Will the 'energy of We' fuel the WeWork IPO?

The fun went out of the WeWork story the morning the company, now called the We Co., filed to sell shares to the public.

There are laugh-out-loud lines in the Form S-1 now available at the Securities and Exchange Commission website. But it seems wrong to enjoy them too much, not when there might be plenty of small investors who may not get the joke.

You have undoubtedly heard of this company, the New York-based operator of shared work spaces around the world. The latest financing round valued it at close to $50 billion, even as it lost a lot of money on about $700 million in revenue in its most recent quarter.

The We Co., as the prospectus reveals, isn't a regular company but an Up-C, which means that it is a corporate holding company sitting on top of limited-liability companies and partnerships that own the assets. Some of the affiliates have co-founder and CEO Adam Neumann's family involved in them, as described in a long and entertaining section about Neumann's various dealings.

It can't be easy for any novice investor picking up the prospectus to quickly tell what business this company is even in, although its core business is renting office space. It recently opened another Twin Cities "community," as it calls its suites, in the North Loop district of Minneapolis.

The company grew out of a trend that emerged a few years ago called co-working, where like-minded entrepreneurs, freelancers and small business owners could all share one space while working on their own projects.

That used to describe We Co. a lot better than it does now, with many of its members now working for big companies. So forget cool-sounding terms; the We Co. is just a short-term rental business in an industry — office space — that has historically had relatively long and inflexible terms.

We Co. is miles from making money, of course, but that is not just because of costs associated with trying to grow across the globe. There is no convincing evidence that the office suites it has open are getting a lot more profitable as the company grows.

Another problem for any We Co. investors is its model of making short-term leases out of long-term commitments, a classic mismatch challenge familiar to bankers and others.

It leases big chunks of office space in expensive cities for a long time, turning around and basically subleasing the space to members for short periods of time. As of June 30, its noncancelable lease commitments amounted to about $34 billion, plus an additional $13.1 billion in commitments for executed leases that have not yet kicked in.

So what is going to happen to memberships and rental rates if the economy tanks? Maybe members decide their entrepreneurial dreams are not realistic after all and leave to get their old jobs back. Then occupancy and rental rates might decline. Meanwhile, We Co. landlords will still expect the full $47 billion in payments called for in their leases.

So far this sounds like a business with understandable problems, but at least it sounds like a business. But the We Co. does not want to be thought of as that.

It is not easy to top office space as a service, but it does, right at the beginning of its document: "We dedicate this to the energy of We — greater than any one of us but inside each of us."

You know what is even funnier? The We Co., controlled by co-founder Neumann, just licensed "we" family of trademarks from WE Holdings LLC, another company he controlled. The We Co. just paid Neumann's other company $5.9 million for these rights to a simple, two-letter word.

"We are a community company committed to maximum global impact," reads the first paragraph under the prospectus summary. "Our mission is to elevate the world's consciousness."

How about management? "The We Co. has always been an extension of our founders' ambition to effect positive change in the world." Then there's "nine years ago, we had a mission to create a world where people work to make a life, not just a living."

Why would anybody talk like this?

Going public, though, changes everything.

Sure, if the deal even comes off, lots of shares will go to professional investors, not retail investors. But up until now it has just been professionals in the We Co. club exchanging institutional money and stock at eye-popping values. The last money in came from Tokyo-based SoftBank Group, leading to the headline number of a $47 billion valuation.

There's no chance for small investors to now get in on the ground floor of something that seems cool. That disappeared at least $46 billion ago.

As for risk, the company even suggests in its prospectus that it is basically recession-proof, although it seems more likely business expansion stalls and lease rates slip.

But we know for certain that demand for treats and indulgences of all kinds collapse in downturns. That will include the indulgent notion that human work is somehow being remade in a downtown Minneapolis We Co. suite filled with little glass offices.