adam neumann
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Silicon Valley should reward zebras, not unicorns
Silicon Valley has a unicorn problem.
While no one is calling for startups with high valuations to go extinct, there ought to be a lot fewer of them. At least that’s what many young founders have concluded after looking at the trials and travails of billion-plus-dollar private companies.
A unicorn is a mythical animal, so investors expect magical results: Lightning growth, near-monopolies and a record-setter IPO yielding 100x or 1,000x returns. A “zebra” company is different. Zebras are real animals that have evolved to fill and thrive in a particular niche. Unlike unicorn companies, zebras are lean, efficient and consistent.
Exponential growth is neither the best nor the only way for businesses to operate.
Too often, a company’s name or perceived cachet — rather than its actual product or realistic business prospects — becomes the thing it is selling. For the most recent, and maybe most damning, example of this trend, look at WeWork .
The company’s 2019 failed IPO was the corporate debacle of the decade; few businesses since Enron have fallen so far so quickly. When the market got a chance to examine the unicorn, they discovered it was really a one-trick pony with a cardboard horn. Adam Neumann built his company for net worth, not actual value, and his employees and supporters paid the price. Then again, imagine if the IPO had been a success: How much of the company’s worth would have evaporated when COVID-19 rolled around in March?
Although most tech innovation requires venture capital in today’s economy, unicorns sometimes become case studies in taking too much of a good thing. Round after round of funding can, as in the case of WeWork, disguise rickety foundations and unsound business plans.
Earlier this month, the mobile video unicorn Quibi folded less than a year after its launch. Film and TV critics weren’t surprised, and neither were those few consumers who’d heard of the company.
Well before its ill-timed launch in early April, most observers knew it was a bad idea. So why did Quibi receive so much funding? The big names attached to the company, including Dreamworks co-founder Jeffrey Katzenberg and one-time HP CEO Meg Whitman, attracted investors who somehow didn’t realize that everything about the product, from its name to its pricing, was wrong.
What a unicorn offers isn’t as important as the fact that it’s a unicorn. The opposite of a unicorn company, to my mind, is a zebra company. They may be a little odd, they may not get the front-page headlines or breathless news coverage, but they’re built to last and built to do something.
Unicorns thrive so long as they remain in the enchanted forest of endless venture rounds; zebras tough it out in the savannas of the free market. A zebra company won’t become the next behemoth like Facebook or Amazon, but neither will it become the next Quibi or WeWork.
The emergence of zebra companies like Handshake and Turo, and to some extent corporations like Ben and Jerry’s and Patagonia, speaks to a broader change in our business and economic understanding. Even before the coronavirus shut down much of the world, endless growth was looking less and less attractive.
Instead of extracting ever more value from the economy, companies like Patreon realize that the same dollar can be earned multiple times as it circulates through the economy. One-way extraction of value is replaced with a circular flow of value. Exponential growth is neither the best nor the only way for businesses to operate.
For most of us, the new year will be a relief: 2020, over at last. But we shouldn’t neglect the opportunity to reflect on the past and plan for the future that a new year offers. The mistakes of WeWork and Quibi are all too easy to repeat; chances are that somewhere in Silicon Valley, a venture capitalist is giving too much money to a doomed business. We’ve been too focused on the unicorns. It’s time to give the zebras the attention they deserve.
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Justin Kan opens up (Part 2)
Greg M. Epstein is the Humanist Chaplain at Harvard and MIT, and the author of The New York Times bestselling book “Good Without God.” Described as a “godfather to the [humanist] movement” by The New York Times Magazine in recognition of his efforts to build inclusive, inspiring and ethical communities for the nonreligious and allies, Greg was also named “one of the top faith and moral leaders in the United States” by Faithful Internet, a project of the United Church of Christ and the Stanford Law School Center for Internet and Society.
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Justin Kan was talking about the systems in his life. The serial entrepreneur/founder, who recently announced a pivot and significant layoffs at Atrium, his latest venture, came to speak at last fall’s TechCrunch Disrupt in high-fashion black sweats and an extremely colorful pair of Nikes.
