WeWork is looking at a possible valuation of about $20bn in its forthcoming IPO, less than half the $47bn figure reached in its last round of funding from Japan’s SoftBank, according to people briefed on the situation.

The drastic drop comes after prospective investors raised doubts about the ability of the lossmaking shared office provider to become profitable in the foreseeable future, according to the people briefed on the matter. Wall Street has also voiced concern about several breaches of corporate governance norms.

“WeWork is finally coming to terms with reality,” said one person working with the company. “It’s just not worth $50bn or $60bn, as they would like to be valued.”

WeWork is expected to begin a roadshow as soon as next week ahead of the IPO, which would rank as one of the year’s biggest. The company hopes to raise more than $3bn in the offering, plus a further $6bn through a loan, $2bn of which is contingent on the IPO.

Two sources briefed on the IPO plans said WeWork was looking at a possible IPO valuation of about $20bn. However, a person close to the company said it still hoped the valuation could end up as high as $25bn to $30bn.

The banks working on WeWork’s IPO, which include JPMorgan Chase and Goldman Sachs, are concerned about overvaluing the office rental company when it lists, as was the case for Uber, which has traded down heavily since its flotation earlier this year.

The lower valuation would represent a major blow to SoftBank, the world’s largest technology investor and WeWork’s biggest backer, which invested money at a $47bn valuation at the start of this year.

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The lowered valuation will leave co-founder and chief executive Adam Neumann stretching to reach targets attached to part of his incentive package, which includes several tranches of profit interests that would vest if the company attained market capitalisations above $50bn, $72bn or $90bn.

Analysts have noted in particular the gulf between WeWork’s valuation and that of its largest rival, London-listed IWG, which has a market capitalisation of £3.7bn despite having more sites than WeWork and a similar number of workstations globally.

WeWork earlier this week made two concessions to public market investors who are worried about corporate governance. It added a woman — the academic and former Uber executive Frances Frei — to what was originally an all-male board, and it reversed a highly criticised $5.9m payment it had made to Mr Neumann’s investment vehicle for the rights to use the trademarked word “we”.

David Erickson, a senior fellow and finance lecturer at Wharton, said that Mr Neumann’s interests in buildings leased by WeWork and the transactions that have allowed him to extract an estimated $700m from the company before the IPO were “troubling” and would make for “a challenging roadshow process”.

Mr Erickson said: “All this will be a lot for potential IPO investors to digest at a time when the equity market struggled in August, and Lyft and Uber have not traded well since their IPOs this year.”

WeWork reported net losses of $1.9bn for 2018 and said losses continued to grow in the first half of this year, from $723m to $904m, even as revenues doubled from $764m to $1.54bn.

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One prospective investor complained that WeWork’s prospectus contained “a very complex diagram about how the company would be structured. With the exception of some Chinese companies, it’s the most complex one I’ve ever seen. That’s a big red flag.”

Via Financial Times

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