Investors were wary of cofounder and CEO Adam Neumann's control of the company, large stock sales, real-estate deals, and family members' involvement in the business. Photo/AP
Investors were wary of cofounder and CEO Adam Neumann's control of the company, large stock sales, real-estate deals, and family members' involvement in the business. Photo/AP
WeWork's chief executive Adam Neumann told employees he had been "humbled" by the aborted initial public offering of his lossmaking property group, admitting he needed to learn lessons about running a public company.
In a webcast on Tuesday, hours after WeWork shelved its eagerly-anticipated listing, Mr Neumann expressed his contritionover the handling of the IPO process, according to people who saw the presentation.
The 40-year-old co-founder said he believed he knew how to run a private company, but that he had since received feedback on the role he needed to play as a leader of a soon-to-be public group.
Amid recriminations over the derailed process, one person who worked closely with Mr Neumann said his outsized personality played a "huge role".
The poor trading of other disrupter company listings, including car-booking apps Uber and Lyft, contributed to Mr Neumann's decision to delay the IPO, as he sought to avoid the same turbulent debut, said people close to him.
Their borrowing model is seriously in question at this point
After his presentation, Mr Neumann did not take questions from employees, who have watched on the sidelines as WeWork's advisers slashed the group's $47bn valuation in their attempts to drum up investor interest.
He was joined for the talk by co-founder Miguel McKelvey, who is the chief culture officer, and Artie Minson, the chief financial officer, with the three executives promising employees that the IPO would still be completed later this year.
The last-minute decision to postpone the IPO on Monday evening sent waves across the venture capital world and sparked a sell-off in WeWork's bonds on Tuesday.
In a sign of the financial strain on WeWork, the yield on the company's $702m of junk debt surged to a high of 8.9 per cent on Tuesday, according to bond trading platform MarketAxess. When the company borrowed the $702m last year, it yielded 7.875 per cent.
WeWork had planned to launch its roadshow for the listing this week before selling shares to the public next week. But the group faced a chilly reception from investors and it was unclear if it would be forced to postpone the listing until 2020 or later, said people briefed on the matter.
Potential investors raised a raft of concerns with the company and its advisers at JPMorgan Chase and Goldman Sachs, including over the scale of WeWork's increasing losses, its complex corporate structure and the sway Mr Neumann had over the company.
WeWork has burnt through capital as it has plotted a global expansion that has taken its co-working spaces to more than 110 cities. In the first half of 2019, the company reported cash outlays of nearly $2.6bn to operate and invest in its business, nearly matching its cash spend on the two in the entirety of 2018.
Its losses have swelled alongside its growing sales base; the company lost roughly two dollars for every dollar of revenue it generated last year.
WeWork CEO Adam Neumann's outsized personality played a "huge role", insiders said. Getty Images
WeWork faced pressure from its largest backer, Japan's SoftBank, to delay the listing after potential investors showed middling interest in the company's flotation. The lacklustre response persisted even after WeWork's advisers tested a valuation on the group of between $15bn and $18bn, far below the $47bn valuation placed on the company by SoftBank in January.
John McClain, a portfolio manager at Diamond Hill Capital Management, said he could not remember another unicorn — a privately held start-up valued at more than $1bn — having "zero support from either debt or equity investors".
"Their borrowing model is seriously in question at this point," he added. "There is not a level that we could become interested in owning this company based on the business, the governance, and the financial statements."
Barry Oxford, an analyst at brokerage DA Davidson, said the value of the company was likely to fall below $10bn given its "susceptibility to a recession, current cash burn rate, corporate structure, and corporate governance".
WeWork had sought to address some of the issues investors raised to finalise the IPO before the end of September, a deadline Mr Neumann had set for the company and his advisers. The group reduced the power of Mr Neumann's high vote shares, which give him control of the company, and agreed to add a new member to its board.
However, investors said the changes did not go far enough and that they did not offset their concerns with the group's business model of renovating and releasing office space owned by other landlords.
Written by: Eric Platt and Joe Rennison in New York and James Fontanella-Khan in London
