Ousted WeWork co-founder Adam Neumann extracted more than $2.1billion from the office-sharing company even while it was hemorrhaging cash and laying off thousands of workers after an aborted IPO, according to a new book.
Entities controlled by Neumann, the eccentric Israeli businessman who developed a reputation as a hard partier, reportedly extracted larger sums of money from the company than previously thought.
Neumann took money out of the company through sales of stock, cash settlement payments, and WeWork shares, according to Bloomberg, citing reporting from a new book called The Cult of We: WeWork, Adam Neumann, and the Great Startup Delusion.
The book, by Wall Street Journal reporters Eliot Brown and Maureen Farrell, is due out on Tuesday.
Ousted WeWork co-founder Adam Neumann (seen above in Los Angeles in 2019) extracted more than $2.1billion from the office-sharing company even while it was hemorrhaging cash and laying off thousands of workers after an aborted IPO, according to a new book
WeWork agreed to pay Neumann $185million as part of a non-compete agreement as well as renegotiate a $431.5 million line of credit, secured by more than 19 million shares of WeWork Stock owned by We Holdings LLC, according to SEC filings
A portion of the $2.1billion came from the sale of WeWork shares, the book claims. The shares were owned by We Holdings LLC, an entity that Neumann controlled.
The shares were sold in nearly every funding round, according to the authors. Those sales netted Neumann and a small group of executives more than $500million.
In 2019, Axios reported that Neumann pocketed approximately $300million from the sale of those shares.
HOW WEWORK EX-CEO ADAM NEUMANN ‘EXTRACTED $2.1B’
According to the most recent filings with the Securities and Exchange Commission, WeWork and Adam Neumann reached agreement in February allowing the ousted CEO to sell $578million in stock.
That agreement is in addition to the $198million in cash that Neumann received as part of his exit.
The stock sale and the cash payout do not include the tens of millions of shares of WeWork that Neumann still owns.
In total, those shares, which are based on the price of BowX stock, are worth in excess of $825million.
BowX Acquisition Corp. is a special purpose acquisition company that raises capital through an initial public offering (IPO) for the purpose of acquiring an existing operating company.
BowX and WeWork entered into a merger agreement in March, infusing some $1.3billion in cash before the company goes public.
According to the authors of a new book due out next week titled The Cult of We: WeWork, Adam Neumann, and the Great Startup Delusion, Neumann netted more than $500million in stock sales that were only available to him and a select few other executives at the company.
That brings the total amount of money that Neumann has extracted from the company since he co-founded it in 2010 to more than $2.1billion.
In May, it was reported that Neumann received a stock award worth $245million bringing the total value of his exit package from WeWork to nearly $1billion.
WeWork agreed to pay Neumann $185million as part of a non-compete agreement as well as renegotiate a $431.5 million line of credit, secured by more than 19 million shares of WeWork Stock owned by We Holdings LLC, according to SEC filings.
An entity that Neumann controls was also allowed to sell $578million in WeWork stock, though other investors were given the same option.
Neumann was granted the enhanced stock award in February as part of a renegotiation of his 2019 exit package, intended to smooth the way for WeWork’s public listing, according to regulatory filings first reported by the Wall Street Journal.
The stock award is a renegotiated version of a prior 2019 agreement with Neumann, which gives him gains above a certain minimum share price.
The deal reached in 2019 set the share price threshold at $19, but the February settlement set it at $0 per share.
Hard-partying Neumann was once seen as a star of the business world, but his reputation was left in tatters after investors balked at his tequila-fueled management style and eccentric ways, derailing plans for a 2019 IPO.
Neumann’s golden parachute was negotiated after he was forced out when SoftBank bailed out the company two years ago.
Neumann oversaw one of the biggest business implosions in recent history, after WeWork’s valuation plunged from $47billion in early 2019 to less than $8billion later that year.
In total, the company had raised some $11billion from investors to build a company that is still worth less than that today.
The company supplies shared office space, an internet connection, cleaning service and a reception desk, making it popular with small firms and tech startups.
In May, WeWork reached a deal to go public at a valuation of $9billion through a merger with a special-purpose acquisition company.
That effectively gives Neumann around $245million worth of stock based on BowX’s share price at the time the transaction was announced.
But if the share price falls below $10, he will be ineligible to receive the stock award, according to the Journal.
The payouts to Neumann are intended to smooth the way to go public, effectively paying him off to give up his control of the company, which he wielded through shares that had 10 times the voting power of normal shares.
It comes two years after WeWork’s initial attempt to go public fell apart disastrously, when paperwork that the company filed for its IPO raised concerns about profitability and Neumann’s management style.
