The WeWork saga will continue to be a topic for some time. This is how it all unfolded.... Aivars Lode
In early October, WeWork’s board of directors trickled into a brick building in lower Manhattan where the startup had an office. After they took their seats around the conference room table, Mark Schwartz started to vent.
“I’ve stayed silent too long,” the 65-year-old former Goldman Sachs Group Inc. partner told the six other men on the board, including WeWork’s co-founder and chairman, Adam Neumann.
Mr. Schwartz aired his frustrations about the state of the company, which was perilously low on cash after years of freewheeling spending and had become the butt of jokes on Wall Street, according to people familiar with the meeting.
No more fantasies, he said, as advisers and others looked on. Now, he said, they needed to make decisions that would save the company.
Even more remarkable than the content of Mr. Schwartz’s blistering rebuke was the fact that it came so late. The banker had stayed silent so long that the story was almost over.
We Co., as the parent company is officially known, was already a distressed asset by then, undone by conflicts and the dawning realization that it was just a hip real-estate sublessor—not a tech company. A few weeks earlier, WeWork had shelved its disastrous attempt at an initial public offering and Mr. Neumann had subsequently stepped down as chief executive.
It was a spectacular fall for the company that months before had been America’s most valuable startup.
Little of WeWork’s trajectory would have been possible were it not for the collection of veteran executives and financiers from the upper echelons of Wall Street and Silicon Valley who enabled Mr. Neumann, a charismatic 40-year-old with little prior business experience.
Mr. Neumann mesmerized them with his pitch, which offered a vision for the property-leasing company as a tech startup with limitless potential to transform how people work and live.
Investors poured capital onto Mr. Neumann’s business bonfire and ceded control, rarely pushing back with any force despite mounting problems and year after year of missed projections.
Masayoshi Son, the CEO of SoftBank Group Corp., who helped inflate WeWork’s valuation to $47 billion, pushed an already wild-spending Mr. Neumann to act bigger and crazier. JPMorgan Chase & Co. CEO James Dimon and other bankers, instead of injecting a dose of reality, spent years championing Mr. Neumann and the company as they battled for the coveted IPO assignment.
The outside board directors, all of whom had decades of experience in business and finance, voted for years to approve decisions by Mr. Neumann that paved the way for WeWork’s near collapse. Some of them had potential conflicts of interest themselves.
The directors on the board let Mr. Neumann personally buy stakes in buildings that he would lease to WeWork. They gave him long-term voting control of the company in 2014, and allowed him to sell and borrow more than $1 billion against his WeWork stake. They approved hundreds of millions of dollars for acquisitions of tech companies that were viewed by top executives as wasteful spending, with little relation to WeWork’s core business.
The end result didn’t just blow up $39 billion of the company’s value, roughly the value of Delta Air Lines Inc. It was a watershed moment for Silicon Valley. For years, investors salivated over all-powerful founders who promised disruption and demanded control. After WeWork’s spectacular flameout, investors have grown skeptical of the model.
In the moment, there was little debate following Mr. Schwartz’s remarks in the Oct. 3 meeting. The company needed funds to avoid running out of money by the second week of November.
Mr. Neumann, who had repeatedly skipped board meetings, including as the company was planning the IPO, urged the board to move quickly. They needed to save the company and that was all that mattered, he said.
