Former WeWork CEO Adam Neumann will walk away from the company he founded with $1.7 billion (roughly Rs. 12,000 crores) in cash and credit as key investor SoftBank takes over and scrambles to stave off bankruptcy, according to news reports. The iconoclastic Neumann, who helped propel WeWork to an eye-popping $47 billion (roughly Rs. 3,33,000 crores) valuation, had been listed as a risk factor in the workspace-sharing company's prospectus because his leadership and vision were considered essential to its success. But he bowed out as CEO last month after WeWork postponed its initial public offering amid troubling reports about his behavior and questions about the company's true worth. Now, he'll exit the company almost entirely, giving up his voting rights but maintaining an unspecified stake.
SoftBank will give Neumann $1 billion (roughly Rs. 7,100 crores) for his shares and an $185 million consulting fee, as well as $500 million in credit to help him repay a loan facility, according to the Wall Street Journal.
WeWork's spectacular fall stands out even in a year defined by high-profile IPO flops from some of the most hyped names in tech. Ride-hailing giants Uber and Lyft, and exercise bike company Peloton, have all seen their share prices fall more than 20 percent since going public this year. Though all have been praised for their innovation and growth potential, they continue to blow through money without a clear-cut path to profitability.
WeWork, which essentially is a real estate company that presents itself in the tech sphere, saw rapid success with its hip co-working spaces. Since 2010, it's expanded to more than 30 countries and is one of the biggest private tenants in Manhattan, London and Washington, D.C. It claims about a third of the flexible office space market, according to data from real estate firm CBRE. Yet despite its aggressive expansion, the company has never turned a profit and will be out of money by November without more financing, CNBC reported.
Japanese conglomerate SoftBank will try to arrest that free fall. It is expected to take over Tuesday in a deal that would value the company at roughly $8 billion, the Journal reported. That's a more than 80 percent drop from WeWork's highest valuation (which Neumann once said was based more on "energy and spirituality" than revenue) and less than half of what it had expected from its bungled IPO. The company had planned to lay off thousands of employees, but had to delay because it couldn't afford the severance costs, the Wall Street Journal reported.
J.P. Morgan, one of WeWork's biggest external shareholders, had been competing with Softbank for WeWork's financial rescue. The company met with more than 100 investors to cobble together billions in bailout funding, but refused to match Softbank's offer for Neumann, according to reporting from CNBC.
WeWork and SoftBank did not immediately respond to requests for comment.
WeWork's prospectus, which was filed in August, rapidly deflated the company's image when it revealed the company was hemorrhaging money, having lost more than $900 million in the first six months of 2019. The filing also revealed Neumann had borrowed hundreds of millions of dollars against his stock holdings and has stakes in multiple companies that lease properties to WeWork, prompting conflict of interest allegations. The company even paid Neumann nearly $6 million for trademark rights to the word "We," though he later paid the money back, the company said in an updated filing.
The 40-year-old Neumann easily fit the bill of Silicon Valley disrupter. A towering 6-foot-5, he was known for walking around the office barefoot and encouraging the free flow of tequila. His goals were wide-ranging and unbounded by reality - becoming the world's first trillionaire, taking WeWork to Mars, living forever, becoming prime minister of Israel or "president of the world," according to reporting from the Journal.
Neumann moved to the United States in 2001 after a stint in the Israeli navy and studied business at Baruch College in New York City. His last business venture before founding WeWork was a failed baby clothes company called Krawlers that made pants with knee pads for cushier crawling. In 2008, he teamed up with architect Miguel McKelvey to lease vacant space in the building they worked in and turn it into a hip, eco-friendly co-working space. That became the foundation for WeWork, which pegs its brand to the notion that work is the axis of life.
His wife, Rebekah Paltrow Neumann, stepped down as WeWork's chief brand officer last month. Last week, the company announced it would be shutting down WeGrow, the private primary school of which she was chief executive.
© The Washington Post 2019