[bhouston]

I do not understand why Adam Neumann got that massive exit settlement from We Work?

> WeWork founder Adam Neumann received $245m in company stock [....] In addition to the $245m grant, Neumann received $200m in cash, was able to refinance $432m in debt on favorable terms, and allowed a finance company controlled by the former chief executive to sell $578m in WeWork stock. [1]

That guy got incredibly rich creating a company that was clearly not viable and seems likely to bankrupt. Corporate government seems to be non-existent here.

Who are the people that are left holding the bag? Hopefully it is mostly just private money like the Saudis + SoftBank (if they screw up, they suffer the consequences, that is great) and not public pension funds. Otherwise, the public fund managers should go after this complete lack of governance and oversight.

[1] https://www.theguardian.com/business/2021/may/27/wework-foun...

[itsoktocry]

>That guy got incredibly rich creating a company that was clearly not viable and seems likely to bankrupt.

WeWork is an extreme case, but this kind of thing happens with tech companies all the time.

Why do you think people in Silicon Valley equate an "exit" with success? Because at that point the insiders are paid out. What else matters?

Look at companies like Uber, Coinbase or Snap. Even Tesla. Insiders have accumulated billions in compensation that dwarves the value generated by the companies themselves (as measured by earnings).

[antihero]

This is just capitalism working as intended.

[edgyquant]

No, quite the opposite actually

[SQueeeeeL]

The issue pointed out by these two comments come from a conflation of vocabulary (which is typically intentional at least at some point in the education). A truly "free market" would ensure that things like WeWork wouldn't happen because the ultimate material inputs and outputs of the company don't square. "Capitalism" is the seeking of profit at the expense of all others, where having a viable company no longer is an objective in itself but simply is a means to increase personal wealth. In such a system, WeWork makes a lot of sense because the long term solvency of the company does not impact how the market measures it's success.

Thank you for coming to my Ted Talk

[edgyquant]

No capitalism is private ownership of capital. The profit seeking at the expense of others is a leftist caricature of capitalism just as laziness is the right wing caricature of socialism. No economic system exists to incentivize the stuff that happened during the rise and fall of WeWork.

[JohnFen]

> "Capitalism" is the seeking of profit at the expense of all others

No, that's not what defines capitalism at all. That's a degenerate form more usually called "predatory capitalism".

[phone[phone]]

We have the largest wealth inequality since the gilded age, and the Federal Reserve solution to runaway inflation was forcing workers to either settle for lower salaries or become unemployed.

In what was is predatory capitalism not the rule of the day?

[xcdzvyn]

If we're trying to define precise terms here, "free market" and "capitalism" don't overlap at all. Capitalism is a type of government, free markets are a (group of) polic[y/ies].

I don't see where the logic of your comment comes from either way though - capitalists are typically in favour of a free market, no? And typically the "purpose" of a free market is accruing wealth as part of a private enterprise?

[SQueeeeeL]

Free markets are sometimes useful tools in making profits but are also sometimes hinderences towards being able to extract the highest amount of profit from consumers.

That's why we see so many mergers and intensive lobbying for government regulation in things like healthcare, telecoms, and air travel, it's way easier to make money if you can restrict competition in your market and it's something essential to consumers

[jszymborski]

> Capitalism is a type of governmen

E.g.: Democracy, oligarchy, dictatorships are forms of government.

Capitalism, socialism, etc... are economic systems.

I point this out because people in my country sometimes forget that it's a system of elected officials that govern us, not capitalism.

[andrekandre]

what would be the correct/ideal way it would function in that regard?

[HDThoreaun]

The founders of businesses that fail don't get billion dollar exit packages. They lost the competiton.

[93po]

This is the American version of capitalism working as intended.

[phone[phone]]

I agree, but I think we probably disagree about whether or not this is a good thing

[JacobAldridge]

"Neumann’s ability to negotiate such rich terms was helped by the fact that his shareholdings controlled 10 times the votes of a normal shareholder, and he was able to argue for a higher price to cede control."

Correctly or, more likely, not - it seems the payoff was made in early 2021 at a time when valuations were soaring and there was a renewed push for an IPO. Neumann could have blocked that.

