How to Cheat Bankruptcy: A Guide by WeWork
‘WHY FILE FOR BANKRUPTCY WHEN YOU CAN FILE FOR AN IPO?’
In less than one year WeWork went from being the most valued startup of all time to losing more than three-fourth of its value, ousting its Rock star CEO and desperately needing cash bail out from its biggest investor just to keep the lights on. This is a case study about what happened when a company got too much money into little time and no effective oversight on how to spend it. In late of summer 2019, WeWork was valued at 47 billion dollars, whose price tag was more than that of Airbnb, Stripe or SpaceX but in just few months this valuation vanished.
It all started when company’s former CEO and founder Adam Neumann was looking for apartments in Brooklyn. He came up with the idea of subdividing the space which could be used by individual people while working. Miguel McKelvey; his cofounder who was an architect, came up with the plan and boom they were away. (Bear in mind that WeWork never owned any properties; they just acted as middlemen between landlords and a person or a company looking for space to work)
Adam’s whole Idea was let's not just be another commercial office leasing company; lets accelerate the new world of how people work and make it better and initially it is attracted the attention of young entrepreneurs looking to expand their companies and who were looking for a community of likeminded people. It was almost like sensation that they created with the very early employees at the time. WeWork really started to take off when SoftBank invested in them in 2017.
WeWork is one of the 80 companies that SoftBank vision fund has backed. Softbank’s mantra is there is a lot of money out there and in this unique period of transformation they can make everything happen faster by just draining in excessive cash. Between 2017 and 2018 SoftBank put in 8 billion dollars more, making its valuation to go up to 20 Billion. In 2019 further investments by SoftBank would bring the company’s valuation to 47 billion dollars. Meanwhile the company was losing large sums of money on a daily basis.
WeWork was a basically a real estate company pretending to be a tech company. It’s a legend now how recklessly Adam spent the money; he invested in a company that made wave pools, one that made super foods. They even opened an elementary school in New York City under the name WeGrow. They desperately needed an adult in the room who could say ‘No’.
Adam had personally purchased the trademark to the word ‘WE’ and sold it back to the company for 4.9 million dollars. This is just one of many examples of how the corporate leadership including Adam Neumann seemed to find opportunities to enrich themselves at the expense of the company and their employees.
When the company’s finances were made public in advance of WeWork’s planned IPO, investors and journalists became aware for the first time just how much money the company was hemorrhaging — and how many questionable decisions Neumann had made. In the company filings it showed that they lost 690 million dollars in just first six months of 2019 and were close to bringing its total of three billion dollars in past three years. . Neumann was asked to step down as CEO in 2019 and hasn’t returned to the company since.
After changing the corporate leaders decided to change a few things including selling company acquisition including their 60 million dollar private jet. They laid down thousands of employed and had secured multi-million dollar severance packages for themselves at a time when the company didn't even have enough cash to pay severance for their laid off employees. Soft Bank ultimately bailed out injecting much-needed 9.5 billion dollars in the company which was now valued less than 9 billion dollars.
But one thing hasn’t changed since his days at the helm of the company: Adam Neumann is still really, really, really rich. His departure from WeWork earned him a $1.7 billion payout; ongoing negotiations with WeWork investor SoftBank secured him another $50 million payment in February of 2021. And not to mention the WeWork stock he still holds, which the Wall Street Journal reports is worth about $2 billion (though he’s reportedly set to sell about a quarter of it to SoftBank).
Over the past couple years, Neumann has been selling multiple pieces of real estate for multi-millions and liquidating his many homes around the country. He and his wife spent some time in Israel to escape scrutiny after WeWork’s highly-publicized implosion, but have returned to the U.S. In the summer of 2020, he acquired the rights to the curriculum developed for WeGrow, a private school launched as an educational arm of the We brand; Forbes reported that his wife Rebekah(who is Gwyneth Paltrow’s cousin) planned to relaunch WeGrow as Student of Life For Life (or SOLFL, pronounced “soulful”), but no further developments have been reported since.
I found this case study to be really similar to that of Elizabeth Holmes’ Theranos and Billy McFarland’s Fyre Festival. Once being perceived as this generation’s Steve Jobs to entering the pantheon of fraudulent founders-Adam Neumann has done it all.