WeWork's Adam Neumann offered package worth up to $1.7B to step down from board | Hacker News Reader

WeWork's Adam Neumann offered package worth up to $1.7B to step down from board

cnbc.com

69 pointsadventured68 comments

Mmm, it's interesting. There's really two options here:

Option A: Son is right, and the market is wrong. WeWork is a ~$50b company, and after a bit of hardball SoftBank will own 70% of it for a very affordable $15b (or whatever it is). And once the market catches on, WeWork's valuation will quintuple overnight, netting the Vision Fund a nice profit and Son the right to be very, very smug.

Option B: The market is right, and Son is wrong. WeWork is a ~$10b company, which through a fit of almost comic mismanagement Son has managed to pay ~$15b for (and still owns only a bare majority). With a lot of work (and thanks to getting rid of Neumann), it might one day be worth enough SoftBank/the Vision fund is (barely) not below water, but even that's iffy.

I'm no expert, and while on paper option B does look pretty compelling, let's say maybe option A is right after all. In which case...

...given that Son is just a uniquely talented visionary, and saw potential that nobody else (and especially not other potential investors) saw, uh...why in the hell did he keep investing at higher and higher valuations? Like, if the market is just dumb and can't see that WeWork is worth $50b, not $10b, then....why invest at a $50b valuation? Unless it was just a glorified pump-and-dump all along (ie, Son never thought it was worth $50b, but he thought other people could be fooled into thinking it), in which case, why invest now? Does he think he's going to get a second bite at the apple? It's really hard to imagine us all being here in 18-36 months going "wow, WeWork sure has turned things around, I think their IPO will price at $60b!" Right? Isn't the WeWork hype irrevocably gone?

This whole thing is so odd. Is it really as simple as "we're just piling billions of dollars up and setting them on fire because we love expensive bonfires"? Is that it?

There is an Option C: bankruptcy or fire sale. It's quite possible that the company will remain a loss-making convoluted mess of SPEs that will never turn a profit in time to avoid that outcome.

Yeah there's a real possibility that wework is worth nothing.

Option C: WeWork is a $5B company IF it can become profitable and IF there is no economic recession over the next year or so. Son is just saving face at this point.

I think this is how it has to be seen, not as an individual investment but as a strategy to save face for the whole Softbank portfolio.

It is better to dump 5 billion into WeWork to move it from the "sure fire bankruptcy today" category into the "questionably over-investment with 18 month runway" category. Doing this keeps pressure off the entire investment portfolio now at a critical time when they are looking to raise funds for the new Vision Fund.

Also, there seems to be a bit of helping out JP Morgan as well. The article goes out of its way to link this cash infusion to helping repay JP Morgan credit line for Neumann. If nothing else, the article helps calm people/investors that JP Morgan wont be left holding the bag on that.

> given that Son is just a uniquely talented visionary

He's lost more money than anyone in history. And probably is about to do it a second time.

That's based on Son having a paper net worth of ~$85-$90 billion at the peak of the dotcom bubble and seeing all but about $3 billion of it vanish, peak to trough. You can move the numbers a bit (eg debate over the peak figure), however it still comes out in a similar way... he plausibly lost the most wealth - on paper - of any person that has ever lived.

Yasumitsu Shigeta, another Japanese dotcom super billionaire, lost around $41 billion on paper during the crash. He recovered somewhat and remains a billionaire.

>He's lost more money than anyone in history.

In Silicon Valley, "failing" is a virtue, so it's not surprising to read this about Son.

The guy invested billions of dollars of OPM (some of it blood money from Saudi Arabia) into tech business at terrible valuations. Anyone with an IQ of 80+ and a modicum of social skills could do the same. Remember the Vision Fund hockey-stick chart slide, with flying unicorns and "AI Traffic"? Such vision.

Option C is: sustain WeWork long enough to raise Vision Fund II and then let it implode. This is a face saving exercise.

Son’s not an investor, he’s a gambler. They gave a dog walking app 300M. There’s no “vision” here, just a peak bubble scam.

Option D: WeWork is a $0 company, and this is the last move of a company desperate to avoid recognizing the loss.

It s as if somebody was laundering money

Son is losing money on every individual investment, but he will make it up in volume, like he did in the 2000

oh, wait

What an amazing twist if true. In my opinion, Neumann is a conman. That he got away with taking out $700 million pre-IPO, that We is close to bankcruptcy just weeks later, that he now gets an additional $1.7 billion … it’s just jawdropping. I don’t understand why he is not afraid for his safety.

Yeah, he's a loser and a fraud, but there's an even bigger loser and a fraud that's even more desperate to save face...

Fraud, certainly.

Loser?

If this is what losing looks like why am I trying to win...

This is what losing looks like for billionaires. Not you.

