Neil here.

Earlier this month, commercial real estate company WeWork landed in hot water again after a group of their investors filed a class action lawsuit against the company.

The suit, filed in San Francisco federal court, claims the company duped them into investing by obscuring their quickly deteriorating financial condition.

It’s the latest dispute in what’s been a year of intense legal drama following WeWork’s botched IPO in September 2019… and as you can imagine, it doesn’t bode well for WeWork or the two other defendants listed on the suit: Japanese conglomerate holding company SoftBank and former WeWork CEO Adam Neumann.

Now, I’ve talked a bit about WeWork before.

They provide all-inclusive shared workspaces for tech startups and other industries, catering to global teams, digital nomads, and people that just want a more productive coworking space. WeWork became incredibly popular from the get-go, growing more than 100% each year.

But underneath it all, a storm was brewing… and fast.

Back in January 2019, WeWork raised $1 billion in a Series H round led by SoftBank, bringing the company’s total valuation to around $47 billion.

The company filed its IPO documents with the Securities and Exchange Commission that August, revealing some major flaws in their business model and financial statements.

In September, following intense criticism from their investors, WeWork’s valuation dropped to between $20 and $30 billion.

Just two months later, SoftBank had taken control of the company, ousted the company’s CEO, laid off over 2,000 employees, and suspended WeWork’s IPO indefinitely.

Since then, the company’s valuation has continued to drop rapidly. As of this month, WeWork is valued at $2.5 billion – a measly number in comparison to last year’s reports.

To put it plainly: It’s a mess.

Here’s the thing, though. WeWork was founded in 2010, and the investors suing the company are all later-stage investors who bought shares between 2017 and 2019 (when the company pulled its IPO).

WeWork’s legal troubles these days paint an ugly picture for later-stage investors, because many of them invested when the company’s valuation was at an all-time high… or at least on its way there.

That valuation dropped sharply, meaning that these investors lost out on a significant IPO payday. A few of them – like SoftBank’s own CEO – lost billions of dollars.

Not a good look for the company.

But what about WeWork’s angel investors?

WeWork’s seed round took place in 2011 – six years before the first investors in this suit bought their shares. At that time, the company was valued at just $1 million.

This means even at WeWork’s current $2.5 billion valuation, many of their angel investors could still see a 2,500X return on their investment.

So, if you had invested just $100 into WeWork back in 2011, you could still make out with around $250,000 if you exited today. That’s not bad at all.

To me, this just proves even more why angel investing is one of the best strategies for anyone looking to make some serious bucks.

You see, when you invest in a company at its lowest valuation, you’re not only getting in at a way cheaper price than later-stage investors, you could see returns outmatching anything you’d ever earn right before (or after) a company goes public.

In the case of WeWork, whether they can clean up this mess or not (and based on this month’s news, it’s not looking good) their story teaches us one very important lesson: Get in early and stay there… because no matter what, you’re in the best position possible for an incredible potential windfall.

I’ll be back soon with another update.

Until next time,

Neil Patel

P.S. If you came to the Angels & Entrepreneurs retreat this year, you probably remember my friend Andrew Keene. He’s the man behind the 1450 Club – an options trading research service that’s recommended some incredible wins this month. He’s just launched a research service that will teach you how you could bag incredible gains with just 30 minutes of work, 3 days a week. Just click here to get the full scoop.

Comments

7 responses to “How Angel Investors Still Scored Despite WeWork’s Botched IPO”

  1. I need a lot of help would that be an option very interested bot 101 on investing
    Need lots of help in the begining

  2. You are talking about 2011 –{ when only any person with a million dollars could invest ) We -being under that could not invest $100.00 until 2016 , when the job act was formed

  3. Hi Neil,

    You write, “So, if you had invested just $100 into WeWork back in 2011, you could still make out with around $250,000 if you exited today. That’s not bad at all.”

    How might one exit today? What if there is no exit?
    And if there is no exit, isn’t it just a meaningless paper gain that will never be realized?

    • I surely would like the answer to this question posses by Monroe Asami. He makes a valid point. How do you cash out and when can you cash out if the company is not an IPO?

      • Hi there,

        Thank you for your comments! I’m Sarah, and I’m helping respond to a few comments today.

        There are multiple ways that one can exit from a company, one of which being an IPO. You can also sell your shares prior to an IPO, or the company could merge with or be acquired by another company.

        This article was meant to show the value in getting in early… even when a company isn’t doing so great, angel investors can still do well just by getting in on the ground floor!

        Thanks,

        Sarah

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