Adam Neumann will determine WeWork's fate | Hacker News Reader

Adam Neumann will determine WeWork's fate

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63 pointspaulsutter64 comments

How are the people putting the actual, real-world money into these businesses so unable to protect themselves against getting taken to the cleaners by a departing CEO?

Something tells me this isn't a whole lot of money for said people...

Isn’t Softbank about to invest 5bn? 4% of that just for a single individual who’s ostensibly a big part of the reason they tanked a 40bn dollar valuation to a mere 20% of that seems like a literal fuckton to me.

Of course, he may be the reason they now control an 8bn dollar company too, still an incredible valuation I suppose.

It's slightly over one percent of the money Softbank has/will put in, from what I've read.

Disagree, there is a big difference between investing 200m where you can expect a return on investment and just giving someone 200m to go away. There is a return on the other money SoftBank has invested, but the 200m itself is a cost, and rather large. Most money transfers of this size are exchanges of capital for equity or debt, not gifts of cash.

I guess that's why investors tell you to, "diversify your investments".

They are buying control, no? Neumann sold economic interest (non voting equity) to Soft Bank earlier. Now they want the voting power and they are offering him 200M for it. It has to be worth something. It sounds like it is unclear if that is enough (although if they are reporting it I assume it is) for him to agree.

This 200m is for JP Morgan and UBS who extended 500m credit line to Neumanm and he promptly drawn down $380 million.

As JP Morgan is pushing for different vision of WeWork restructuring this is a pill to make sure they won't show loses on the credit line to Neumann.

I doubt that Neuman would be left with more then a few $ in his pocket.

https://www.nytimes.com/2019/09/25/business/wework-jpmorgan....

It looks like Adam will walk out as a billionaire while all other employees will stay poor...as with almost every startup nowdays.

This goes back way further than startups. I believe Marx and Engels had some thoughts about this.

The problem here is that startup employees have a combination of high risk with low expected reward compared to big company employees. It doesn't make sense to be a startup non-founder employee nowdays.

> It doesn't make sense to be a startup non-founder employeenowdays.

TBH, it never really made sense. There were few lucky shots and tens of thousands of sad stories.

You're right, but it's much better documented now that people can read the stories on the internet, and I'm still not seeing the shift to equal term sheets for employees and investors.

Also employees have higer risk than investors, so in theory they should get better terms, they just don't have the negotiating power.

Seriously, screwing over workers and keeping the rich rich is yet another thing that Silicon Valley likes to think it invented, but this is, in fact, not new.

Because he literally controls everything, from http://nymag.com/intelligencer/2019/09/what-happened-at-we-w...

"The S-1 detailed the extent to which Neumann controlled his company, and had benefited personally from his position: he had bought buildings in which WeWork then took out leases, and received $5.9 million in exchange for selling a set of We-related trademarks to his own company. One clause called for Rebekah to name a successor in the event of Adam’s death."

Rebekah is his wife...

Sure, but why didn't the Vision Fund deny him that level of control as a condition for providing the money, when the initial funding was taking place?

Because who wants to miss out on the next Facebook!! Zuckerberg holds huge control over FB and he's a visionary. This rocket ship is going to the moon, are you strapped in?!?

TL;DR: stupidity combined with the myth of the founder

There was an NPR podcast about the guy who runs the fund recently. He’s sort of an adrenaline addict, addicted to risk

Because Vision Fund isn't this magical VC that trumps all others. They just had a lot of (Saudi) money to throw around and frankly just aren't very good at it.

They agreed to terms giving the founder control, and they're apparently still unable to walk away.

He owns enough the voting shares to control the company. The investors can either buy control or have everybody walk away with nothing.

This is not much when considering Neuman took out a $500 million loan earlier this month.[0]

[0] https://techcrunch.com/2019/10/04/report-wework-cofounder-ad...

