Back in the 60s charismatic sociopaths would just start polygamist cults, not boring, transparently fraudulent companies. How times change.
These guys could have mastered cold fusion and I’d be skeptical.
Nuemann has cashed out $700M+ already… From a company that has never generated a profit. He hasn’t just gotten rich, he’s gotten mind boggingly rich, from a young company that isn’t doing anything particularly new.
I don’t see how the average investor could think that Neumann’s incentives are remotely close to aligned with theirs.
This initial IPO will come out to mixed reviews, but a ton of press. The banks will tout it as a great buy because they’ve already lent WeWork a ton of debt and have skin in the game. The economy will slow, the Saudis will demand SoftBank to stop fueling this WW growth, and once the push for growth stops will force them to be profitable. That is when the actual business model is tested.
WW has high upfront costs to lease and fitout centers as they stabilize. Once stabilized, these centers will make money. Servcorp, Regis, etc. all make money with this model, but these companies actually have cash flow. WW’s fear is to have a valuation actually based on their earnings, and not “selling the dream” of upside.
This is standard end of cycle activity that we all look back at and laugh. In this case, everyone knows it’s crap, but the banks want to push it through before the music stops. What no one has been able to answer is why is this a tech stock?
Can these companies really just self identify as a tech company because they want to be valued as one? WW is a serviced office company master leasing from LL’s and subleasing to individual tenants. Nothing more. So where does the tech come in?
>Investors in the upcoming initial public offering of WeWork’s parent, The We Company, are being asked to lower their standards for corporate governance beyond what other technology startups have demanded, securities law experts said on Wednesday.
>Adam Neumann, the company’s CEO and co-founder, will control the company through his ownership of shares with high voting power, a common structure among newly listed Silicon Valley unicorns, including ride-sharing startup Lyft Inc (LYFT.O), Snapchat owner Snap Inc (SNAP.N) and social media giant Facebook Inc (FB.O).
>The We Company will take a financial hit for this decision, as the S&P 500 and some other major indices exclude companies with dual-class shares. On the other hand, many investors have overcome their concerns about founders retaining a tight grip on fast-growing startups, because of fear of missing out on potentially lucrative returns.
>“WeWork is pushing the outer bounds of what’s acceptable for a public company,” said Glenn Davis, research director at the Council of Institutional Investors, an investor advocacy group. “The IPO filing indicates that the objective is to preserve incumbent control indefinitely.”
>We Company co-founder Rebekah Neumann, Adam Neumann’s wife who is the company’s chief brand and impact officer, will pick his successor if he dies or is permanently disabled in the 10 years following the IPO, alongside two company board members. She will get to pick those board members if two people currently on the board, Bruce Dunlevie and Steven Langman, step down.
>The set-up is odd, according to Charles Elson, director of the corporate governance center at the University of Delaware.
>The couple is also incentivized to donate $1 billion to charities over the next decade to keep their control of the company at current levels. Neumann will retain his high vote shares if he hits the target, if not, the number of votes per share will decrease, according to the IPO filing. While he would still likely control the company, his grip could loosen if the voting power of his shares becomes diluted.
>Neumann has entered into several transactions with the We Company over the years, making the company a tenant in some of his properties and charging it rent. He has also secured a $500 million credit line from banks using company stock as collateral.
Anyone investing in this deserves to lose lots of money