WeWork employee equity could be worth nothing in an IPO or bankruptcy - Business Insider

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Most startup employees don't know the details of their company's deals with investors

, the IPO research firm Renaissance Capital projected that if WeWork went public at a market cap of less than $14.5 billion after an IPO, that could result in the world's largest IPO ratchet. Softbank shareholders would be issued more than $400 million worth of additional shares.In the event of bankruptcy and liquidation , employee equity gets paid last.

Augusiak-Boro added, "If the asset sales are successful — meaning unproductive assets are converted into cash for either delivering the balance sheet or funding growth of WeWork — the equity value may increase."The real problem with preferred shares, according to Robinson, is that "these deals are not always communicated perfectly" to everyone in the company — namely, employees.

When employees hear that the business is now worth half of its previous valuation, for example, they might be "distraught," Robinson said, because they assume that the value of their equity is cut in half, too. What employees might not know is that all of the money the company raised goes back to preferred investors — potentially leaving employees with nothing. "That fuels a notion of, 'I got screwed,'" Robinson said.

 

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