Staying at home since the past 2 months, boredom struck me. That compelled me to have a look at my to-do list. It reminded me of a Company, Primus Co-Work. I had been to a movie, where I came across an advertisement for Primus Co-work. I made it a point to note it down and analyse once I get back home as it immediately reminded me of WeWork and their investors SoftBank.
The background - WeWork IPO fiasco
WeWork, one of most trending investment of SoftBank was on the verge of a grand IPO at an enormous valuation of $47 billion. However, WeWork had to withdraw their IPO with investors losing faith following criticism about financial performance and doubts regarding corporate governance mechanism. The failure of WeWork’s IPO had catastrophic consequences as their valuation dropped from $47 billion to $10 billion in no time. WeWork is currently valued at $2.9 billion (as on 31st March 2020).
(To know about this in detail, read ‘The We Company: A Positioning Gimmick‘)
Game of Valuations
The root cause analysis pointed out various fallacies – flawed business model, imbalance in voting rights and cash flows, governance structure and operational feasibility among others. Although the major question to ponder upon was whether the valuation of $47 billion was legitimate or in milder terms justifiable in the first place. The sudden collapse in valuation (~93% drop) raised many eyebrows in Silicon Valley, which prompted people to question the integrity of such valuations. Was the valuation over-hyped? An immediate answer was:
Yes, they were to a certain degree. Over pricing for the sake of IPO seems to be the general trend with companies like Uber and Slack also opting to do the same. Although, that strategy back fired. With regards to WeWork, I was most amazed at why was its business model perceived to be so impressive? Which indirectly led to a valuation of $47 billion for a company which was not even the original inventor of the co-working space concept. Is this so called “Game of Valuations” leading to unethical practices being adopted to shield themselves from unfavourable repercussions? It is imperative to extrapolate valuations based on challenging but realistic and achievable assumptions and keep on evaluating financial as well operational viability at regular intervals.
(Are these practices changing post WeWork debacle? Read ‘Changing Landscape of VC Funding‘ to find out)
Coming back to Primus Co-work
Back to the newly heard Company named Primus Co-work. Being an Auditor, I try to implement habits which I am really good at: Ask probing questions. So here’s my first one: What is that distinctive point which will not make Primus Co-work just another WeWork!
A little peak into Primus Co-work enabled me to get a gist of what exactly does it offer. So basically, Primus Co-work provides co-working space at premium restaurants and cafes in the city. Along with it, Primus provides office facilities like a Wi-Fi connection, Printer, Fax, etc. and obviously discounted menu. The idea is to utilise the empty space in restaurants during non-peak hours. This idea is innovative. But again, an important question to ponder upon is that, is this business model not very similar to WeWork.
The notable difference that came to my attention was that WeWork operated on rented premises whereas Primus Co-work provided their services at restaurants thereby reducing huge outgo of rent. But apart from that, the business model does not generate enough operational feasibility. A blessing in disguise for Primus would be current situation related to pandemic COVID-19 where firms are looking to reduce overheads costs and improve efficiency, which in turn will vacate the rented premise.
The alternative left would be Work from Home (WFH) or Co-working place. This is the best chance for Primus to reach out to corporate entities and lure them into their business model. Otherwise, just like WeWork this could be a bubble which might burst soon. Yes, you read it right. Primus could just be another WeWork in the making. Well, it is on the promoters to reconsider their business model and not repeat the mistakes that WeWork made.
Only time will tell whether Primus will be another WeWork or will it be the first “Primus in the making.”
(Tell us your thoughts in the comment section below!)
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