After Kan wrapped up his panel, we sat down for a wide-ranging and philosophical interview. And as we left off in part one of our conversation, Kan was explaining his self-described Buddhist philosophy of life.
But in the second part of our interview, I wanted to focus more on Kan’s thoughts about systems in society as a whole. There’s a difference, after all, between working mindfully to change oneself and doing so to change society. As we’ve seen with Adam Neumann, among others, there is a certain class of “spiritual” Silicon Valley entrepreneurs who use their platform in tech to assuage their own inner suffering — and perhaps gain influence by helping similarly influential people alleviate their own. WeWork, for example, cultivated associations with everything from Kabbalah to Deepak Chopra to mindful eating before the company melted under the heat of its own ethical challenges.
I don’t know that there is evidence to place Kan in the above category; maybe he is better understood as a legitimate, if unconventional, Big Thinker. But either way, it would be important to ask: What good is it when tech leaders like Kan seek a Buddhist alleviation of suffering, if the industries that sustain them are, at scale, currently creating enormous and very tangible suffering for countless millions of less fortunate people?
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John Legere is stepping down as CEO of T-Mobile, succeeded by deputy Mike Sievert on May 1
He’s reportedly not going to take over WeWork, but John Legere is definitely on his way out of the CEO role at T-Mobile, the carrier that is currently merging with SoftBank-controlled Sprint. Today the carrier and Legere confirmed that Mike Sievert — currently T-Mobile’s COO — will succeed Legere as CEO on May 1 of 2020. Legere will stay on the board.
Neither Legere nor T-Mobile commented on what his next move will be, and specifically if this will pave the way for him to take over the top job at WeWork. There had been reports that Legere — something of a turnaround specialist — was being lined up for the job at the very troubled office-space startup, which had to shelve its IPO earlier this year after showing poor financials amid questionable management that not only led to the departure of its founder Adam Neumann as CEO, but a strong devaluation of the company that resulted in SoftBank, as a major creditor, taking control.
The reports of Legere coming in to fix things at WeWork seemed to get refuted quite swiftly. However, the same “sources” that quashed that story also insisted he had “no plans” to leave T-Mobile. With elements of the report in doubt, that could put the WeWork rumors (or thoughts of other SoftBank roles, for that matter) back on the table. We’ve asked Legere directly and will update this post if he replies.
Legere has been with T-Mobile since 2012, where he used his irreverent personality to directly spar with the industry while at the same time position the carrier — which has long trailed bigger competitors like AT&T and Verizon (which owns us) in size — as a growth story and different from the pack (hence the “un-carrier” marketing strategy). The stock price has over that time gone up, and the carrier is currently valued at around $65 billion. (Notably, the stock is down about 1.5% today on the back of this news.)
Sievert will be tasked with continuing the route that Legere set, T-Mobile said, “demonstrating that T-Mobile will remain a disruptive force in US wireless marketplace to benefit consumers.”
“I hired Mike in 2012 and I have great confidence in him. I have mentored him as he took on increasingly broad responsibilities, and he is absolutely the right choice as T-Mobile’s next CEO,” said Legere in a statement. “Mike is well prepared to lead T-Mobile into the future. He has a deep understanding of where T-Mobile has been and where it needs to go to remain the most innovative company in the industry. I am extremely proud of the culture and enthusiasm we have built around challenging the status quo and our ongoing commitment to putting customers first.”
“The Un-carrier culture, which all our employees live every day, will not change,” Sievert said in a separate statement. “T-Mobile is not just about one individual. Our company is built around an extraordinarily capable management team and thousands of talented, committed, and customer-obsessed employees. Going forward, my mission is to build on T-Mobile’s industry-leading reputation for empowering employees to deliver an outstanding customer experience and to position T-Mobile not only as the leading mobile carrier, but as one of the most admired companies in America.”
Regardless of whether this is a sign that SoftBank indeed has a job lined up for Legere at one of its other portfolio companies, such as WeWork, the changing of the guard makes some sense, as the merger with Sprint would leave a question mark over who would lead the combined business. The two companies were reportedly close to releasing a management line-up for the merged business earlier this year, but that has yet to happen. The merger is due to be completed early next year.
