Tequila, marijuana and a bunch of relatives: how an ex-billionaire destroyed his business

At the end of September, the shareholders of the world's largest co-working network WeWork forced the founder, Israeli businessman Adam Neumann, to resign as CEO and effectively give up control. The fact is that in preparation for the failed IPO, they learned a lot about the company that, right during the road show, brought down the startup’s valuation from $47 billion to $15-20 billion. Now the company, according to Forbes, is worth less than $3 billion , and the fortune of Neumann himself, once a multi-billionaire, collapsed seven times, to $ 600 million. We tell how the ex-billionaire led WeWork to collapse.

What's happened. Neumann's survival campaign was spearheaded by SoftBank CEO Masayoshi Son, whose fund has pumped over $10 billion (in equity and loans) into the startup. Neumann's resignation was preceded by the collapse of the WeWork IPO. That there would be no deal became clear right during the road show: potential investors studied the company's disclosure and WeWork's valuation collapsed . Here's what they learned:

WeWork has always been a family company, but investors didn't expect it to be so

WeWork's motto is "better together". The company has three main owners - Neumann himself, his wife and mother of five children Rebecca, and friend Miguel McKelvey, with whom they started the business. Rebecca, 41, the cousin of actress Gwyneth Paltrow, is WeWork's brand manager and head of WeGrow's education arm, which builds a private school. From the prospectus for the IPO, it turned out that she is also part of a group of three people, one of whom should replace 40-year-old Adam as head of the company in the event of his unexpected death.
The influence of the founder's wife grew gradually - at first she hardly appeared in the WeWork office, as she was busy in film production. However, over time, Rebecca not only began to participate in the work, but also dictate the rules. For example, she insisted that all workers wear T-shirts of a certain color and commissioned the first floor of WeWork's headquarters to be turned into a video and film production area, said . former employees of the company
But from the prospectus for the IPO , it turned out that Neumann hired numerous other relatives to the company, including his wife's half-brother, who also had to leave the company as a result.
Avi Yechiel is a former Israeli football player. According to the prospectus, Yechiel has been head of WeWork's welfare department since 2017, earning a salary of $200,000. In addition, last year he organized eight company events for the same $200,000. The prospectus doesn't reveal which ones, but they coincide in date with the Creator Awards, the company's all-star-judged competition for entrepreneurs, startups, and nonprofits, on which WeWork has reportedly spent more than $40 million in 2017 and 2018, according to early reports.
Other family ties were also found in the prospectus. For example, Rebecca's cousin was the head of the real estate department at the company. For several years, WeWork corporate summer retreats were held at his parents' home.

WeWork has always spent a lot, but investors had no idea how much

WeWork's filing with the Securities and Exchange Commission (SEC) revealed that the startup has been losing money for several years in a row and the gap between income and expenses is no match for other newcomers to the exchange. Last year, the company's losses amounted to $1.6 billion. For comparison, in 2016 their size did not exceed $430 million. In the first half of 2019, the startup lost $690 million on revenues of $1.5 billion. Spending primarily fell on rental payments to owners of real estate in which co-working spaces were opened.

The successful placement was not helped even by urgent steps towards investors, which the company took in September. Then Neumann agreed to reduce the voting weight of his shares from 20 to 10 votes per share (investors during the IPO were to receive shares with one vote each) and appoint a leading independent director to the board of directors before the end of the year. Removed from the company's charter was the provision that Neumann's wife would take the lead in appointing his successor in the event of his death or inability to perform duties. At the same time, Neumann promised that within three years after the placement he would sell no more than 10% of his shares.

WeWork has always emphasized the importance of the founder, but did not talk about his habits

Neumann's name is mentioned 169 times in the prospectus, far more than any other. As revealed in pre-IPO disclosures, Neumann was not only the CEO and controlling voting shareholder.
Just before the failed IPO , it was revealed that he had received a total of $700 million from the company - partly through the sale of his shares, partly in the form of loans to WeWork, which were secured by its own shares. Neumann borrowed $7 million from WeWork in 2016 at just 0.64%. The entrepreneur paid off the debt, and this year attracted another loan - already for $ 362 million secured by 2.89% of the shares.
Neumann's decision to borrow against his shares only speaks to his confidence in WeWork's prospects. At the same time, even after the sale of its stake in the network, Neumann remains the largest shareholder of WeWork, were sure . market participants

But before the IPO, investors began to view Neumann with increasing skepticism, fearing his undue influence on the company.

Doubts were justified, former WeWork employees are sure. They unanimously describe Neumann as a violent boss who jumped on his desk during meetings, walked around the office barefoot (sometimes he was seen without shoes and on the streets of New York and in the town of the Hamptons, where his house is located) and constantly drank tequila - her he demanded not only in his office, but at every point during his tour of the coworking space.
Neumann has repeatedly stated that drinking hard liquor is part of the corporate culture. One day, he threw a party with employees in the office, at which he announced a reduction of 7% of the staff in order to save money. After that, he demanded that tequila and snacks be brought into the conference room. Employees fired that day said they felt stupid and confused.
The picture is complemented by Neumann's love for marijuana (once the crew of the plane found a large bag of the drug in a cereal box with him and his friends) and public statements about the desire to live forever and own the world.

What's next. “We have decided to postpone the IPO in order to focus on our core business, the foundation of which is still solid,” said Vice President Sebastian Gunningham and Chief Financial Officer Artie Minson. They noted that they still intend to bring the company to the stock exchange, but even the approximate date is still unknown.

The credibility of the company, meanwhile, is becoming less and less. First of all - from investors, whose interests have been neglected more than once in favor of the desires of management and current employees. The latter are confident that the mark of work in the WeWork coworking network will eventually serve as a kind of “black mark” in further job searches.