This is what losing looks for someone who wanted to build a sustainable business and stay in control of it... For anyone else, pocketing over two billion dollars isn’t losing.

>who wanted to build a sustainable business and stay in control of it.

Serious question: what evidence is there that WeWork was built to be "sustainable"?

Doesn't the evidence quite clearly demonstrate the EXACT OPPOSITE, that WeWork was built to be a VC-guzzling gamble that would implode the second investors stopped funding the losses?

The only "sustainable" part was destroying the competition to build some semblance of a moat

I didn’t say that WeWork was built to be sustainable.

Masa from SoftBank?

He did it with money from VCs not from la cosa nostra...

Do you think Masayoshi Son is going to order a hit on him?

$45bn of Vision Fund money was contributed by the Saudis.

They have been known to express displeasure quite forcefully to associates who they believe owe them money.

This is America. He might most likely run for President next.

Not too far off. He wanted to become prime minister of Israel, but these days he wants to be "president of the world" [1].

[1] https://www.timesofisrael.com/wework-ceo-adam-neumann-wants-...

Why do VCs let founders cash out pre-IPO?

AFAIK fiduciary self dealing is illegal in public companies but for whatever reason WeWork's investors evidently didn't seem to care. Why?

The founders have control of the company and hold it for ransom. They can destroy the company if they aren't kept happy.

if you owe somebody 500k, they own you.

if you owe them 50B (val of wework), you own them

Right, that's the part I'm a bit confused by.

If I'm understanding you right, it sounds like VCs choose to not require fiduciary-style obligations of the founders?

e.g. whatever the contract looks like, I'm a bit surprised it wouldn't have a term along the lines of 'by taking this money you promise not to self deal'

>Why do VCs let founders cash out pre-IPO?

Because they aren't as smart as we/they think they are. Like most people, they have zero repeatable ability to spot unicorns or conmen.

Yet one more example that leads the average person to feel "The system is rigged, and grossly at that." I don't even think your average person minds that much when there are insanely wealthy people who built huge, successful companies, but here is another case of someone who has destroyed billions in wealth, and is paid yet more billions for the honor. It's this "heads I win, tails you lose" system that eventually brings people to want to tear the whole thing down.

The vulture-cannibalistic corporate capture of nearly everything leads to many vicious feedback loops including extinctions of species, destruction of the planet, grotesque income&property ownership inequality and deepening political capture (corruption). If the average person from the masses of people had any self-respect, they'd band together and form worker-owned co-ops to ensure livable wages AND fair remuneration from their work. They'll never get anything more than crumbs with this current, extremely unfair wealth transfer (e.g., slavery) arrangement.

But thats the crux - pressure and incentives. Capital is supposed to reward ingenuity and efficiency. Instead it is mainly used like you say, in a recursive way, so to protect itself even when there is no invention, no ingenuity, just pure oppression through disruption of communication, things like unions, independent candidates, etc

Crumbs from an abundance are pleasing to those who have comparisons to look at: nature's parasites or pangs of age or pangs of poverty or 1800s medicine.

The real issue was never equality. It has always been adequacy and comparative "neo-nostalgism."

Until the hinge breaks of fully, there are usually never any real revolutions. Maybe the internet can change that.

I get your first point; most people would look at Newman's 'success story' and feel like wealth doesn't happen by working hard and saving and investing, it happens by meeting the right suckers at the right time.

But I wouldn't say Neumann has destroyed anybody's wealth. He's simply taken Softbank + Saudi Arabian money and made himself and landlords much richer. Unlike Uber and Airbnb whose operations have a public policy impact (lack of labour protections, reduced housing supply), WeWork basically just rents out boutique office space to big corps and freelancers, and does so at a major loss.

They aren't even putting Regus and IWG out of business.

This is happening because capital is cheap. People want two contradictory things - they want capital to be more expensive, so it's not wasted, and less environmental destruction happens, things are built to last, it's worth repairing stuff, and so on. But we also want wages to be higher, which only is meaningful on a society level relative to the price of capital and makes all the other problems worse.

The problem as I see it has nothing to do with contingent facts about the world, it's that everyone inherently wants logically incompatible things.

Anyone from inside WeWork able to give a sense of the impact on morale? Are people more worried about the coming layoffs, relieved that they won't extend to the entire company, or just pissed enough at Neumann to hope the whole thing implodes?

A Japanese VC fund that funneled billions of Saudi Sovereign Fund money into American real estate owners pockets. The circle of life.

And somewhere in the center of that circle is the actual untold story.

seeing rich saudis queue in a glorified Paris mall to buy way way overpriced faux leather bags, a truth occured to me: the west truly scammed the oil out of their land, not by force, but by smart appeal to greed.