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Report: SoftBank is taking control of WeWork at an ~$8B valuation
WeWork, once valued at $47 billion, will be worth as little as $7.5 billion on paper as SoftBank takes control of the struggling co-working business, CNBC reports.
SoftBank, a long-time WeWork investor, plans to invest between $4 billion and $5 billion in exchange for new and existing shares, according to CNBC . The deal, expected to be announced as soon as tomorrow, represents a lifeline for WeWork, which is said to be mere weeks from running out of cash and has been shopping several of its assets as it attempts to lessen its cash burn.
WeWork declined to comment.
To be clear, it is reportedly the Vision Fund’s parent company, SoftBank Group Corp. that is taking control, with SoftBank International chief executive officer Marcelo Claure stepping in to support company management, per reports.
The Japanese telecom giant’s move comes precisely four weeks after co-founder and former CEO Adam Neumann relinquished control of the company and transitioned into a non-executive chairman role, and about three weeks after WeWork decided to delay its highly anticipated initial public offering. WeWork’s vice chairman Sebastian Gunningham and the company’s president and chief operating officer Artie Minson are currently serving as WeWork’s co-CEOs.
In addition to those personnel shake-ups, WeWork has lost its communications chief, Jimmy Asci, its chief marketing officer, Robin Daniels and several others. Meanwhile, the company has slashed hundreds of jobs, and opted to shut down its school, WeGrow, in 2020.
Now expected to go public in 2020, WeWork was also said to be in negotiations with JPMorgan for a last-minute cash infusion. The company, now a cautionary tale, will surely continue to reduce the sky-high costs of its money-losing operation in the upcoming months.
WeWork revealed an unusual IPO prospectus in August after raising more than $8 billion in equity and debt funding. Despite financials that showed losses of nearly $1 billion in the six months ending June 30, the company still managed to accumulate a valuation as high as $47 billion, largely as a result of Neumann’s fundraising abilities.
“As co-founder of WeWork, I am so proud of this team and the incredible company that we have built over the last decade,” Neumann said in a statement confirming his resignation last month. “Our global platform now spans 111 cities in 29 countries, serving more than 527,000 members each day. While our business has never been stronger, in recent weeks, the scrutiny directed toward me has become a significant distraction, and I have decided that it is in the best interest of the company to step down as chief executive. Thank you to my colleagues, our members, our landlord partners, and our investors for continuing to believe in this great business.”
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Adam Neumann planned for his children and grandchildren to control WeWork
WeWork co-founder Adam Neumann didn’t plan for his family’s control of WeWork to end at his death but instead expected to pass that control to future generations of Neumanns, too, says Business Insider.
The outlet reports that in a speech Neumann gave to employees in January of this year, footage of which it says it has viewed, Neumann is seen saying that WeWork isn’t “just controlled — we’re generationally controlled.” He reportedly goes on to say that while the five children he shares with wife Rebekah Neumann “don’t have to run the company,” they “do have to stay the moral compass of the company.”
According to BI, Neumann even invoked his future grandchildren, telling those gathered: “It’s important that one day, maybe in 100 years, maybe in 300 years, a great-great-granddaughter of mine will walk into that room and say, ‘Hey, you don’t know me; I actually control the place. The way you’re acting is not how we built it,’” he said.
These may sound like more outlandish proclamations from Neumann, who has a flair for the dramatic. (Talking to Fast Company earlier this year, he compared WeWork to a rare jewel, asking, “Do you know how long it takes a diamond to be created?”)
But before WeWork began coming apart at the seams, Neumann had every reason to believe that he could pass power down to his heirs. Though many public shareholders may not realize as much, a growing number of tech founders enjoy the kind of dual-class shares that Neumann had extracted from investors, shares that don’t merely give founders more voting power for a while after their companies go public or even throughout their lifetimes, but whose power can be passed down to their children, too.
