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Adam Neumann’s potential WeWork ouster echoes Travis Kalanick’s end at Uber

A founder builds a startup into the most valuable VC-backed company in the US. As a wave of controversy overwhelms the business, investors push for a new CEO. We’ve been here before.

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A young man has an idea to change the world. Displaying aggressive amounts of charisma, he sells the idea in the most grandiose way possible to venture capitalists, who supply their new founder with untold millions of dollars. Those millions eventually turn into billions.

The founder uses blitzkrieg tactics to deploy those billions in a bid to rapidly dominate his market, ignoring certain norms (and perhaps even laws) when they get in the way of pyrotechnic growth numbers. It works. The founder’s company becomes one of the most valuable private startups in the world. But cracks begin to show. Cutting corners starts to have consequences. Success breeds sycophants, and there seems to be no one to tell the founder that it’s all going off the rails. The public turns on the company. The venture capitalists turn on their founder. And the founder is shown the door. Thanks for turning this thing into a multibillion-dollar company with goals of global domination, the VCs say. But the professionals will take it from here.

Two years ago, it was the story of Travis Kalanick and Uber. Now, Adam Neumann and WeWork might be starring in the sequel.

Over the weekend, multiple reports emerged indicating that WeWork’s board of directors may soon meet to discuss the possible removal of Neumann as CEO, the latest development in a cataclysmic past month-plus at the co-working company. Investors with ties to SoftBank, by far WeWork’s biggest backer, are said to be part of a revolutionary group leading the effort to push out Neumann. The directors could propose shifting Neumann into a nonexecutive chairman role, per The Wall Street Journal.

Considering the degree to which Neumann has inextricably linked himself to WeWork—and considering the fact Neumann still controls voting power within the company—such a dramatic step would have been nearly unthinkable a couple of months ago. But a lot has happened in the past couple months.

After WeWork was valued at $47 billion earlier this year, bankers reportedly pitched the business on a potential $65 billion IPO. The company quickly found that public investors weren’t nearly so sanguine about its prospects. WeWork revealed its IPO prospectus in August to widespread ridicule, leading to a series of changes to the company’s corporate governance. Bearishness continued, with a series of news reports indicating a steady slide in the valuation WeWork expected to garner. A few days after reports emerged that its valuation could fall to as low as $10 billion, the company announced last week that it would delay the offering until at least October.

Shortly after that, the WSJ published an eyebrow-raising deep dive into Neumann’s management, including stories of the CEO getting caught with marijuana on a private airplane and repeatedly expressing his desire to become the world’s first trillionaire. It’s gotten to the point where, according to The New York Times, investors are considering threatening Neumann with a lawsuit if he doesn’t relinquish his overarching power at the company and accede to major changes. SoftBank founder Masayoshi Son is among those pushing for a CEO change, per Bloomberg.

It all calls to mind another time when investors rallied to remove the CEO from a company that was then the most valuable VC-backed startup in the US.

Longtime Uber chronicler Mike Isaac tells the full story in his recent book, “Super Pumped.” Travis Kalanick had long been a controversial figure at Uber, known for a willingness to bypass local laws, a penchant for corporate espionage and an at times callous disregard for the well-being of his drivers and his customers (although Uber would tell you those two are the same thing). But it wasn’t until the summer of 2017 that the ridehailing company’s investors decided enough was enough.

After the release of the Holder report, a sweeping (and incriminating) investigation into Uber’s operations, Kalanick went on indefinite leave. Shortly after that, board member Bill Gurley of Benchmark organized a coup, leading a group of VC backers that also included First Round Capital, Lowercase Capital and Menlo Ventures to write a letter to Kalanick demanding he step down as CEO and that Uber restructure its corporate governance. Like Neumann at WeWork, Kalanick owned enough super-voting shares to give him control of Uber, so the VCs couldn’t truly force him out. If he didn’t acquiesce, they threatened to publish their letter calling for his resignation in The New York Times.

After a frantic day of discussions, Kalanick gave in. But he still maintained his super-voting shares and a major presence on Uber’s board, leaving the threat that he could mount another bid at power. Gurley and Co. didn’t solve that problem until later in 2017, with an assist from SoftBank: The Japanese conglomerate agreed to buy 17.5% of Uber in a deal that eliminated super-voting shares and implemented a one share, one vote model, severely curtailing Kalanick’s influence going forward.

All in all, it was a successful but painful putsch. Is SoftBank trying to accomplish something similar at WeWork?

If so, it would mark a major repudiation of a founder that SoftBank previously supplied with more than $10 billion in funding. You wonder if Masayoshi Son wishes he’d spent more than 12 minutes with Neumann before agreeing to invest billions of dollars in WeWork.

And if so, it might get messier than Kalanick’s divorce from Uber. As mentioned, Neumann maintains voting control at WeWork. As the company is currently structured, if the board begins to revolt and its threat of a lawsuit is ineffective, Neumann could simply fire them all and find replacements friendlier to his consciousness-raising cause. But it seems likely that such a move would irreparably harm WeWork’s ties to SoftBank and cut off its primary source of private funding. It also seems unlikely that such a move would engender much support from public investors. It’s difficult to see a path where playing hardball works out well for Neumann.

WeWork’s investors and directors will probably try to convince Neumann that stepping aside is in his own economic interest. The CEO controls more than 20% of the company, so a difference of even a few billion in WeWork’s eventual market cap on the public market could have a serious impact on his bank account. But will Neumann think it’s worth it to give up control of his baby? After all, according to the WSJ, Neumann has already borrowed nearly $750 million against his WeWork stock and pocketed hundreds of millions more from selling shares. He’s not exactly destitute.

It’s turning into a dramatic tale of backroom dealings, Silicon Valley schadenfreude and morbid fascination with a founder’s fall from grace. Now, we’ll have to wait and see if Neumann survives the carnage—although if the speed at which the WeWork saga has developed so far is any indication, we might not be waiting for long.

Featured image by Stuart Isett/Fortune Brainstorm TECH (CC BY-NC-ND 2.0)

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    Written by Kevin Dowd

    Kevin Dowd wrote The Weekend Pitch newsletter for PitchBook, covering startups, buyouts and the rest of the private market.

    A native of the Pacific Northwest, he’s an alumnus of the University of Washington with a degree in creative writing and journalism. He enjoys books and basketball and, most especially, books about basketball. He feels uncomfortable writing about himself in the third person.

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