IPO isn't always the right move.WeWork's failed IPO is infamous. But there are subtler cases: companies that went public and destroyed value, trapped investors, or should have waited longer.Understanding what makes a bad IPO helps evaluate pre-IPO opportunities better. Pair this with our framework for evaluating pre-IPO deals.
Case Study: WeWorkWhat happened:Peak private valuation: $47B (2019)IPO filing revealed governance chaos, massive lossesIPO pulled, CEO oustedEventually went public via SPAC at $9B (80% haircut)Now: bankruptThe myths around IPO investing played a role in how retail got burned here.Lessons:Private valuations can be completely detached from realityGovernance matters - Adam Neumann's conflicts were hidden in private"Growth at all costs" burns investors when light shines on financials
Case Study: InstacartWhat happened:Peak private valuation: $39B (2021)Marked down internally multiple timesIPO'd in 2023 at $10B (75% down from peak)Stock has been volatile sinceLessons:COVID-era valuations were often absurdWaiting for better conditions might have preserved more valueLate-stage private investors got hurt
Case Study: RobinhoodWhat happened:IPO'd at $38 in July 2021Briefly hit $85 (meme mania)Crashed to $7 (80%+ decline)Recovered somewhat but still below IPO priceLessons:IPO timing matters - they IPO'd at peak retail frenzyBusiness model concentration (PFOF) created vulnerabilityRetail investors who bought at IPO got burned
What Makes a Good IPO CandidateCompanies ready for IPO typically have:Sustainable EconomicsPath to profitability or already profitable. Not just "growth at all costs."Proven Business ModelClear revenue model that works at scale. Not dependent on subsidies or venture funding.Strong GovernanceProfessional management, clean cap table, proper controls. Red flags show up at IPO.Reasonable ValuationPriced for public market scrutiny, not private market optimism.Market TimingNot forced to IPO for liquidity. Choosing optimal market conditions.
Applying This to Pre-IPOBefore investing in any pre-IPO deal, ask:Is this company IPO-ready? Or are you betting on future progress?What's the IPO scenario? At what valuation does the company realistically go public?Who gets hurt if IPO fails? Understand the cap table and liquidation preferences.Is governance clean? Red flags multiply at IPO - find them early.Platforms like IPO Genie help surface these issues through AI-powered due diligence.Related: What is an IPO? | Understanding Valuation
Why This Matters for YouUnderstanding IPO failures isn't about being pessimistic - it's about being prepared. When you invest pre-IPO, you're betting on an eventual liquidity event. Knowing what can go wrong helps you evaluate whether a company is truly IPO-ready.The best pre-IPO investments aren't just in great companies - they're in great companies that are positioned for successful public market debuts. Learning from WeWork, Instacart, and Robinhood helps you spot warning signs before they become headlines.
The Bottom LineNot every company should IPO, and timing matters enormously. Before investing in any pre-IPO opportunity, ask yourself: is this company ready for public scrutiny? What's the realistic IPO scenario? Who gets hurt if things go wrong?The companies that make the best pre-IPO investments are those with sustainable economics, proven business models, and reasonable valuations - not just exciting narratives.
Frequently Asked QuestionsQ: How do I know if a company will have a bad IPO?Look for: excessive losses without path to profitability, governance red flags, concentration risk, and private valuations far above public comps.Q: Should I avoid pre-IPO entirely because of these risks?No - but be selective. For every WeWork there's a Stripe or SpaceX. Due diligence separates good from bad deals.Q: Do failed IPOs always destroy value?Not always. Early investors in Instacart still made money despite the markdown. The question is who gets hurt - usually late-stage private investors and public market buyers.Q: What's the safest stage to invest?Generally, earlier stages offer better risk-adjusted returns if the company succeeds, but higher failure rates. Late-stage pre-IPO has lower upside but more certainty. Balance based on your risk tolerance.