If I'm parsing a quick read of the data correctly, they backdoored an IPO in October 2021 at an $8bn valuation - and shares jumped 13% (so + $1Bn). A snapshot at that time could be used to argue they paid Neumann $x00 million to realise a multi-Billion dollar valuation and $1Bn+ growth in market cap.

Could they have forecast the rapid decline thereafter? Maybe some of those investors didn't care, as long as they got some return? If Neumann had dragged the battle out for another year, into 2022 when the markets went South, it probably would have cost WeWork a lot more on paper than whatever they paid him.

[bhouston]

I was referring to the fiasco of 2019 where WeWork went from $50B to $5B while giving Adam Neumann a $1B payoff - did you miss that, it was on here all the time?

https://www.businessinsider.com/wework-ipo-fiasco-adam-neuma...

The SPAC merger (not IPO) in October 2021 at $9B but then it has continued to slide now down to $250M. That IPO does seem to be trying to get some value out of this turkey by passing it off to public investors.

There was never a viable business here, just hype. Going through its finances that are public, it has never made any money. Its net losses per year are roughly its income in most years. Its valuations were completely speculative.

[JacobAldridge]

Don't get me wrong - I never saw the value! Just answering the question.

Why in 2021 did they give him that payout? Likely because they thought it offered the best ROI moving forward (and for some shareholders, especially anyone who sold at the post-listing peak, it did).

It definitely wasn't recognition for past success.

[ethbr0]

'We paid Neumann too much to exit quickly, because we knew the company prospects were bad and we needed an IPO to exit ASAP' probably isn't a crime, assuming there weren't errors on financial disclosures.

But it's certainly dubious enough to warrant a lawsuit to see if there were false claims made.

[notahacker]

> at a time when valuations were soaring and there was a renewed push for an IPO. Neumann could have blocked that.

"We invested in a company structured so that the CEO could hold us to ransom, and agreed the bad terms because we thought the CEO would have breached his fiduciary duty to other shareholders and blocked advantageous exits if we didn't pay his ransom first" doesn't sound any better...

[ethbr0]

But not illegal, no?

I actually kind of respect Neumann. Not in a moral/ethical way, of course, but in a defend-yourself-at-all-times way.

He never would have gotten that payout if he hadn't legally fortified his position like he did, and then successfully maintained it through SoftBank's initial due diligence.

"Heads, I win. Tails, I win." type stuff.

[itsoktocry]

>A snapshot at that time could be used to argue they paid Neumann $x00 million to realise a multi-Billion dollar valuation and $1Bn+ growth in market cap.

This makes no sense to me.

Why would you pay hundreds of millions of dollars to someone for a paper valuation and market cap? It was all meaningless.

[ethbr0]

Liquidity. It's the difference between initial equity holders being able to sell and not.

[JacobAldridge]

Not meaningless, just temporary in a way they didn’t forecast.

Imagine you could buy a house for $200,000, live in it for a year, and then sell it for $1M. Would you take that deal, even if you didn’t like the seller?

[hn_throwaway_99]

Still more amazing to me is that he got a16z to invest 350 million into his new real estate debacle just after all this. This dude must really be a master hypnotist or something.

[zer8k]

I've been around a few of these people in my life (albeit not nearly as successful). One guy in particular got people to invest millions in his sinking ships. Some people have a reality distortion field around them. Pair that with a half decent pedigree (school, neighborhood, city) and while money was cheap it was fairly easy for them to get whatever they wanted.

It's sometimes surprising how shocking simply knowing people is.

[matthewdgreen]

If you think the goal of investing in these companies it to be ultimately profitable and make huge earnings, investing in successful con men doesn’t make any sense. If you think the goal is to cash out by dumping the company on a bigger sucker (or even better, retail investors) then obviously you’re going to seek out the biggest huckster. Look at what investment funds do, not what they say.

[geodel]

Nah, this time Andreessen thought real estate is really eating the world :) So jump in early.

[lotsofpulp]

> . Otherwise, the public fund managers should go after this complete lack of governance and oversight.

The public fund managers would be the ones guilty of not doing their due diligence.

[bhouston]

SoftBank in particular seems to fund a lot of fraudsters. I wonder why? Just the number of total investments SoftBank makes or is there less DD? Just yesterday I saw this news: https://techcrunch.com/2023/08/04/softbank-sues-irl-over-ela...

