At the beginning of 2019, WeWork seemed on its way to becoming one of the most highly-valued startups worldwide.
Flash-forward to the end of this year, and the company’s projected value has dropped in the public eye from a self-proclaimed $47 billion, to roughly $8 billion. The initial public offering (IPO) for WeWork that was originally meant to be active by now has been repeatedly pushed back, laughed at when its S-1 paperwork was finally filed in August, and now people are questioning whether its IPO will even go live in 2020.
To top it all off, this month WeWork’s founder and previous CEO, Adam Neumann, was voted off the company’s board after pioneering the startup from the ground up since 2010.
But don’t worry too much for Neumann. Despite these game-changing debacles, the newly displaced CEO is walking away with more than enough money to set him up for life. However, most WeWork employees haven’t been nearly as fortunate.
A Company Cataclysm with Few Gains, and Many Losses
Back in July it was announced that Neumann had cashed out over $700 million from the international co-working real-estate startup. As company founders don’t typically convert holdings into cash until after their IPO launches, this was an early warning sign.
Meanwhile, trusting in WeWork’s confident expansion and projections for success, a huge portion of the startup’s staff were already accepting lower incomes in trade for a larger portion of ownership over company equity. Expecting this to be a safe and lucrative decision, thousands within the organization made this choice. Some even used their savings to purchase company options. But with WeWork’s sudden and steep decline in value, many of those people now face potential scenarios of financial ruin.
At the same time, while Neumann is no longer the company’s CEO, he still maintains a position on WeWork’s board as an observer. He owns multiple homes, including a townhouse located in Manhattan’s Village, and a custom $21 million Bay Area residence. His Bay Area home even has a room that’s designed in the shape of a giant guitar.
The recently displaced CEO may face lawsuits over these topsy-turvy events, but any possible damages pale in comparison to the monumental earnings he’s already received.
How this Happened: An Inflated IPO and a Questionable S-1
For a long time, WeWork expressed that its approximate valuation was much higher than made any sense.
However, these claims weren’t too heavily scrutinized until presidential candidate Andrew Yang joined the chorus of disbelieving critics in August. It didn’t help that the next day Google reported the company was about to experience “the most alarming negative sentiment trends they have seen compared to prior companies in similar situations.”
Additionally, the week before on August 14, the company released an S-1 that was already raising a lot of eyebrows. Normally, an S-1 is a bland document companies file to represent themselves before going public, but WeWork tried something different. To stand out, and perhaps distract from their wavering prospects, the company’s S-1 was more akin to a flashy magazine.
The S-1 was originally slated for a June release, but the hectic nature of WeWork’s offices caused multiple pushbacks. Then, when the document was finally made public in August, readers were flabbergasted. The S-1 contained many more carefully curated images of offices and executives than usual, and was full of abstract language. It was oversaturated with the term “community” 150 times, reflecting the New Age language common to the company’s internal operations. This did little to reassure, and mainly caused WeWork’s off-beat approach to be received as something of a mockery. But perhaps most damning was how the S-1 revealed that the startup lost $900 million over the previous six months.
Altogether, these unattractive displays brought on a wave of outcry from skeptical industry professionals, journalists, investors, and the like. As such, the very viability of the startup’s IPO was now coming under serious question. But WeWork, a company which always maintained a mindset for rapid chaotic growth, kept barreling forward under Neumann’s optimistic tune.
The Breaking Point for Neumann’s WeWork
Moving forward with the hopes of making their IPO finally accessible in September, Neumann remained nothing but encouraging to onlookers.
To regain momentum and raise the capital WeWork needed after the S-1, the CEO met with a series of investors. But according to the reports of some attendants, those conferences were far from smooth. Meetings mostly involved Neumann speaking for the vast majority of the time, promoting the S-1 and deflecting any tough questions. While he was charming throughout his presentations—a quality that’s allowed Neumann to garner much confidence from investors in the past—he failed to reasonably justify why WeWork’s business model was worth so much more than other similar entities.
With most major prospects going belly up in 2019, despite encouraging Neumann’s rhetoric, the company’s faith in their CEO finally reached its limit. A vote was called to decide WeWork’s future, and knowing his peers were stacked against him, Neumann voted against himself.
Now SoftBank, who has historically been WeWork’s largest investor, has been handed the reigns to the company. But not before they gave Neumann an additional $1.7 billion for stepping down from the position.
Where SoftBank intends on taking WeWork remains to be seen. Though, after witnessing this real-world cautionary tale of what happens when a highly-valued business moves too erratically, it’s safe to expect they’ll be slowing things down for the company moving forward.