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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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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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WeWork expected to announce major layoffs
WeWork, the co-working business once valued at $47 billion, is expected to announce significant layoffs this month, Bloomberg reports. This follows reports the company was looking to slash as many as 5,000 roles, or one-third of its workforce.
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 now-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.
News of potential layoffs come about two weeks after co-founder and chief executive officer Adam Neumann resigned from his post and the nine-year-old company postponed its highly anticipated initial public offering. Neumann is now serving as the company’s non-executive chairman, succeeded by WeWork’s former vice chairman Sebastian Gunningham and the company’s president and chief operating officer Artie Minson.
The embattled company has been struggling to satisfy Wall Street skeptics, who were floored by the company’s eye-popping valuation. Since Neumann’s resignation, WeWork has begun several cost-cutting initiatives and is reportedly looking to sell off several of its acquisitions, including Managed by Q, Conductor and Meetup.
Layoffs are a natural next step for the business as it aims to carve out a clear path to profitability, now a requisite for a 2020 IPO. To float at any point in the future, after all, WeWork must prove elevating “the world’s consciousness” will eventually lead to profits.
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. “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.”
WeWork declined to comment.
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WeWork withdraws its S-1 filing, will delay its IPO
WeWork’s parent organization The We Company just announced that it’s withdrawing the S-1 filing for its IPO.
The co-working company has had a turbulent month since the filing went public, around both the general state of its finances and the behavior of co-founder/CEO Adam Neumann.
As a result, Neumann stepped down down as CEO last week (he will continue to serve as non-executive chairman). In addition, the company is looking to focus on its core co-working business, which means it’s planning major layoffs and even reportedly looking to sell some of the companies it acquired over the last couple of years — namely Managed by Q, Conductor and Meetup.
So it was widely expected that The We Company would delay its IPO. Today, it made things official with the release of a statement from new co-CEOs Artie Minson and Sebastian Gunningham:
We have decided to postpone our IPO to focus on our core business, the fundamentals of which remain strong. We are as committed as ever to serving our members, enterprise customers, landlord partners, employees and shareholders. We have every intention to operate WeWork as a public company and look forward to revisiting the public equity markets in the future.
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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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The We Company reportedly will put its public offering on hold
The We Company, parent company of the short-term real estate property management and development company WeWork and other We-related subsidiaries, is reportedly shelving its plans for an initial public offering.
The company’s plans for a public offering have been hampered by questions about its corporate governance and the ultimate value of a company that private investors once thought was worth nearly $50 billion.
Public investors were balking at that sky-high valuation and the company’s questionable governance practices under chief executive officer and co-founder, Adam Neumann, according to The Wall Street Journal, which first reported the news that The We Company would put its offering on hold.
Over the past few weeks, The We Company has made several moves to allay investors’ concerns. The company unwound some particularly egregious transactions with Neumann and added new directors. It also moved to limit Neumann’s power at the company.
Last week, the company amended its prospectus to include the appointment of an independent lead director. It also slashed 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.
Even these steps were not enough to comfort Wall Street investors, apparently. Not even the attempts to slash the company’s valuation to below $10 billion could attract enough investor interest to the public offering. And the opacity of The We Company’s reporting and metrics likely did nothing to help matters in the eyes of the investing public.
Now that The We Company is likely to pull its public offering… and with Uber and Lyft underperforming in their first year as public companies, perhaps venture capital firms will rethink the sky-high valuations they’d placed on their portfolio companies. Perhaps it’s time to relearn the lesson that greed may not actually be good.
We have reached out to The We Company for comment and will update with their response.
This story is developing.
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