The tech unicorn IPO madness that has engulfed the market for the past two years, finally came to a head recently. WeWork, a preposterously valued startup company, headed by a consummate self-promoter and flim flam man, was finally exposed as all sizzle and no steak. Yet, warning signs abounded: WeWork CEO Adam Neumann, described his company as a, “physical social network” and he repeatedly and earnestly claimed WeWork would, “elevate the world’s consciousness.”
When the company filed its mandatory S-1 registration statement with the SEC, investors, for the first time, were provided with material information about the company not previously disclosed. What was revealed was a labyrinthine corporate structure, insider, non-arms-length contracts and self-dealings with the company.
Many value investors, such as Seth Klarman and Charlie Munger, viewed this latest addition to the “hot” IPO market with a jaundiced eye.
Where did those investors, who almost followed the Pied Piper of WeWork right off the cliff, go wrong?
Rational valuation models were tossed aside
Many of the “tech” unicorn investors believe that because investing in the Brave New World of the 21st tech economy, is unlike all periods that preceded it, fundamental rules underlying all sound and prudent investment decisions could be cast aside. The old rules no longer applied and should be replaced by novel conceptions of value and accounting.
This mindset gave birth to the notion that traditional discounted present value models, for some new “tech” companies had become passé; new-fangled analytical concepts needed to be created or devised to address the latent potential of disruptive companies, that had suffered only losses.
For those easily duped investors and analysts who wondered