Neumann took money out of the company through sales of stock, cash settlement payments, and WeWork shares, according to Bloomberg, citing reporting from a new book called The Cult of We: WeWork, Adam Neumann, and the Great Startup Delusion
While Neumann’s investors were willing to entertain his eccentricities after co-founding WeWork in 2010, his free-wheeling ways and party-heavy lifestyle came into focus once he failed to get the company’s IPO underway.
SoftBank, already a major investor, intervened with a bailout and initially offered Neumann a package valued at $1.7 billion – but negotiations turned contentious and the Japanese firm later tried to slash his buyout.
Neumann ultimately stepped down as chief executive. Sandeep Mathrani is now CEO, and his work has included cutting costs by $1.6 billion, according to WeWork.
Now WeWork plans to go public through a merger with blank-check firm BowX in a deal that values WeWork at around $9 billion, a steep drop from the $47 billion the money-losing company was worth in a 2019 private funding round led by SoftBank.
‘Sometimes you don’t pick the path (and) a path picks you. In December, we were approached by BowX and other SPACS,’ CEO Mathrani told CNBC in an interview.
‘We had seen a path to profitability and we thought it was a good time to raise additional liquidity to de-risk the balance sheet, and to make sure that we have a path to profitability,’ Mathrani added.
SoftBank will retain a majority stake in the company after the deal. SoftBank and other investors have agreed to a one-year lock-up on their shares, a person familiar with the matter told Reuters.
SPACs like BowX are shell companies that raise funds in an IPO with the goal of merging with an unidentified private company. For the company being acquired, the merger is an alternative way to go public over a traditional IPO.
WeWork said that it lost more than $2 billion in the first quarter of 2021 thanks to COVID-19 closures and the effects of the settlement deal with Neumann.
Neumann has kept a low profile since he was forced to resign after WeWork’s planned flotation on the stock market stalled and investors soured on the company, causing its value to plummet.
He and his wife Rebekah were thought to have fled the drama with a move to Israel but are now reportedly back in New York with their five children.
In April, the New York Post reported that Neumann was planning his next business venture ‘involving what happened in the world because of the pandemic’.
In October, reports surfaced of Neumann’s ‘tequila-fueled leadership style’.
Adam Neumann and wife Rebekah Neumann are seen in 2018. Neumann’s investors were willing to entertain his eccentricities until WeWork’s IPO fell apart disastrously
Employees have spoken out about the ‘cult-like’ environment at WeWork and the behavior of its so-called ‘partyer in chief’ which included smoking marijuana on private jets and trying to become immortal
Employees have spoken out about the ‘cult-like’ environment at WeWork and the behavior of its so-called ‘partyer in chief’ which included smoking marijuana on private jets and trying to become immortal.
Employees have spoken out about the ‘cult-like’ environment at WeWork.
On one journey there was said to be so much cannabis smoke in the cabin that the crew felt the need to put on their oxygen masks.
On one trip to Israel, Neumann’s private jet hadn’t arrived so he borrowed a G650ER plane from Gulfstream.
Upon landing in the Holy Land, the crew found a cereal box that was packed full of marijuana that had been stuffed into a closet.
‘Smoking on board was one thing, but transporting marijuana — an illegal drug in New York and Israel — across borders … might expose Gulfstream to serious risks,’ the book states.
Sandeep Mathrani is now CEO, and his work has included cutting costs by $1.6 billion, according to WeWork
Gulfstream ended up bringing the plane home back to the States without Neumann and his cohorts who already had built up quite the reputation.
During another trip in 2015 to Mexico City, passengers were ‘spitting tequila on each other’. One passenger vomited ‘throughout the cabin and lavatory,’ and the ‘crew was not tipped.’
VistaJet, a private jet charter company was forced to take its aircraft out of service on several occasions to mop up vomit and alcohol spills.
The company say that on several occasions curtain dividers were also torn down by the CEO or his companions.
The new book reveals several stories that would lead many to question his managerial style.
Execs working for the company who requested in-person meetings might be asked to fly with Neumann to San Francisco at the drop of a hat.
Equally, he could be known to keep senior partners waiting for hours or perhaps having had them join him on board, not find any time to speak with them whatsoever.
Staffers report being abandoned upon landing and having to make their own way home.
When not in an aircraft, Neumann might hold a meeting with staff in his luxury $200,000 Maybach car before telling them to get out once the meeting was over and to ride in a ‘chase car’ which would be following behind.
‘One executive was shown the door in the middle of gridlocked traffic on the Long Island Expressway — instructed to find the chase car somewhere behind them in the traffic,’ the book recounts.
