'The plumbing isn't broken': Goldman Sachs' CEO says WeWork's failed IPO could improve private markets

David SolomonREUTERS/Danny Moloshok

  • WeWork's collapsed initial public offering isn't proof that private markets are broken, and it could even change them for the better, Goldman Sachs CEO David Solomon said on the bank's third-quarter earnings call.
  • "I don't think the plumbing is broken," Solomon said. "I think the IPO process is alive and well in the United States."
  • Solomon predicted the WeWork fiasco could fuel a shift towards smaller investments, faster flotations, and greater transparency in private markets.
  • Read more of Business Insider's WeWork coverage here.

WeWork's collapsed initial public offering isn't proof that private markets are broken, and it could even change them for the better, according to Goldman Sachs CEO David Solomon.

"I don't think the plumbing is broken," Solomon replied to an analyst's question about the significance of scrapped flotations and problems in funding markets, asked during the bank's third-quarter earnings call. "I think the IPO process is alive and well in the United States."

However, he expects the WeWork fiasco to fuel a shift towards smaller private investments and faster flotations.

"We are going to see a rebalancing of this process of private capital formation, the size and the magnitude of that private capital formation and the period of time with respect to which people get to the public markets," Solomon said.

The bank boss also underlined the importance of public investors in vetting businesses, and predicted private investors will play a similar role.

"Public markets provide discipline and process around companies," Solomon said. "The transparency around some of this private capital formation is going to increase over a period of time, it will be more disciplined against it."

He added: "I actually think that it's a healthy adjustment."

Read more: Goldman Sachs sold WeWork stake and assigned lower valuation than IPO pitch

Goldman Sachs - one of the top underwriters for WeWork's IPO - revealed an $80 million write-down on its stake in the company this week. However, the bank said the investment remains profitable.

WeWork's IPO fiasco began immediately after it filed to go public in September. Investors criticized the shared workspace group's mushrooming losses, risky business model, valuation, convoluted structure, and controversial cofounder and CEO Adam Neumann.

The backlash meant the shared workspace group faced the prospect of a public valuation below $20 billion - less than half its latest private valuation of $47 billion - and falling short of raising the $3 billion needed to unlock $6 billion in bank financing.

As a result, it ditched its plans to go public, overhauled its corporate governance, and replaced Neumann with two co-CEOs. Now it's reportedly scrambling to raise new funds and preparing to cut thousands of jobs.

Now read: 'The emperor has no clothes': Billionaire debt investor Howard Marks slammed WeWork's business model and valuation

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