This latest week began with word that SoftBank was pleading with WeWork to postpone the offering into next year in order to avoid such an enormous writedown; it ended with reports that WeWork's valuation could sink to $10 billion and news that cultish co-founder Adam Neumann has agreed to governance changes that will curtail his overwhelming power at the co-working company. A little bit, at least.
But hey: I'm sure the community-adjusted valuation will still be a lot higher.
There's never a dull moment in WeWork's messy, meandering, mind-blowing march to the public market—and that's one of 11 things you need to know from the past week:
1. WeWork's rework neuters NeumannYou have to wonder if Neumann and the rest of the WeWork brass ever saw this coming. Did they anticipate that public investors might have some questions about their stupefyingly huge losses? Did they foresee that prospective shareholders might take issue with the company's CEO running a side hustle as a landlord who leases buildings back to WeWork? Did they guess that the rest of the world whose consciousness they're so concerned with elevating would see the company's $47 billion valuation as a load of hooey?
The amount of backtracking that's been done since the initial release of WeWork's IPO prospectus would seem to indicate that they did not. On Friday, the company published an updated prospectus outlining a number of changes to its corporate governance practices, most of which seem aimed at reducing the amount of power concentrated in Neumann's hands. When you're staring down a valuation decrease of nearly $40 billion, I guess you've got to do something.
WeWork is going to appoint a lead independent director by the end of the year, and no other Neumann family members will be on the board. The company is reducing the strength of its Class B and Class C shares, so that Neumann now only has 10 times the voting power of other shareholders, rather than 20 times. Neumann will stop profiting from his real estate dealings with WeWork. There are new restrictions on how much stock Neumann can sell over the next three years. If Neumann "becomes permanently incapacitated or dies," his wife, Rebekah, will no longer be one of the three people who decides on his successor.
The last note in the "Recent Developments" section of the prospectus is that Adam and Rebekah Neumann "remain committed to donating $1 billion to fund charitable causes over the next 10 years." Which is not a recent development, but they had to sneak something positive in there, I guess.
All of this is on top of another amended IPO filing WeWork submitted the week prior, one that announced the addition of Frances Frei to the company's previously all-male board and stated that Neumann would return the $5.9 million he essentially paid himself for the copyright to WeWork's new name, The We Company, which nobody uses anyway. It's probably a bad sign when your CEO is having to make multiple announcements about forfeiting profits he's generated from personal transactions with the company he's running, but here we are.
These all seem like good and necessary changes. That said, it's hard to see the moves resulting in any wholesale adjustment to how investors feel about WeWork. You can't put the toothpaste back in the tube, as it were, no matter how many SEC filings you submit with chastened statements like, "Corporate governance is important to our company." There exists plentiful evidence that corporate governance isn't as important to WeWork as it is to a whole lot of other companies, which is part of the reason they got into this whole mess in the first place. When someone shows you who they are, believe them.
If WeWork does go public with a valuation of between $10 billion and $12 billion, as Reuters reports is now an option, it would raise some interesting questions for SoftBank and the rest of the company's VC backers. SoftBank itself has already flooded WeWork with $10.65 billion in funding. It seems entirely possible WeWork's initial market cap on the Nasdaq could be smaller than that figure, a statement that would have seemed ludicrous a couple months ago.
In Silicon Valley, it's often all about the founder. Having great tech or a talented staff is nice, but many VCs see their business as one of making bets on people. SoftBank's Masayoshi Son and others like him are willing to give almost unchecked power and unlimited runway to founders with big ideas, plans for rapid growth and that certain je ne sais quoi of charisma. WeWork's past few weeks could be a sign that public investors are growing less receptive to such ideas.
In June, Reeves Wiedeman wrote an excellent profile of Neumann for New York magazine that you should definitely read, if you haven't already. In it, Wiedeman tells the story of the first time Neumann met with Son, the SoftBank founder. Son liked what he saw in the co-working business, but said Neumann needed to think bigger, to seek more money, to fight for a larger market. He said that "WeWork wasn't being 'crazy enough.'"
Is this crazy enough for you, Masa?