For Neumann this whole thing must be such a nightmare. On one hand you did it. You built a huge company and become super rich at the end. But on the other hand the IPO blew up, the company is losing billions, employee options are fucked, "everyone" thinks you're an idiot, etc. If it was me this would ruin it all, especially since he has been living the rich guy lifestyle for many years now. I hope he didn't do anything more shady than we know though because the next saga to this story could easily be securities fraud, indictments, investor lawsuits, etc, etc. This amount of capital doesn't usually blow up quietly.

Man, I hope to be “ruined” to the tune of $200 million someday. I would cry all the way to the bank.

$900 if you include the $700 he gave himself.

A majority of that 700M was a line of credit tied to his shares of the company. Good chance he will face a margin call on that (since the shares are now worth a lot less) and either have to come up with the cash (maybe why he wants this 200M to leave) or pledge more shares to make up the difference in value.

He has already cashed out hundreds of millions, so it's probably closer to being ruined to the tune of $1B.

He cashed out close to $1 billion while he had absolute discretion to do so.

He’s winning hard.

Don’t get married to a position, and that means concentrated shareholdings of a company you started too.

Its not a nightmare. There’s no embezzlement charge looming based on the things we know, no securities fraud based on the things we know. Softbank wants to turn it into a typical Japanese Zombie company with “totally fuckable sovereign wealth money” quoting the show Succession, and he’s out with no strings attached.

Thats the dream.

NEXT!

Yea. Hm. Somehow I don't feel sorry for him for one nanosecond.

I do feel sorry for the thousands of employees who bought into his bullshit and whose options are now worthless.

To me, the real villains are Adam Neumann's enablers. The people that "created" Adam Neumann aren't much different from those that "created" Elizabeth Holmes. They keep looking for a quirky Steve Jobs-like charismatic leader who distorts reality.

Of course, Holmes wishes she had Neumann's playbook so she could have walked away with hundreds of millions.

Does it strike anyone as strange how much of the economy seems to be built around bizarre, failed, often seemingly blatant scams nowadays? It almost seems as if no matter how transparently irrational and corrupt these schemes are, what’s important is to maintain the semblance of it all, the specific articulation of power. The CEO, the visionary, the “disruption,” have become almost abstract fetishes, removed from any broader function.

Well you raise the obvious question of "how much is built around this sort of thing?".

My gut reaction is that not all that much of it is, and if it's increasing, it's simply due to global low interest rates.

I think this is partially due to the fact that people are looking for the next Amazon; everyone wants to be a billionaire, and if that bald dude can become the richest man in the world by selling books, why can't I do it leasing office space?

That drive causes people to try a lot of ... "plans" might be a more charitable word than "schemes" ... that might otherwise have never seen the light of day.

And the media bears a lot of responsibility for this, too. WeWork is an office space rental company. It should have been trivial to figure out how much money they were taking in, and how profitable they could become - if they could become profitable at all.

Valuing them at thirty bajillion dollars was just stupid, but stupid gets eyeballs, and that's what the media thrives on. "Office space leasing company rents desk space" isn't going to make the front page of Hacker News.

How much of the $20 trillion US economy so you think this is? If WeWork was a $40 billion dollar company it would be .2% of the economy. Apple, Google, and Amazon combined are about 4-5%.

That’s what I wish could be sussed out to a greater degree actually. How much of the US economy is comprised of things like tech scams, MLMs, various cults, etc. and what influence does this have on how businesses function more broadly and what is seen as legitimate. I’ve looked around, but there are only a few books on the history of things like MLMs and this good podcast about them called The Dream:

https://www.stitcher.com/podcast/stitcher/the-dream

10% is outright fraud or bait and switch. About 60% is just racketeering (not exactly scams, but products and services they buyer can’t really refuse... Comcast, cigarettes, etc) and 30% is actual services and production.

$20 trillion is the yearly output of the US economy. A fair comparison would therefore be the revenue of WeWork for a year, which was $1.82 billion for 2018.

That makes WeWork about 1/11000th of the economy and so about 0.0091% of the economy.

