‘Enthusiastic Entrepreneurs’: Pre-IPO Statements On Profitability Prove To Be Larger Than Real Life

in October 2019 in which he said the company was profitable that year and in the two prior years. In a statement to, a Coinbase spokesperson said that “during 2019, we were profitable on an adjusted EBITDA basis.” The spokesperson added that Coinbase was using an accounting practice that calculated its digital assets at fair value at the time of Armstrong’s comment, and that when it prepared for its IPO, it calculated those assets at cost, which swung the company into the red.

But that’s not always the case. Concerns about exaggerated profitability helped contribute to the collapse of WeWork’s IPO in 2019. For years, the coworking company and its CEO Adam Neumann spun rosy stories of vast market potential, and invented new profit metrics such as “Community-Adjusted EBITDA.” Based in part on these claims, WeWork’s thousands of employeesfor lower salaries, in the hope of cashing out when the company went public.

In September 2019, WeWork withdrew its IPO plans, its valuation plummeted, and most employees' shares became worthless. “WeWork will become a public company, but we can only IPO once, and we want to do it right,” former WeWork executives Artie Minson and Sebastian Gunninghamin a statement at the time. In March, the company announced renewed plans to go public through a SPAC deal at less than 20% of its 2019 valuation.

“Employees are the ones who I worry about most,” says Tripp Jones, a partner at Uncork Capital, who has served on more than a dozen company boards. “Because they will join companies based on statements around profitability.” “If the company still goes public and makes money for everybody, no one will care. There's no consequences” Some companies have suggested profitability was closer than it turned out to be. Buzzy health insurance firm Oscar, co-founded by Josh Kushner and backed by Alphabet, drummed up enthusiasm for its financial performance in 2018 when CFO Brian West toldBut that appears to have been wishful thinking.

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