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What Beyond Meat, WeWork teach us about IPOs of next decade


Having a diverse board — including a mix of genders and ages — has been found to correlate to strong returns (race/ethnicity is challenging to collect and assure in a uniform way so that is not included). Lyft had the highest board gender diversity at 30%, the target level for a number of board gender diversity advocates, such as The Thirty Percent Coalition. WeWork scored 0% in this regard, at the time of its IPO filing, when the board was made up entirely of men even though filing materials promoted a “culture of inclusivity.”

Conversely, applying proven indicators of lower value creation over time to both companies’ SEC filings would suggest outperformance of Beyond Meat’s IPO and underperformance of WeWork’s planned IPO.

With respect to over-distribution of capital — the difference between capital raised and spent, normalized for assets — which has high predictive power (23%) in this context, Uber, Beyond Meat, and Lyft raised far more compared to their costs than did WeWork. WeWork’s free cash flow in fiscal 2018 was negative $2.7 billion (a $1.7 billion operating loss + $1 billion in capex). That results in an over-distribution of $2 billion, when you account for the $750 million they raised in venture capital that year.

Naturally, efforts to return money to shareholders can and do make sense when companies do not have more attractive investments to pursue. And it is possible that the causal link actually runs in the other direction. That is, companies with limited growth potential may be more likely to return money to shareholders. But analysis shows that capital distributions to investors in excess of free cash flow are associated with weaker return on investment capital. In WeWork’s case they were not necessarily returning capital to shareholders, but compared to the other companies here, they were losing more money while raising less capital, relative to their assets.

WeWork spends on many of the things all companies do — sales, marketing and development — but it also had to spend on finding and opening its office locations, making lease payments on commercial properties, and it also went into additional non-core businesses, some of which are now being sold.

Environmental, social and governance factors also factor into the performance divergence. Beyond Meat has an inherently favorable ESG profile: providing meat-eaters with plant-based meat substitutes to mitigate climate change is attractive to investors. Meanwhile, this fall WeWork pulled its IPO due to notable controversies – for example, former CEO Adam Neumann profiting by leasing multiple properties in which he has an ownership stake back to WeWork. The company’s IPO process exposed issues with leadership accountability, conflicts of interest, and oversight.

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