I was trying to be extremely generous with my numbers. Your comment makes a lot of sense now that I think about.

How much of the economy are companies like WeWork though? I would bet it's less than 1%.

For every WeWork, there's hundreds of companies like Anaplan, Twilio, Zoom, Shopify, Veeva, and Okta. You don't read about these companies as often because they're not circuses, but they just continue to build products people use.

> Does it strike anyone as strange how much of the economy seems to be built around bizarre, failed, often seemingly blatant scams nowadays? It almost seems as if no matter how transparently irrational and corrupt these schemes are, what’s important is to maintain the semblance of it all, the specific articulation of power.

I remember looking at the Russian economy in 2001 and thinking the same thing.

If Neumann declines the offer what happens here? He feels like the kind of guy who would rather watch it all burn down than sell out.

What gives you that impression? Arguably, it was his early $700 million parachute that undermined the WeWork IPO.

WeWork is where the bulk of his wealth has come from correct?

I would think a lucrative exit would be better than a potential fight with SoftBank.

The chairman of the board of a company doesn't get to "burn it all down" because that would be a breach of fiduciary duty. I may be wrong but wouldn't he be exposed to personal liability at that point?

I think it would be a difficult argument to make that someone has a fiduciary duty to sell.

I’m clueless here, but WeWork is a private company: does Neumann have any de-jure fiduciary duty?

I believe so, he has the duty to private "accredited" investors. IIRC, this is sort of what toppled Shkreli-- he mishandled investor money in a criminal manner, despite actually not losing any of their money.

Shkreli got busted for fraud, not fiduciary duty. He paid our investors in one investment with profits from another.

Unlike Elon Musk he didn’t do so publicly and with shareholder approval.

Regardless of that execrable Shkreli, you have de jure fiduciary duties if you are on the board of a private company, yes. At least in the most common forms of incorporation. I am not even sure if it requires you have other shareholders, let alone if you are a controlling shareholder or they are accredited investors.

I personally wouldn't choose to mess with the Saudi's money on that scale. That would seem imprudent.

This kind of stuff is really the best that Softbank could find to invest in? I am not sure I would want to be one of the people who pulled the trigger or advised for these deals, when the backers start asking where their money went.

They are so far in the whole on this company it wouldn't be wise to let it die. I doubt they want someone else in charge of what they funded.

After they clean the company up it will be a good business. It's just not a tech company and never was a tech company but there is still good money in leasing office space for $1, making it look nice and then subleasing it for $4 or $5, they just need to knock off the bull shit.

I have to admire the purity of this breathtaking rinsing of VCs.

Everyone is just so amazed and consternated at how amazing and consternating TFA is. To me, that's a pretty good indication it's mostly bullshit. How likely are the "multiple sources" to be Neumann and his wife?

This seems strikingly similar to Travis Kalanick being paid to leave Uber. Is Benchmark involved?

Benchmark is a major investor, actually. But it sounds like they might be getting the short end of the stick on this deal, like almost everybody else.

This case could be quite different from Uber per the thesis of this article by Stratechery: https://stratechery.com/2019/neither-and-new-lessons-from-ub...

While Benchmark was looking to preserve its assets from being squandered on possibly the startup-catch of a lifetime, Softbank on the other hand relishes being the Big Stack Bully, leaning hard on their portfolio companies to aim for home runs everytime, and their excessive leverage allows them concessions from companies most VCs can only dream of.

Corrupt? Thief? Say what you will, there is something to be said for having walked away with so much money - legally.

I think many would call for punishment of the WeWork CEO, along with the investors who failed their due diligence. Sometimes the law of the day does not deliver justice. Seems like another instance where everyone not taken in by the hype saw the crash coming.

The investors who made the wrong bet lost a spectacular amount of capital.

For sure. But of the capital they managed, how much belonged to someone else? Did that someone else trust Softbank (for example) to do their due diligence before making a significant investment in WeWork?

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