WeWork co-founder and CEO, Adam Neumann, has been making headlines. And, not for reasons he’d like.
WeWork creates both physical and virtual shared offices and services for entrepreneurs and companies. Just recently, Neumann’s pet project was on top of the world, rapidly growing with venture capitalists paving the way for more, more, more.
As of 2018, WeWork managed over 46 million square feet of space that provides shared workspaces for technology startups. The most recent reports say the company employs 12,500 people, and some executives were pulling down $300,000 salaries.
But now, the US’s number one tech startup is struggling to keep afloat.
Just seven weeks ago, the shoe dropped. The company’s registration papers went live on the Securities and Exchange Commission’s (SEC) website. This was all expected, and anticipation for the filing had been building.
But the company took a dagger to the heart when it made its first steps to join the public market, turning WeWork into “WeFail.”
Let’s back up and get a timeline of the lurid events surrounding the rise and fall of WeWork.
In 2010, Neumann – an Israeli Navy veteran – partnered with Miguel McKelvey to form WeWork. His co-founder has a similarly interesting background, having been raised on an Oregon commune.
Their concept of renting space in large buildings by breaking them into smaller rental offices gained traction. Over the next several years, the company grew and took on a life of its own.
In 2016, WeWork’s snagged its most prominent backer – Masayoshi Son, the CEO of the Japanese conglomerate SoftBank. Son pledged almost $11 billion. The money was come either from SoftBank’s cache or from a separate entity called the Vision Fund, which was established by Son and had raised $100 billion from its own backers.
In January of this year, it was mostly SoftBank’s investment that justified WeWork’s most recent $47 billion valuation. At the time, Son was out to catch a win, having lost in his expectations for massive success in companies like Uber.
This all went straight to Neumann’s head – reports say he believed he would become the world’s first trillionaire. But, Neumann’s aspirational (some may say arrogant) bubble burst over the past several weeks.
On August 14, WeWork’s S-1 filing with the SEC went live. At over 350 pages long, it contained a mountain of evidence of potential conflicts between Neumann and the company.
These potential conflicts included the fact that Neumann had bought the trademark to the “We” name through a holding company, and WeWork paid him $5.9 million to license it.
The number of “Related party” citations – meaning disclosures that the company was doing business that could enrich an employee, director, or officer – numbered more than 100 in the filing.
Losses from WeWork were amassing even as its revenue doubled, and the filing didn’t explain how the company would ever become profitable. When the company brought in a dollar, it spent two.
Perhaps the most troubling part of the filing was the portion that disclosed risks to investors – it was almost 30 pages long.
WeWork all but disintegrated under the news.
In less than 24 hours from the company’s filing, financial news outlets were calling for WeWork to reduce its valuation to attract interest. Fitch Ratings moving that very same day to downgrade the company because of its spending.
A couple of weeks later, the company continued to seek investors in an attempt to find support for the IPO, but their reception was chilly. On Monday, August 26, Neumann took the WeWork private jet to Tokyo to speak with SoftBank investors about the state of the IPO.
The takeaway from this meeting with Son and other investors was a $9 million check. The company desperately needed it, and both Neumann and Son needed a win.
By early September, however, the levy was breaking. WeWork’s bankers couldn’t garner enough support for the IPO. Investors were worried about signs of Neumann’s self-dealing and had doubts about the flimsy business model.
On Wednesday, September 4, the belt-tightening began. Neumann did an about-face and agreed to return the $5.9 million WeWork had paid him for the rights to use the trademarked term “We.” Reports said the company was planning a kick-off of its IPO as soon as the following week.
But the very next day, Thursday, there was another downfall. Reports surfaced that the company was considering selling its potential shares at 50% of the most recent private valuation. Numbers came in between $20 billion to $30 billion, a far cry from the original $47 billion figure.
By Sunday, September 8, WeWork was considering a valuation below the $20 billion that had been floated just days before.
On Friday the 13th, Reuters reported a valuation between $10 billion to $12 billion. These numbers rang in at less than the $12.8 billion in total equity WeWork had raised since it started. But, by Friday afternoon, reports emerged that the faithful SoftBank was prepared to purchase at least $750 million in shares in the offering.
That following Monday, WeWork announced it would postpone the IPO until after the Jewish holidays, stating that it looked forward to finishing the listing by year’s end. And then came an atomic bomb.
The Wall Street Journal dropped a report detailing Neumann’s frequent use of marijuana and shelling out $150 for a bottle of tequila. The article mentioned a WeWorks layoff discussion meeting followed with tequila shots and a performance by a member of Run-DMC.
That was it. By Sunday, SoftBank had lost their enduring faith and pushed to unseat Neumann.
On Tuesday, September 24, as Neumann’s fate hung in the balance, WeWork’s board assembled. After the meeting, Neumann had been voted out. As it turns out, Neumann voted himself out.
That’s how Neumann’s (and WeWork’s) IPO dreams crashed and burned. Now that Neumann has been ousted as CEO, observers are wondering whether WeWork can avoid bankruptcy.
The last-ditch effort is an infusion of new blood. WeWork executives Sebastian Gunningham and Artie Minson were named to replace Neumann.
Now, the company is considering slowing its growth and refocusing on its core business of renting office space through employee cuts dissolution of side businesses. Their goal is to restore investor confidence.
WeWork began talks for a renegotiated loan to the tune of $3 billion, which would require raising additional equity. By Thursday, SoftBank was talking about shelling out another $1 billion.
It remains unclear where the road will take WeWork. What we do know is that the path to recovery is long. Only time will tell whether WeWork is indeed WeFail, or whether it reworks itself into a viable business. And Neumann won’t be a part of that process, which seems like a blessing for the company’s hopes at solvency, and (dare I say) profitability.
