By now you’ve probably read a book, listened to a podcast, watched a documentary and streamed an original series about everything that went wrong with WeWork. So I wont bore you with a repetitive recap, but I do want to quickly list a timeline of significant events the occurred between 2010 and late 2019:
- 2010: WeWork is founded by Adam Neumann and Miguel McKelvey.
- October 2011: Adam and Miguel take on a $1 million seed investment.
- July 2012: WeWork raises $17 million at a valuation of $100 million
- October 2014: WeWork raises $355 million at a valuation of $5 billion.
- August 2017: WeWork raises $760 million at a $20 billion valuation.
- January 2019: WeWork receives a $5 billion investment from SoftBank, valuing the company at $47 billion.
- August 2019: WeWork files for an IPO with the hope that it might go public at an $80-100 billion valuation.
- Aug – Sep 2019: The combination of WeWork’s unusual IPO prospectus and its just-unveiled horrific financial position turns the company into a laughing stock. The IPO is scrapped.
- Sept 24, 2019: Adam Neumann steps down.
Let me pause here for a moment and say that in the nine years between 2010 and 2019, WeWork raised a total of $16 billion from its various investment rounds. A mind-numbing $10 billion came from a single investor: SoftBank.
And before WeWork imploded, Adam Neumann personally cashed out $700 million worth of his shares in WeWork. Even with those sales, at the January 2019 $47 billion valuation his remaining equity was worth $4 billion.
In the aftermath of WeWork’s implosion Adam was both a huge liability and the company’s largest individual shareholder. To solve that toxic dynamic, in late 2019 SoftBank offered him $1 billion to go away. Unfortunately, a few weeks later SoftBank learned WeWork was on pace to lose an additional $2 billion in the first quarter of 2020, so it rescinded the offer. Adam sued. In the end they reached what I assume was a very not-amicable agreement consisting of the following incentives for Adam:
- #1) $185 million in the form of a “consulting fee”
- #2) $106 million cash settlement
- #3) $430 million cash “loan” to Adam
This article is focused on #3. The $430 million loan that’s about to turn into $430 million free cash for Adam in a slightly unexpected and hilarious way.
(Photo by Taylor Hill/FilmMagic)
$430 Million Loan
In exchange for the $430 million loan, SoftBank required Adam to put up is remaining 10% in WeWork as collateral. He agreed. At the time the deal was struck, that 10% stake was worth $500 million. So this wasn’t a bad deal on paper. Borrow $430 million in cash, put up $500 million in paper equity, hopefully someday the equity is worth $1 billion, pay off the loan, everyone is happy.
Two years after being privately valued at $47 billion and on pace to go public at a presumed valuation of $80-90 billion, WeWork finally went public in late October 2021 through a SPAC merger. It’s valuation on day 1 as a public company?
$7 billion
On day two the company actually closed with a valuation of $8 billion. At that level, Adam’s 10% stake was worth $800 million! That would prove to be the company’s peak in the SPAC era. By January 2023 its valuation had dropped to $1 billion. In an SEC filing last month, WeWork revealed that its “cash flows from operating activities raise substantial doubt about our ability to continue as a going concern.”
Earlier this week WeWork declared bankruptcy. The day before it declared, the company’s market cap stood at..
$40 million
At that level, Adam’s 10% stake is worth…
$4 million
So, Adam must be freaking out, right? He’s gonna have to make SoftBank whole on the $426 million he owes net of the $4 million remaining stake, right? Nope.
In an unexpected and hilarious twist, that was revealed by Wall Street Journal reporter Eliot Brown (who also wrote “The Cult of We: WeWork, Adam Neumann and the Great Startup Delusion“), SoftBank DID NOT require Adam to personally guarantee the loan beyond his shares in WeWork. In other words, now that the company is bankrupt, at any moment, Adam could inform SoftBank that he would like to exercise his right to have his equity seized to cover the debt in full. At any moment he could call up Masa Son, the founder and CEO of SoftBank and say:
“Hey Masa, it’s your old pal Adam! Just calling to say I’ve made the difficult decision to hand over all of my equity in WeWork. Oh, and I guess that means the $430 million loan you gave me is now mine 100% free and clear. What a world. Have a nice day!“
If this happens, which of course it 100% will, Adam will have siphoned the following amounts out of WeWork, a company that ultimately set $20 billion on fire to create a bankrupt office leasing company:
- $700 million – cash outs before things went sour
- $185 million – consulting fee
- $106 million – cash settlement
- $430 million – cash loan
= $1.421 billion
Business genius.
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