[rapatel0]

Softbank vision fund was poorly designed. At a 100 billion size, the fund must deploy a ton of money to create venture returns. Assuming a 10 year maturity and 5 years of investment period, they would need to deploy 20 billion per year into companies just to run the fund. If you invest in 100 companies then check-size must be a few hundred million to billions of dollars.

Implications: They then pushed companies to expand way faster then was appropriate. This meant that companies made decisions that was not justified by the profitability, just because they needed to spend the money.

An example would be when WeWork started offices in most expensive areas of manhattan and served them to customers at effective discount, hoping that the market would shift. Originally, WeWork took office space in distressed areas and made them viable for companies to use at a markup--creating value and being profitable overall. Under the pressure, they made stupid unprofitable decisions. Under this environment, even solid companies are forced to spray and pray money.

Generally speaking, money brings greater velocity but founders and investors should understand if the market will change at the same rate. For WeWork, commercial office space has leases with lengths of 5-10 years. Bottomline, there is not enough "liquidity" to absorb that quick an expansion.

[boeingUH60]

Masayoshi Son is a gambler that invests more on gut instincts than fundamentals...most of his investments seem to fail, but a few have kept SoftBank going for so long, e.g, Alibaba, Sprint, etc.

[i_am_jl]

DD? Softbank just throws gobs of money at companies with founders Masayoshi Son likes.

Softbank's "investment strategy" would've ended the company decades ago if it didn't buy a quarter of Alibaba for $20m, a share that would end up being worth over $100b a few years ago.

[nradov]

It appears that SoftBank also made a huge profit on Sprint. Although it was less than they initially expected and took much longer to exit.

https://www.wsj.com/articles/softbanks-boss-bet-22-billion-o...

[anagri]

just glad that the 2019 IPO didn't materialize, otherwise the innocent retail shareholders would have paid for all the nuisance

[hn_throwaway_99]

I'm also glad the 2019 IPO didn't materialize, but if it had, anyone who bought in would have been deserving of no pity and I wouldn't call them "innocent retail investors". As badly managed as WeWork was, this was not a case of fraud. Everything was wide out in the open, for anyone with eyes and a brain to see. Heck, the whole reason the 2019 IPO didn't go through is that WeWork's original S-1 was such a shit show of epic proportions, with nothing but red ink as far as the eye could see and completely made up vanity metrics, that Wall Street's collective reaction was "Are you fucking kidding me?"

[sgerenser]

Matt Levine's contemporaneous take on the WeWork IPO and associated shenanigans by Neumann: https://archive.is/qkJXl

[bhouston]

Matt Levine is a national treasure.

[RGamma]

How much tax did he pay?

[benjaminwootton]

He built an enormous global business and brand, and the investors wanted to buy his shares and push him out in a transparent negotiated commercial transaction.

He deserved every penny of it as far as I can see.

What’s the alternative? That his stock and voting rights went to SoftBank for free?

[bhouston]

> He built an enormous global business and brand

Brands built upon selling product for less than it is worth are easy to build up. That isn't a real business though, it is just VC-funded make believe.

> What’s the alternative? That his stock and voting rights

Wouldn't it have been better back when WeWork's IPO failed to materialize in 2019 for SoftBank to just stop investing in WeWork it dropped from a planned $100B to $5B in a span of a year or so? And then SoftBank continued to invest to gain control and keep it afloat. Definitely a situation where someone is throwing good money after bad. Should have just left it for dead then.

That is the alternative. And it would have been best for the investors for sure.

In the end SoftBank just offloaded this turkey to the public via a SPAC merger. Did SoftBank end up making any money off this at all? I suspect there was no liquidity for the shares in this SPAC thus I bet they recouped almost nothing from this whole debacle.

[hn_throwaway_99]

> He built an enormous global business and brand.

Why do people think selling dollars for 75 cents is some incredible achievement to be lauded?

[geodel]

He is the role model for quite a lot of people here. See those half-ass CRUD apps launch as world changing Cloud SAAS everyday.

[dahwolf]

He's a bare-footed scamming dopehead that belongs in prison.