Major layoffs are all but inevitable at high-flying real estate startup WeWork after Adam Neumann succumbed to pressure today to step down as CEO and take the role instead of non-executive chairman of the company he cofounded nine years ago.
Two well-placed sources tell us that the scope is likely to be massive, and includes some of of its newest business divisions, which these same sources anticipate will be jettisoned to get the company’s focus back on its core business. One of these sources speculates that over time, up to half of WeWork’s 15,000 employees — 9,000 of whom have been brought on in the last two years — could be laid off to shore up the unprofitable company’s expenses. The sentiment echoes a new piece in The Information that reports a “group of executives from WeWork’s parent company and bankers” have discussed laying off as many as 5,000 employees—a third of its workforce.
Neumann won’t have as much say in the matter, either. As part of his departure from the role, he has agreed to further reduce the power of his supervoting shares from an original 20 votes for every one vote that a regular investor in WeWork would receive to just three, reports Bloomberg. His wife, Rebekah, a cofounder who is thought by insiders to have played a heavy role in the company’s original — and highly atypical — IPO prospectus, is also leaving the business.
It’s rather breathtaking, the speed with which the couple was just elbowed aside. Still, some others involved in the company look poised to get a far worse deal. The Japanese conglomerate SoftBank currently stands to lose billions of dollars on its investment in the company — if it doesn’t wind up writing down nearly the entire investment. Even an aggressive ratchet clause won’t do much to protect SoftBank if WeWork’s shares eventually sink on the public market.
It would seem an extreme correction to a culture that had become, well, anything but restrained. It’s also far from clear that it would have the intended effect of attracting public shareholders to the company, whose wheels began to come off when SoftBank first plugged $4.4 billion into WeWork roughly two years ago, according to our sources. (Roughly $6 billion more would follow.) As says one of these individuals, who has known Neumann for many years, “Adam already had a healthy ego. What the f_ck do you think is going to happen when he’s given billions of dollars?”
It’s a rhetorical question, of course. We could guess what would happen because many related developments were documented in the press, even as too few questions were asked along the way.
For one thing, WeWork quickly expanded geographically. It also devoted some of its new resources to renting out more residences under the WeLive brand; to creating a school called WeGrow that was the brainchild of Neumann’s wife, Rebekah; and to launching a gym called Rise by We, replete with boxing gym and a cardio room designed for bootcamp workouts.
Some snickered at the company’s ambitions to tell its customers “ultimately where to live, ultimately where to work out, ultimately where to meet their friends for a drink after work,” as Michael Gross, the company’s low-flying vice chairman, told the New York Times for a 2017 story.
Times reporter Katharine Rosman joked in this same article that, “Clearly, next will come WeGotDrunk.” Gross appears to have gotten the last laugh, however. This past summer, he shelled out $28 million for an estate in L.A.’s ritzy Brentwood neighborhood.
Which brings us back to real estate holdings, and there are many controlled by Neumann. As rich as Gross’s new $28 million home may seem, it’s still a little less than the $35 million that Neumann spent in 2017 to buy four units in a seven-story building in New York’s desirable Gramercy neighborhood in late 2017 — roughly five months after first partnering with SoftBank.
It isn’t as if he needed another property. Neumann had already by that time acquired a $10.5 million Greenwich Village townhouse; a farm in Westchester, New York; and a home in the Hamptons. Whether his earlier investors — including Benchmark, T. Rowe Price, Goldman Sachs and Fidelity Investments — were looking the other way or not paying very close attention, only they know.
Either way, that SoftBank money seems to have paved the way for continued shopping. According to the WSJ, one of Neumann’s most recent acquisitions is a $21 million, 13,000-square-foot house in the Bay Area with a guitar-shaped room. (Unless there are many 13,000-square-foot properties with guitar-shaped rooms, we’re guessing it’s this one, in Marin County.)
Altogether, the WSJ reported in July, Neumann has cashed out more than $700 million from the company through a mix of stock sales and debt.
The corporate spending also continued a pace, specifically around acquisitions. WeWork — rebranded the “We” company earlier this year after paying Neumann $5.9 million for the “We” trademark — acquired its first company in 2015 and another in 2017. They represented a sprinkling of small deals at first. But in 2017, WeWork acquired five more companies and then . . . the deals kept coming.
We has now acquired at least 21 companies, some with cash — others with cash and stock that might not wind up being worth much, if anything at all. Among its bigger deals: buying Meetup, a site for organizing group trips and events for which WeWork paid a reported $200 million, and snapping up a Chinese co-working startup called Naked Hub, for which it paid $400 million.
Now, say our sources, the shopping spree is over. “There will be no schools, no gym, no WeLive,” speculates one person very familiar with the company’s thinking. “You might see them sell their investment in [the membership-only co-working space] The Wing. All the things they bought in the last 24 months need to be unwound.”
Whether Neumann is asked to give up anything more is another open question. Beyond agreeing to weaken his supervoting shares and now, to step away, he also earlier agreed to repay what he collected for the “We” trademark after the transaction was made public in the company’s original S-1 filing. (The company made these amendments in recent weeks, hoping to win over skittish investors.)
Benchmark did not respond to related requests for more information today.
WeWork meanwhile declined to address talk of massive layoffs, instead pointing us to a statement issued by the co-CEOs appointed to run WeWork while it searches out a successor for Neumann.
One of these is Artie Minson, a former AOL and Time Warner Cable executive who joined WeWork in 2015 as its finance chief. The other is Sebastian Gunningham, who spent more than a decade with Amazon, including as the senior vice president of Amazon Marketplace. He joined WeWork as its chief automation officer and co-vice chairman in March of last year.
Certainly, read closely, the statement from the two, issued immediately after Neumann agreed to step down, suggests some major cuts are coming. To wit, they say that while We’s “core business is strong” that “we will be taking clear actions to balance WeWork’s high growth, profitability and unique member experience while also evaluating the optimal timing for an IPO.”
Now to see what those actions amount to, and whether they come in time.
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