlwind of a year? Anything could happen if it gets its numbers in order.   

One compelling tweet I saw was from Collaboration Fund’s Morgan Housel: “WeWork’s fall is fascinating because it wasn’t hurt by an investigative journalist, a whistleblower, or a customer revolt. It just released its IPO prospectus and *poof*, reality took the reins from the storytelling.” (Housel also wrote a piece on WeWork with great analysis here.)

Believing in a company’s potential makes sense in the early days, but that blind belief also got WeWork to a $47-billion valuation that many felt was unjustified. So a fluffy mission of “elevating the world’s consciousness” is great — as long as you can back it up with facts. As Housel notes in his piece, “Magic has to be verified with cold, hard numbers.”

DIRECT LISTINGS ARE ON FIRE: As we noted yesterday, a group of Silicon Valley elite will meet today for an invite-only event in San Francisco to discuss “the benefits of the direct listing approach to a public listing.” Bloomberg reported today that home-sharing startup Airbnb is laying the groundwork for a direct listing rather than a traditional IPO for its public market debut in 2020. Read more here.

VENTURE DEALS

- Rapyd, a London-based mobile-first financial network provider, raised $100 million in funding. Oak HC/FT led the round, and was joined by investors including Tiger Global, Coatue, General Catalyst, Target Global, Stripe, and Entrée Capital.

- Khatabook, an India-based mobile application that enables small businesses to record & track business transactions, raised $25 million in Series A funding. Investors include GGV Capital, DST Global, RTP Ventures, Sequoia India, Tencent, and Y Combinator.

- Bnext, a Spain-based mobile-first neo-bank, raised $25 million in Series A funding. Investors include DN Capital, Redalpine, Speedinvest, Founders Future, and Cometa.

- Teampay, a New York-based provider of distributed spend management software, raised $12 million in Series A funding. Tribe Capital led the round, and was joined by investors including Crosscut, Silicon Valley Bank, and Precursor Ventures.

- Atom Finance, a New York-based investment research platform, raised a $10.6 million in Series A funding. General Catalyst led the round, and was joined by investors including Greenoaks, Global Founders Capital, Untitled Investments, Mail.ru, Lachy Groom, Lee Fixel, and Zach Weinberg & Nat Turner. 

- SenSat, a U.K.-based company developing a platform that uses mapping drones to produce engineering grade survey data, raised $10 million in Series A funding. Tencent led the round,, and was joined by investors including Sistema Venture Capital.

- PathogenDx, a provider of testing technology for the cannabis, hemp, agriculture and food safety industries, raised $7.5 million in Series B funding. Cresco Capital Partners led the round, and was joined by investors including Altitude Investment Management, Arcadian Investment Partners, Panther Opportunity Fund, Salveo Capital, and Flatiron Venture Partners.

- Naborly, a Canada-based platform for residential tenant screening to landlords and house owners, raised $7.5 million in seed funding. First Round Capital led the round, and was joined by investors including Liquid 2, Village Global VC, Assurant Insurance and Third Prime.

- Workona, a San Mateo, Calif.-based work management platform, raised $6 million in funding. Investors include K9 Ventures and August Capital.

- 7shifts, a Canada-based labor management platform for restaurants, raised $6 million in funding. Napier Park Financial Partners led the round, and was joined by investors including Relay Ventures and Conexus Credit Union.

- Jobpal, a Germany-based maker of enterprise recruitment chatbots, raised €2.5 million ($2.7 million) in pre-series A seed funding. Investors include InReach Ventures and Acadian Ventures

PRIVATE EQUITY DEALS

- Jones & Frank, a portfolio company of MidOcean Partners, acquired Petroleum Solutions, Inc, an Edinburg, Texas-based provider of petroleum equipment distribution, maintenance and installation services. Financial terms weren't disclosed. 

- Process Sensing Technologies, a portfolio company of Battery Ventures, agreed to acquire SST Sensing Limited, a U.K.-based provider of oxygen-measurement and liquid-level sensors. Financial terms weren't disclosed. 

- Wynnchurch Capital made an investment in Eastern Metal Supply, a Lake Worth, Fla.-based distributor of aluminum extrusions and related products. Financial terms weren't disclosed. 

- Cook & Boardman Group LLC, a portfolio company of Littlejohn & Co LLC, acquired Converged Communications Inc, a Jacksonville, Fla.-based technology business solutions company. Financial terms weren't disclosed. 

- Leeds Equity Partners made an investment in VitalSmarts LC, a Provo, Utah-based provider of provides communication, execution and leadership development training. TwentyEighty Inc was the seller. Financial terms weren't disclosed. 

IPOs

- Fortis Minerals, a Houston-based firm with oil and natural gas mineral royalty interests, filed for a $300 million IPO. It posted revenue of $106.6 million and a loss of $30.5 million in 2018. EnCap Investments (66.2% pre-offering) backs the firm. It plans to list on the NYSE as “NRI.” Read more.

- Youdao, a Hangzhou, China-based maker of learning products and services, filed for a $300 million IPO. It posted revenue of $142.6 million and a loss of $84.8 million in 2018. NetEase backs the firm. It plans to list on the NYSE as “DAO.” Read more.

- Cabaletta Bio, a Philadelphia-based biotech focused on autoimmune diseases, filed for an $100 million IPO. It posted a loss of $12.2 million in 2018.  5 AM Ventures (19%), Adage Capital Partners (19%), and Baker Bros (19%) back the firm.It plans to list on the Nasdaq as “CABA.” Read more.

- Aesthetic Medical International Holding, a Shenzhen-based firm focused on plastic surgery, filed for an $80 million IPO. It posted revenue of $110.9 million a loss of $36.8 million in 2018. It plans to list on the Nasdaq as “AIH.” Read more.

- 4D Molecular Therapeutics, an Emeryville, Calif.-based biotech focused on gene therapies, filed for an $100 million IPO. It posted revenue of $14.1 million and a loss of $9.5 million in 2018.  Viking Global(16%), Pfizer (11.8%), and Repleon(7.3%) back the firm.It plans to list on the Nasdaq as “DDDD.” Read more.

- Phathom Pharmaceuticals, an Emeryville, Calif.-based firm focused on gastrointestinal diseases, filed for an $100 million IPO. It posted a loss of $1.3 million in 2018. Frazier Life Sciences (41.1%) and Takeda Pharmaceutical Company (9.1%) back the firm. It plans to list on the Nasdaq as “PHAT.” Read more.

- 36Kr Holdings, a Beijing-based media publisher focused on emerging companies, filed for an $100 million IPO. It posted revenue of $43.6 million and income of $5.9 million in 2018.  It plans to list on the Nasdaq. Read more.

FIRMS + FUNDS

- Blue Delta Capital Partners, a McLean, Va.-based venture capital firm, raised $150 million for its new fund.

PEOPLE

- Welsh, Carson, Anderson & Stowe named David Caluori, Ryan Harper and Frances Higgins to general partner.

- HLM Venture Partners named Steve Tolle as a partner.