This is an outrage when the employees are likely to get nothing for their options of common stock: https://www.businessinsider.com/wework-employee-equity-ipo-b...

"$185 million consulting fee"

Now that's a steep consulting rate, wonder what he bills per hour

Presumably about $370 million.

Given that WeWork has already raised $13B, and the new premoney is $8B, why isn’t Adam wiped out by the preferences on the old investment?

Was Softbank buying common shares in some prior rounds?

As I understand it, Adam's shares have much higher voting rights. They may or may not be worth anything but they control the company.

They have 10-1 voting rights. There were talks of this being reduced to 3-1 during the IPO talks, but those broke down when the IPO was pulled.

Do you mean he would voluntarily agree to reduce his voting rights? Or was there some means to force him into that?

It’s an interesting standoff because his only negotiating stance would be to refuse to accept the investment and key the company go bankrupt.

I guess avoiding that is worth $1.7B. Softbank would control the company after bankruptcy anyway, but the process would be messy

Presumably they may have opted for a very ominous debt package, which would have been senior to Softbank's equity, which is another thing SB would have liked to avoid.

A friend once commented about Skull and Bones [0]: "I don't know what's worse, the fact that it exists, or that I'm not a part of it." (Neither of us went to Yale :))

I wish there were a single word to capture this mix, because it's perfect for this story. This is absolutely repulsive, and also, why can't it happen to me?!

[0] https://en.wikipedia.org/wiki/Skull_and_Bones

It's getting harder and harder to see how there's ever going to be a liquidity event here. The steps being taken to become profitable, while necessary, are going to come at the expense of future growth. Without the hypergrowth fake tech unicorn story, they get valued like Regus. Neither SoftBank nor Neumann are incented to do an IPO with a Regus-like valuation. I doubt there are buyers for a private sale. How does this end?

One of the best wealth redistribution agents in the world. He ll probably be very sought after , if he ever wants to work again.

I won't be surprised if WeWork comes out of this mess relatively strong. A crisis is a terrible thing to waste and I still believe that the idea of WeWork can be valuable.

A lot of ink has been spilled about how cooky Adam and his wife are but I really liked the WeGrow idea of providing schooling / daycare. Ask any parent of young kids how much they and spend on childcare and you'll be shocked. Combining the work space with childcare (providing everything is on the up and up) is an incredible bundling of convenience. Even some of WeWorks well criticised acquisitions seemed like great ideas to me. Leveraging Meetup.com with WeWork locations just seems natural.

It all hinges on Softbanks ability to eat shit for a few years while rebuilding the company but I do think that there is a still a very strong brand here that had some great ideas but got a bit too hooked on the Kool aid.

>A lot of ink has been spilled about how cooky Adam and his wife are but I really liked the WeGrow idea of providing schooling / daycare.

Yeah, and everyone likes the idea of self-driving, solar-powered Tesla robo-taxis, too. Finding things that people want is easy; providing that product or service at a profit is much harder.

At the end of the day, WeWork is a real-estate company. 25% of the world's wealth is tied up in this industry. It's old, and efficient. Borrowing long, lending short is a surefire way to get crushed in a recession. This is known.

If the majority of that is in loans against the stock he will be in trouble if (when) the stock doesn't realize the liquidity and price he needs to pay off those loans, right?

Its too bad he truly wasn't as principled as the image he tried to cultivate.

He could bestow each employee of his company $80k, as a bonus for all the pain his mismanagement has caused.

Headline: "WeWork's Adam Neumann will reportedly get a $1.7 billion deal to step down from board."

First paragraph: "Former WeWork CEO Adam Neumann will get about $1.7 million in stock, cash and credit to walk away from the company and give up his voting rights."

Which is it: billion or million?

I noticed that too, kept reading, pretty sure its billion

The "key point" seems to be in error. The body of the article makes billion the only reasonable option

$1.7 Billion [0]. $1 Billion in cash for his shares, $185 Million consulting "fee", $500 Million line of credit (which is what Mr. Neumann had from JPMorgan).

[0] https://www.wsj.com/articles/softbank-to-take-control-of-wew...

> SoftBank will pay Neumann $1 billion for his shares, a $185 million consulting fee and will offer him $500 million in credit to help repay his loans to JPMorgan, according to the report.

This is from the article and provides the breakdown. It does look like there are discrepancies in the article, though. Guess this is what happens when you rush to publish or don't have good editing.

Stories like this make me feel stupid for caring about honesty in business/life.

And meanwhile they are not firing ppl because they can't afford their severance packages.

How is this not criminal?

Severance isnt required by law?

Very golden parachute for such sloppy execution.

It pays to be a liability...

This is not going to work.

IPO are the new ICO

Reply on news.ycombinator.com