At its peak it had coworking spaces in more than 110 cities in 29 countries with a valuation of $47billion. Neumann was put on a par with the likes of Steve Jobs as a Silicon Valley innovator who would change the world.
But Neumann’s office suites were absurd even by the standards of Silicon Valley bosses. In the early days he had a punching bag, a gong and a bar – later he had a private bathroom with a sauna and a cold-plunge tub at his office in New York.
WeWork hysteria reached its peak in 2017 when SoftBank invested $4.4billion in the company and Neumann declared its worth was based ‘more on our energy and spirituality’ than revenue.
He mused: ‘We are here in order to change the world – nothing less than that interests me’.
Neumann even talked about being the President of the United States, once joking he could be ‘President of the world’.
In April 2021 Neumann, 41, and his wife Rebekah Paltrow Neumann sold their 11-acre California estate shaped like a guitar for $22.4 million
The house sold 10 months after it was first put on the market with a $27.5 million price tag
The dream came crashing down last year when WeWork filed for its initial public offering which forced it to open up its finances to scrutiny.
That revealed huge black holes in its balance sheet and the company’s valuation plunged from $47billion to $10billion and the floatation was put on hold indefinitely.
In August last year Neumann sold his five-bedroom mansion in New York for $3.4million.
The six-acre country retreat in Westchester County includes a swimming pool, spa and slide as well as sports facilities, sprawling gardens and a dining terrace.
Separately, Neumann sold a $1.25million Hamptons getaway in February 2020 – making a loss on a property he had bought for $1.7million in 2012
Then in April 2021 Neumann, 41, and his wife Rebekah Paltrow Neumann sold their 11-acre California estate shaped like a guitar for $22.4 million, 10 months after it was first put on the market with a $27.5 million price tag.
Timeline of WeWork’s rise and fall
A man walks past the logo of WeWork in Tokyo on May 18
2010: Israeli-born Adam Neumann and American-born Miguel McKelvey found WeWork with its first co-working location in Manhattan’s SoHo neighborhood.
2014: After rapid expansion, WeWork is valued at $4.6billion, with investors including JP Morgan Chase & Co, T. Rowe Price Associates, Wellington Management and Goldman Sachs Group.
2016: Fortune warns that WeWork faces daunting challenges, writing: ‘For WeWork to live up to its $10billion valuation, it faces the daunting task of scaling like a software company—but with people, long-term leases, and office furniture.’
2017: SoftBank makes its first investment in WeWork, in a massive $4.4billion funding round that valued the company at $20billion.
2018: The company restricts employees from expensing meals that contain pork, poultry, or red meat for environmental reasons. WeWork also purchases a $60million private jet that Neumann enjoys using frequently.
January 2019: SoftBank injects a further $2 billion in funding at a $47billion valuation. SoftBank’s investments in WeWork now total $10billion.
August 2019: WeWork files a public prospectus for its initial public offering, revealing for the first time the extent of the company’s losses. Analysts express skepticism about the company’s true value and corporate governance.
September 13, 2019: WeWork announces changes to the company’s governance, including the ability for the board of directors to pick any new CEO despite Neumann’s majority voting rights.
September 17, 2019: The We Company, the parent company of WeWork, decided to postpone their IPO until the end of 2019.
September 24: 2019: Facing backlash over the aborted IPO, WeWork announces Neumann will step down as CEO. The company also puts its private jet up for sale.
October 14, 2019: Reports emerge that WeWork warned clients that approximately 1,600 office phone booths at some of its North American offices are tainted with cancer-causing formaldehyde.
October 16, 2019: Facing a cash crunch that threatens to send the company into bankruptcy, WeWork’s board forms a committee to explore a financing lifeline.
October 22, 2019: WeWork board agrees to take a $9.6billion lifeline from SoftBank that sees the Japanese firm take effective control of the startup. As part of the deal, Neumann resigns from the board and gives up his special voting rights. SoftBank executive Marcelo Claure is installed as executive chairman.
May 4, 2020: Neumann sues SoftBank for walking away from a $3billion bailout for the troubled startup he co-founded. The tender offer was part of a $9.6billion rescue financing package that SoftBank agreed with WeWork in October and gave it control of the company. Since then, WeWork’s occupancy rates have plummeted amid the COVID-19 pandemic.
May 19, 2020: SoftBank values WeWork at $2.9billion. CEO Masayoshi Son says the largest portfolio companies ‘have a relatively good chance of passing through the valley of the coronavirus. The exception is WeWork.’
June 3, 2020: Investors who bought shares in WeWork in the months leading up to its failed IPO file a class-action lawsuit against both WeWork and SoftBank alleging that WeWork downplayed losses and overhyped its business plan. McKelvey announces his departure soon after.