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The much anticipated WeWork initial public offering brought to the fore more questions than answers. Recent reports covering the blow-up of its IPO have revealed a disconnect in valuation procedures and actual value.
When WeWork’s parent company released its S-1 filing, concerns over its large valuation took center stage. For years, the company has been a darling among Silicon Valley’s private investors. However, after filing for public listing with a valuation of $47 billion, the company now wants to withdraw from its IPO plans.
Well, the move may come as no surprise. Under the hood of its plan to go public, the company has been recording hefty losses year after year in a campaign that eventually led to a sharp decline to its valuation.
Also, the company’s claim to be a tech company was nothing more than an attempt to justify its high pricing. Documents have revealed a conflict of interest and mismanagement by Adam Neuman, WeWork’s ousted CEO.
The dilemma of digital services in the gig economy
WeWork’s story is anything but unique. Uber, for instance, anticipated an IPO share price between $44 and $50. This would have given the ride-sharing digital service a $91 billion valuation. However, valuation experts say that the company “is worth closer to $60 billion”.
While Uber might show an increasing number of riders and rides, pundits agree that the company is still a money loser. The reason for this is simple. As the ride-sharing market matures, Uber will have to spend more to acquire new users. Therefore, if Uber does not work on retaining the market it has acquired, its pockets will continue to dry up.
As Oracle’s founder, Larry Ellison puts it, Uber and WeWork are “almost worthless.” Ellison and other pundits agree that even though such businesses raise capital to spend on expanding and growing their market share, the market share they acquire means nothing if it cannot be retained.
Uber does not own its cars neither does it control its drivers. All the company owns is an app. Without driver and customer loyalty, the emergence of a cheaper alternative would end the Uber business model.
In any case, these types of businesses would gain more in terms of valuation by launching a utility token rather than an IPO.
Merging equity and utility
Could utility tokens be the much-needed solution for a better valuation of companies like Uber and WeWork?
Well, utility tokens are nothing new. Even after the bad press that surrounded initial coin offerings in 2017, there is actually a lot of merit to utility tokens. A utility token linked to the equity of a company can tie people to the success of that company’s ecosystem.
For gig economy companies like Uber and WeWork, the drivers and the property owners are more like employees of the company.
Sure, these companies can issue stock options, however, the rigorous regulatory framework required makes it difficult for such firms to share the pie. However, by linking the shares of a company to the actual utility through tokens, synergy with countless digital services is enabled thus making the process seamless.
Also, blockchain provides a tamper-proof accounting system for the entire exercise enabling better pricing and valuation of the product. Since token holders get to store their tokens, pure ownership is guaranteed thus allowing for true value transferability. That’s a key ingredient in driving up loyalty and getting more people involved organically.
When a token model is executed properly, organic, community-owned digital services can thrive in a free market. Most importantly, the valuation of these digital services will be based on the opinions of rational public markets.
As the advantages of token equities continue to outweigh those of traditional assets, a future of tokens in the marketplaces is quite possible. After all, a slew of big players – Libra, China, Telegram and JPMorgan – are already dipping their toes into token economics.
The only problem is that they avoid merging the equity of their companies with their tokens in fear of upsetting regulators. At the moment, small startups stand to benefit the most as they are less targeted by regulators. In my opinion, however, tokens have the potential for better valuations and pricing in the long run.
Alireza Beikverdi is the CEO at BitHolla, a blockchain software company that enables cryptocurrencies to launch crypto exchanges in minutes. Previously, Ali was a co-organizer for Seoul Bitcoin, the largest bitcoin community in South Korea, and has consulted with numerous companies in the fintech and blockchain space.
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