We wrote about this very issue as a kind of hypothetical last month, quoting SEC Commissioner Robert Jackson, a longtime legal scholar and law professor, who told an audience last year that nearly half of companies that went public with dual-class shares between 2004 and 2018 gave corporate insiders “outsized voting rights in perpetuity.”
Warned Jackson, “Those companies are asking shareholders to trust management’s business judgment — not just for five years, or 10 years, or even 50 years. Forever.” Such perpetual dual-class ownership “asks them to trust that founder’s kids. And their kids’ kids. And their grandkid’s kids . . . It raises the prospect that control over our public companies, and ultimately of Main Street’s retirement savings, will be forever held by a small, elite group of corporate insiders — who will pass that power down to their heirs.”
You might argue that it’s senseless to worry, that the market will speak as it did in WeWork’s case. But not every company has such apparent flaws, and Neumann could have made himself a lot harder to shake than he did. In fact, the broader question the video raises is whether anyone will step in to stop the broader trend, or if public market investors will be living with the consequences down the road instead.
Neumann wasn’t insane to imagine the scenario that he did. That doesn’t mean it’s rational. Giving founders super-voting shares for some period after transitioning onto the public market, we can understand. Giving founders so much power that their kids call the shots of these publicly traded companies? Now that is crazy.
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Brad Feld: what founders need to know about recent changes in VC deal terms
Extra Crunch offers members the opportunity to tune into conference calls led and moderated by the TechCrunch writers you read every day. This week, TechCrunch’s Connie Loizos hopped on the line with prominent investor, entrepreneur, thought leader, and Techstars co-founder Brad Feld to chat about the latest edition of his book “Venture Deals,” his advice to founders and investors, and his take on hot-button issues of the day.
In their conversation, Brad and Connie discuss the need to know information when it comes to preparing for, structuring and executing venture deals, and how that information has changed over the past several decades. Feld walks through the major topics that have been added in the latest edition of the book, such as how to handle venture debt, along with tactical attributes that aren’t currently in the book, such as secondary market trading.
Brad also shares his take on the most effective fundraising tactics for founders, and which common pieces of advice might be overblown.
Brad Feld: “I think the approach to the amount of money that you’re raising is both nuanced and evolves based on what financing round you’re at. So if you’re in an early round, some of the characteristics are different than if you’re in a later round. But I think the general truism… that I like to use when people say, ‘Well, how much money should I raise?’
I start with two variables and you the entrepreneur get to define those two variables. The two variables are: the amount of money you raise and what getting to the next level means. The amount of money you should raise is the amount of money that you need to get your business to the next level. There are lots of different ways to define what next level is and by forcing yourself internally to define next level and then define what you need in terms of capital to get to that next level… when you’re raising that first round of financing or even the second or third round of financing, it helps you size rationally what you need versus reactively to whatever the market characteristics are.
I actually encourage entrepreneurs to raise the least amount of money they need to get to the next level, or at least that’s the number that they go out to market with. Not a range, not a big number because you’re trying to drive some kind of valuation characteristic off a big number, but the amount of money that you actually think you need to get to the next level. Then if you can be oversubscribed, that’s an awesome situation.”
Feld and Connie dive deeper into current issues in the startup and venture landscape, including Brad’s take on the impact of the SoftBank Vision Fund, what went down internally and externally at both WeWork and Uber, as well as how boards, executives and founders can manage cult of personality and static company cultures.
For access to the full transcription and the call audio — and for the opportunity to participate in future conference calls — become a member of Extra Crunch. Learn more and try it for free.
Connie Loizos: I think the last time I saw you in person was out here in San Francisco at an event I was hosting and that was maybe two years ago?
Brad Feld: Yup, that’s right. That was at the Autodesk Lab if I remember correctly.
Loizos: Yes. It’s good to hear your voice, and thank you for joining us on this call. We have a lot of readers who are big fans of yours that are on the line and are eager to learn about your book “Venture Deals” and your broader thoughts about the current state of the market. That said — and I know you only have so much time — let’s dive first into the book. So Wiley, your publisher has just put out the fourth edition of this book “Venture Deals,” and it’s really easy to appreciate why. I was looking through it and it’s so incredibly instructive how venture deals come together and possible pitfalls to avoid. And given there are always new entrepreneurs emerging, it continues to be highly relevant.
