We Might Not Be Working

I used to be a capital markets banker, and while I do not think anyone would have said I was particularly talented at it, I at least had a grasp of the basics. For instance, if you had asked me, early in 2019, to pitch WeWork Cos. on an initial public offering, I am not sure that I would have won the mandate, but I am confident that I could have met the minimum standards. Those minimum standards are:

That last part is not hard! It’s just, when you get to the part where they say “what do you think our valuation will be,” you have to say a number like “$65 billion.” It is not like saying “$65 billion” is much more taxing on your vocal cords or facial muscles than, I don’t know, “$20 billion.” Now sure sure sure it might tax your financial-modeling skills, or your ability to suspend disbelief, to tell WeWork that it can go public at a $65 billion valuation at the same time its private shareholders are selling into a SoftBank Group Corp. tender offer at $20 billion. But it is a problem with a right answer. If you are an investor trying to decide whether to buy WeWork stock and at what price, you sort of start from a blank slate: You have to come up with your most accurate possible set of assumptions about WeWork’s future growth and margins, and then use those assumptions to model the company and come up with a valuation; your valuation will depend on the assumptions, and the assumptions will always be uncertain. But if you are a capital markets banker trying to get WeWork to go public, you know the right valuation, more or less—it’s “a substantial but not comical premium to the last private round,” or about $65 billion—and all you have to do is adjust the assumptions to get to that valuation. It’s a straightforward algebra problem, not a deep valuation problem.