WeWork, the office-sharing company once valued at $47 billion, filed for bankruptcy this week after a disastrous attempt at an initial public offering in 2019 and continued struggles to achieve profitability.
The bankruptcy caps a swift downfall for a company that was once considered a high-flying startup.
Neumann Extracts Millions While WeWork Burns
While WeWork’s bankruptcy has battered the company’s reputation and cost its investors billions, co-founder and former CEO Adam Neumann has managed to cash out with enormous personal wealth.
Neumann, 44, was forced out as CEO in 2019 but not before extracting huge payouts from the company. According to filings from when WeWork eventually went public in 2021, Neumann received a $185 million non-compete agreement, a $106 million settlement payment, and $578 million from selling WeWork shares to investor Softbank.
Softbank also gave Neumann a $432 million personal loan secured by his near-worthless WeWork stake. Even with WeWork shares declining 99%, Neumann still has a net worth of $1.7 billion according to Bloomberg’s Billionaire Index. At the company’s peak in 2019, his stake was valued at $2.3 billion.
While WeWork spirals into bankruptcy, costing key backers like Softbank billions in losses, Neumann is now busy with a new startup called Flow funded by $350 million from Andreessen Horowitz. Flow aims to operate residential properties focused on community, but details remain scarce.
At least some of the properties are already owned by Neumann, meaning his personal investment amount is unclear. If significant, this could mean Neumann’s net worth is even higher than estimated.
WeWork Bankruptcy To Take Months, Wipe Out Investors
WeWork’s bankruptcy process is expected to be lengthy, likely lasting months, as creditors battle over the remains of the failed company. So far, court documents reveal billions in WeWork debt will convert to equity, decimating nearly all shareholders and low-ranking bond owners.
Major investors like Softbank will see enormous losses grow. Softbank and its Vision Fund have already lost $11.5 billion in WeWork equity as its valuation cratered from $47 billion to near zero. Now an additional $2.2 billion in debt investment is at risk in the bankruptcy proceedings.
The outcome is particularly disastrous for Softbank CEO Masayoshi Son, who pumped over $10 billion into WeWork’s flawed model. The saga has hammered Son’s reputation as a startup investor.
WeWork Downfall A Lesson in Excess
WeWork’s story is a cautionary tale of startup excess. The company grew rapidly, fueled by billions in investment at stratospheric valuations. But the core business was losing money at every turn.
WeWork attempted to go public in 2019 valuing itself at $47 billion, despite losing billions annually with no path to profitability in sight. The IPO attempt backfired spectacularly after investors balked at the sky-high valuation and questionable governance under Neumann.
As CEO, Neumann had incurred multiple conflicts of interest, including leasing buildings he owned back to WeWork. He also cashed out over $700 million ahead of the IPO while retaining control through special voting shares. After an intense backlash, Neumann was forced out but not before extracting his final payouts from Softbank.
Two years later, with losses mounting, WeWork was able to go public through a SPAC merger in 2021 at a valuation of just $9 billion. But even at this massively reduced price, the company continued hemorrhaging money.
Now WeWork has finally run out of options, crushed under $19 billion in liabilities. Its downfall is a warning to other high-profile, cash-burning startups inspired by the “grow at all costs” motto. Profitability and self-sustaining business models ultimately matter.
WeWork Product Still Valuable, But Challenges Loom
Despite operational flaws, WeWork’s office-sharing concept remains relevant as flexible workplace solutions gain traction. But the company faces a difficult road under new ownership.
WeWork must renegotiate expensive leases designed for rapid growth at the expense of profit. It also needs to retain tenants amid a possible recession. WeWork only survived this long thanks to repeated Softbank bailouts.
Going forward, it must function as a self-sustaining business without relying on large cash infusions from investors. This will require focusing on core operations and improving efficiency, a stark contrast from its past unrestrained growth.
There is speculation that former CEO Neumann may get involved with WeWork again after bankruptcy proceedings conclude. While denying any current involvement, Neumann did hint at this possibility in a recent statement. He said with the “right strategy and team”, WeWork can emerge successfully.
But Neumann’s track record at WeWork raises questions about whether he is the right person to lead it into the future. The company’s best hope may be new leadership who make business fundamentals the priority.
WeWork’s bankruptcy filing marks the end of a turbulent period defined by hype, excess, and mismanagement. While the underlying business has potential, grandiose visions and a get-big-at-all-costs mentality ultimately led the company astray under former CEO Neumann.
While WeWork faces an uncertain future, its founder has emerged largely unscathed, pocketing hundreds of millions along the way. The WeWork story underscores the importance of sustainable business models, realistic valuations, and prudent governance. For other high-flying startups today, it should serve as a cautionary example.