How do you go about updating a book like this, given that some things change and some things stay the same?
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Report: WeWork expected to cut 500 tech roles
The WeWork saga continues this week with new reports the company may slash as many as 500 tech roles.
The co-working business, whose eccentric co-founder and chief executive officer Adam Neumann stepped down two weeks ago, is expected to let go of 350 employees within its corporate division, The Information reports. Initial cuts will be within the software engineering, product management and data science teams.
Another 150 roles may be dissolved as the company looks to sell several assets, including Managed by Q, Teem, SpaceIQ, Conductor and Meetup . New York-based WeWork has roughly 15,000 employees and expects to make as many as 2,000 layoffs, per reports, as the business attempts to cut costs and rewrite its narrative ahead of an eventual debut on the public markets.
WeWork unveiled its S-1 — littered with errors and sloppy work, per The Wall Street Journal — but decided to delay its initial public offering after Neumann stepped down and the company’s former vice chairman Sebastian Gunningham and former president and chief operating officer Artie Minson stepped in to serve as co-CEOs.
Now expected to go public in 2020 at a valuation as low as $10 billion, WeWork is also in negotiations with JPMorgan for a last-minute cash infusion to replace the capital expected from the postponed IPO, per reports. The company, now a cautionary tale, has been working with bankers in recent weeks to reduce the sky-high costs of its money-losing operation. The reported layoffs are said to be a part of the bankers’ strategy.
WeWork was previously valued at $47 billion despite losses of nearly $1 billion in the six months ending June 30.
WeWork did not immediately respond to a request for comment.
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TC’s Greg Epstein and Kate Clark talk mental health startups and the ‘Cult of the Founder’
Some weeks, tech ethics is in the news. And some weeks, it IS the news. This week was one of the latter.
There were so many ethically fraught news stories about technology companies over these past few days, I had trouble keeping track of them all. So I’m delighted that my latest interviewee for this series on ethics and technology is TechCrunch’s own Kate Clark, a reporter covering startups and venture capital.
Kate is one of the tech reporters on whom I rely most heavily for insight into what the hell is going on in Silicon Valley, and not just because she’s prolific, a fine writer, and so hardworking she seems to attend every VC dinner and startup product launch in Northern California (though she is all of those things).
I also turn to her (well actually, I turn to her Twitter — we’ve never met in person) because, though she would never claim to have any special training or authority in ethics, she has three of the top qualities I look for in an ethical leader: a passion for equitable inclusion; a well-modulated bullshit detector; and enough compassion for humanity to expect better of us all.
When Kate and I spoke on Wednesday afternoon, she was as harried as you might expect, at least based on her tweets.
Image via Twitter / Kate Clark / @KateClarkTweets
Alright anyone else that tries to generate headlines today is selfish and rude and must be stopped!!!
— Kate Clark (@KateClarkTweets) September 25, 2019
Greg Epstein: I’ve been looking forward to talking to you for a while now, and I certainly picked a busy day.
Kate Clark: Not as bad as yesterday.
Epstein: I follow your work closely; it informs mine. I’m sitting here in Cambridge, Massachusetts, where I work, and I’m thinking about the ethics of technology.
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WeWork CEO Adam Neumann steps down
WeWork’s co-founder and chief executive officer Adam Neumann has stepped down as CEO and will serve as non-executive chairman of the board, the company confirmed in a press release Tuesday following a report from The Wall Street Journal. WeWork’s vice chairman Sebastian Gunningham and the company’s president and chief operating officer Artie Minson will serve as co-CEOs.
The eclectic executive has faced increasing pressure to relinquish his throne after another report from the WSJ highlighted his drug use and desires to become Israel’s prime minister, among other strange behaviors.
