Who Won When WeWork Lost?

Getting Fired Has Never Been More Profitable

“It’s stone-cold crazy.”

In the face of the absolute shitshow that WeWork has become, it is ridiculously obvious as to why Eric Schiffer, CEO of the Patriarch Organisation, will make such a comment on Adam Neumann’s golden parachute of the sinking ship.

WeWork, the co-working space giant that botched their attempt at an IPO September this year, is in full crisis mode. Failing to list themselves meant that they had no financial lifeline—the company was losing so much money that if you calculated it, they were actually hemorrhaging $219,000 an hour. As a real estate company that masqueraded as a tech company, WeWork had no clear path of profitability, especially when they barely own any real estate.

Yet, Neumann’s ambitions were beyond containment and Softbank’s billions only fuelled the self-serving Israeli entrepreneur.

WeWork was more than a real-estate empire when Neumann unveiled the company’s new brand: We. The We Company housed three initiatives that focused on different aspects of human lives, with one of them including the workplace (hence, WeWork is part of the initiative). WeLive is a co-living arm and WeGrow forms an education group, with a mission to “unleash every human’s superpowers.”

Neumann’s goal was to move into a “smart cities” project, influencing urban design and architecture, with a former Waze and Google executive helming it.

While it was ambitious, it was also expensive. Much like Neumann’s ambitions, even his ouster came at a hefty price. Though Neumann ceded control to Softbank, the losses of the troubled coworking space empire were not offloaded to him.

While the 15,000-employee large ship he co-founded was sinking, Neumann is waltzing away with a rescue deal and a sweet $1 billion for the sales of his shares—the rest of them being a $500m line of credit to repay his debt to JPMorgan Chase and a $185m “consultancy fee”, which is ironic considering that WeWork was grossly mismanaged.

This golden parachute is a zero-sum game: Neumann may have won, but someone has got to lose.

Big Banks Losing Face…and Millions

Goldman Sachs, the 150-year-old financial institution, is now holding onto WeWork stock worth about $70m, according to chief financial officer Stephen Scherr—that’s after a drop in value almost double its current value. Goldman Sachs’ losing $80m on its investment in WeWork contributed to a 26% drop in profits from a year ago, joining a collective loss from its investment in firms that were thought to be the next Facebook/Google.

In its $2.6 billion investment portfolio, WeWork gets to join the likes of Uber and Avantor, with both raising more than a billion dollars through IPOs early this year. According to Bloomberg, there’s going to be a potential loss of $260m from Uber, Avantor, and Tradeweb, another private equity bet.

WeWork’s addition would drive that to $340m, which is just shy the amount of WeWork’s fundraising round in 2014.

Had WeWork successfully launched its share sale, Goldman would be preparing loans worth $6bn with another financial institution: JPMorgan.

Enter Jamie Dimon, CEO of JPMorgan. A huge backer of Adam Neuman, Dimon is now changing his rhetoric, emphasizing that “companies going public should have proper corporate governance before they go public”. In an interview with CNBC, Dimon said the bank has learned a few lessons.

If they were lessons, then WeWork might be the world’s most expensive tutor. Dimon’s race to break the Goldman Sachs-Morgan Stanley tech IPO duopoly has led to JPMorgan preparing a $5bn lifeline debt package, which WeWork rejected.

Back to the drawing board. At least there’s Airbnb.

Stepping the Pedal on WeWork

WeWork is a cash vampire and SoftBank’s debt package is indicative of it. Masayoshi Son is leading SoftBank—not the Vision Fund—to spend somewhere between $4 to $5 billion to save the embattled co-working space giant.

Defribillating the bleeding startup requires more than just cash and SoftBank isn’t going to have any of the previous gross mismanagement and poor corporate governance. While WeWork’s co-CEOs are busy finding ways to keep the company afloat, SoftBank is expected to install their CEO Marcelo Claure as the executive chairman.

With the debt package, SoftBank would have had plowed through $15.65 billion in total.

Despite bulldozing their vaults of cash, money is never a problem for SoftBank. The Japanese conglomerate is the “The World’s Largest Public Companies", just behind carmaker Toyota. Its famous Vision Fund is made up of investors from the likes of Saudi Arabia’s Public Investment Fund and Abu Dhabi’s Mubadala Investment, with $45 billion and $15 billion committed.

Despite that truckload, both of the Middle Eastern investment funds are reconsidering hedging their bets on Son’s second Vision Fund. “My investment judgment was poor in many ways and I am reflecting deeply on that,” told Son at a news conference.

That investment judgment has led to a whiplash: the Vision Fund is now reporting an $8.9 billion loss.

Sorry, I’ll Fire You Later Because We Don’t Have Money

Neumann may be walking away from a billionaire (again) but WeWork’s employees are not having it.

“It is beyond comprehension why Neumann would be paid $185 million to provide strategic guidance to the Company when his ‘guidance’ resulted in the virtual destruction of the company,” claimed in a lawsuit filed by Natalie Sojka, a team lead at WeWork prior to her current position at another firm in San Fransisco.

Sojka isn’t the only employee raising pitchforks at Neumann. Angry staff at the burning office rental company are now heading to WeWork’s Slack channel to share memes about the former co-founder, blame the man for the company’s downfall and laugh at the whole situation.

The whole situation is indeed, tragically comedic: 2,000 jobs will be cut, which stands at about 13% of WeWork’s 15,000 headcounts. Yet, little to no work is getting done to prepare for layoffs as WeWork is busy raising money to prepare severance packages.

Here’s another thing that’s tragically comedic: making a phone call at WeWork is dangerous to your health.

Elevated amounts of formaldehyde in WeWork’s phone booths, which can cause eye irritation, rashes, respiratory issues, and even enhanced cancer risks.

What can be worse?

Many employees expected to become millionaires when the company floated but here’s an opportunity: they might be able to get a million in cash. That’s of course if Neumann divided his $1.7 billion payouts within the 2,000 employees about to get the sack—that comes to $850,000 per employee.

Unfortunately, WeWork is literally financially incapable of firing anyone today.

WeWork’s own implosion has such a profound effect that it can even affect the stock prices of others: T-Mobile’s shares slide as rumors emerged that its CEO is in talks to helm the co-working space giant. Even its recent acquisition, Sprint, had its share price drop by 3.68%.

Ironically, looking at WeWork’s journey can give the impression that they can catapult themselves towards dominating the office space world. Compared to competitors like UCommune and IWG, WeWork was a rumbling hypercar while the others were rolling armored tanks—WeWork guzzled cash like crazy and crashed. UCommune and IWG on the other hand, are rolling along just fine.

In the wake of WeWork’s debacle, the China-based co-working space giant chasing a public listing in the States. Swiss-based IWG recently snagged a 24,000 square feet, multiyear leasing deal with Google in Toronto and their stock is seemingly on the way to its previous all-time high.

With WeWork now on the way to becoming a pseudo-subsidiary of SoftBank’s, many wonder if the bubble of fantastical unicorns is finally bursting, especially when Uber’s and Peleton’s IPO both performed poorly moments after launching on the public market.

The future for WeWork is now even more muddled as the markets keenly—but negatively—look on as to how SoftBank will revive it. Market experts think that WeWork’s botched IPO will make future IPOs even tougher, which means Brian Chesky has got more work to do for Airbnb’s in 2020.

We do know one thing: WeWork is headed straight for the history books, unfortunately, just not for the right reasons.