“As co-founder of WeWork, I am so proud of this team and the incredible company that we have built over the last decade,” Neumann said in a statement. “Our global platform now spans 111 cities in 29 countries, serving more than 527,000 members each day. While our business has never been stronger, in recent weeks, the scrutiny directed toward me has become a significant distraction, and I have decided that it is in the best interest of the company to step down as chief executive. Thank you to my colleagues, our members, our landlord partners, and our investors for continuing to believe in this great business.”
Neumann’s wife and WeWork co-founder Rebekah Neumann is said to have stepped down from her role as well. Rebekah has had several titles over the years, including chief impact officer, chief brand officer and most recently, co-founder and CEO of WeGrow, WeWork’s “conscious entrepreneurial school.”
SoftBank, the Japanese investor that has funneled billions into the star co-working business, is said to have encouraged — rather, enforced — Neumann’s reported transition out of the CEO role ahead of the company’s anticipated initial public offering. Per the WSJ, moving to the chairman seat would “allow [Neumann] to stay at the company he built into one of the country’s most valuable startups, but inject fresh leadership to pursue an IPO that would bring We the cash it needs to keep up its torrid growth.”
WeWork revealed its unusual IPO prospectus last month after raising more than $8 billion in equity and debt funding. The New York-based company had been valued at a whopping $47 billion, thanks largely to SoftBank’s repeated investments despite financials that show losses of nearly $1 billion in the six months ending June 30.
Wall Street investors were skeptical of the eye-popping valuation, leading to reports WeWork would seek a valuation of as low as $15 billion instead, a magnificent defeat for one of the most valuable private companies in the world. Ultimately, WeWork delayed its float altogether, claiming it planned to go public “by the end of the year.”
In additional efforts to appease Wall Street, WeWork amended its S-1 filing to include the appointment of an independent lead director and its first female board member, Frances Frei. On top of that, the company decreased the strength of Class B and Class C shares so Neumann would not have 20 times the voting power of other shareholders, and removed Neumann’s wife from succession planning at the company.
According to the latest news, Neumann’s voting shares will be reduced from 10:1 to 3:1.
Meanwhile, WeWork is working with bankers to reduce the cost of its money-losing operation, with a new report from The Information stating the business may cut as many as 5,000 roles, or one-third of its entire workforce.
The WeWork IPO saga draws many parallels to Uber’s pre-IPO struggles. Both companies were led, for years, by outspoken executives, Neumann and Travis Kalanick, respectively. Both men were ousted, in essence, by frustrated board members who were concerned at the potential outcome of multi-billion-dollar IPOs.
Given WeWork’s struggle to complete a public listing and Uber’s disappointing performance on the public markets, perhaps private market investors will realize Silicon Valley’s pixie dust doesn’t carry the same weight on Wall Street.
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As Adam Neumann reportedly faces pressure to step down, it’s looking like a fight for life between WeWork and SoftBank
According to a new WSJ report, certain members of WeWork’s seven-person board, which includes cofounder and CEO Adam Neumann, are planning to pressure Neumann to step down and instead become We’s non-executive chairman. The move, says the outlet, “would allow him to stay stay at the company he built into one of the country’s most valuable startups, but inject fresh leadership to pursue an IPO that would bring We the cash it needs to keep up its torrid growth.”
The WSJ and Bloomberg are reporting that it is SoftBank specifically that wants Neumann to step down. Neither WeWork nor SoftBank is commenting publicly.
It’s a fascinating development, the kind we saw when Uber’s board successfully forced cofounder and longtime CEO Travis Kalanick to abandon his role as CEO. Still, we’d caution against drawing too close a comparison. While the venture firm Benchmark, which spearheaded Kalanick’s ouster, stood to lose billions of dollars if Kalanick dragged down Uber and continued to push off an IPO, Benchmark was not in a do-or-die situation because of its Uber investment.
SoftBank appears to be in more dire straights, making this standoff a particularly meaningful one.
Let’s back up a minute first, though, and consider who is involved and which way this could potentially go. A few days ago, Business Insider put together a useful cheat sheet about WeWork’s board members that may hint at their allegiance.
1.) Ronald Fisher — who is vice chairman at SoftBank Group after founding SoftBank Capital, a U.S. venture arm of SoftBank — joined SoftBank’s board last year. He oversees 114 class A shares, each of which carries one vote. Obviously, he’s going to side with SoftBank.
2.) Lewis Frankfort — the chairman of a fitness studio chain called Flywheel Sports — has been a board member of WeWork for roughly five years, and BI says WeWork once loaned him $6.3 million, which he repaid with interest earlier this year. We have to think he’d stick with Neumann out of loyalty. At the same time, he doesn’t wield much power unless he has the right to block significant actions at the company (some shareholders get these blocking rights; some don’t.) What he know: he controls 2 million shares, and 750,000 of them are Class B shares that carry 10 votes each.
3.) Benchmark, which first backed WeWork in 2012, is represented on the board by Bruce Dunlevie, the founding partner of the venture firm. Benchmark owns 32.6 million Class A shares, and could go either way, seemingly. On the one hand, Benchmark doesn’t want to establish a reputation for pushing out founders after the Kalanick debacle, and if it supports SoftBank over Neumann, it risks this exact thing happening. On the other hand, Benchmark might not want to battle with SoftBank if it thinks it has staying power or it’s concerned (suddenly) that it allowed Neumann to amass too much control.
4.) Harvard Business School professor Frances Frei was brought in roughly a minute ago to add a much-need sprinkling of gender diversity to WeWork’s all-male board. Frei’s name first came to be more broadly recognized when she was hired to help address Uber’s battered culture, so presumably she has ties to Benchmark. We’d guess she’ll side with Dunlevie, meaning that we have no idea whose side she will take.
5.) Steven Langman, the cofounder of private equity firm Rhône Group, has ties that go back a ways with Neumann, and he has benefited richly from the association. According to an April story in the WSJ, Langman met Neumann through a shared rabbi in its earlier days and joined the board in 2012. He also invested in the company (he owns 2.28 million shares, according to a bond filing). Langman is on both the company’s compensation committee and its succession committee. He also runs a real-estate investment vehicle in partnership with We that buys and develops buildings to then lease back to the co-working company, despite that it raises conflict-of-interest questions. We’d guess he’s on Team Neumann.
6.) John Zhao is the chairman and CEO of Hony Capital, which partnered with SoftBank and WeWork to create a standalone entity called WeWork China back in 2017, and Hony has subsequently poured more capital into that subsidiary. We’re not sure how close Zhao is to SoftBank, but if SoftBank brought Hony into WeWork, we’re guessing he will back the Japanese conglomerate on this one. Hony doesn’t own 5 percent or more of WeWork’s parent company so its share holdings aren’t listed publicly.
Neumann, it’s very worth noting, is himself is far more powerful than any of these six individuals. Even after the company recently revised Neumann’s supervoting rights, which gave him 20 times the voting power of ordinary shareholders and now give him 10, he could fire the entire board if he so chooses, notes the WSJ.
Naturally, that wouldn’t be a good look for Neumann, who is already battling growing public perception that, among other negatives for a public company CEO, he smokes a whole lot of pot and that he may be delusional. (A WSJ piece last week reported that Neumann likes to smoke marijuana with friends and while airborne. It also said that Neumann has confided to different people his interest in becoming Israel’s prime minister and president of the world.)
All that said, SoftBank is also fast-losing credibility. While its CEO, Masayoshi Son, has been long revered as a visionary, a growing number of sources we’ve spoken to question the viability of his entire Vision Fund operation. They see WeWork’s ever-soaring valuation on the private market, from $20 billion to, more recently, $47 billion — which was almost single-handedly SoftBank’s doing — as just one in a costly string of poor calls.
Indeed, despite the roughly $10 billion that SoftBank has sunk into WeWork, the financial loss it would take if WeWork falls apart would pale in comparison to the reputational hit Son would suffer, and you can bet there will be ripple effects.
Our suspicion: given the Vision Fund’s impact on the startup industry over the last few years, there’s a lot more riding on what happens with WeWork than meets the eye. Stay tuned.
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