WEBVTT - WeWork Part 6: IPO -- Just Kidding 0:00:00.080 --> 0:00:02.960 A couple of years ago, Andy's Alevski needed an office. 0:00:03.520 --> 0:00:05.680 He works in urban planning and he lived in Boston 0:00:05.760 --> 0:00:08.719 at the time, so he rented a space from we Work, 0:00:09.280 --> 0:00:12.159 and he was really impressed by their perks. One of 0:00:12.200 --> 0:00:15.440 the most exciting things was Monday mornings because they had 0:00:15.480 --> 0:00:18.280 free breakfast, and I remember one of my first weeks. 0:00:18.320 --> 0:00:21.400 It was like egg and cheese breakfast sandwiches on a 0:00:21.520 --> 0:00:24.200 dancy bagel, and it was so good. He wasn't so 0:00:24.320 --> 0:00:27.840 much into the free beer, but the Monday breakfasts those 0:00:27.840 --> 0:00:30.600 were his favorite. And Andy says the food was really 0:00:30.600 --> 0:00:35.919 fancy for years, but then things took a turn. Um. 0:00:35.920 --> 0:00:38.120 It was more of like a sudden drop off, I 0:00:38.120 --> 0:00:40.480 would say, um. And then by the time I left 0:00:40.520 --> 0:00:42.559 we Work, there definitely were some cost cuts and we 0:00:42.560 --> 0:00:45.560 were down to um wonderbread with peanut butter and jelly, 0:00:45.600 --> 0:00:48.159 which was definitely a disappointment compared to what we had 0:00:48.159 --> 0:00:51.559 at first. So probably the worst was they decided to 0:00:51.640 --> 0:00:55.279 be avocado toast day, so they had a bag of 0:00:55.280 --> 0:00:58.840 wonderbread and some mushed up avocados. But by the time 0:00:58.880 --> 0:01:01.360 everyone showed up for if the avocado has got gray, 0:01:01.440 --> 0:01:06.640 so it's just this like gray avocado bush, and this 0:01:06.760 --> 0:01:10.280 sudden decline in Andy's Monday breakfast was happening at a 0:01:10.400 --> 0:01:13.520 dramatic time for We Work. It was around the time 0:01:13.560 --> 0:01:18.640 the company was trying to go public in September. Andy 0:01:18.680 --> 0:01:22.520 started wondering what was going on at we Work. I 0:01:22.560 --> 0:01:26.840 wasn't really that aware before the I p O happened, 0:01:26.840 --> 0:01:30.440 but you know, the negative news started piling on um 0:01:30.520 --> 0:01:33.479 and it kind of became all we talked about at 0:01:33.480 --> 0:01:37.880 the office because it was unfortunately sort of entertating. I mean, 0:01:37.920 --> 0:01:39.920 I didn't talk about it with the staff at we Work, 0:01:40.040 --> 0:01:44.560 but amongst ourselves, like we would constantly share articles and 0:01:44.720 --> 0:01:48.840 videos that became kind of obsessed by it. And he 0:01:48.960 --> 0:01:51.520 wasn't the only person who was obsessed with following the 0:01:51.560 --> 0:01:54.480 news about We Work. In the span of about a month, 0:01:54.760 --> 0:01:57.480 We Work went from a triumphant startup to a once 0:01:57.520 --> 0:02:00.800 in a generation catastrophe. It was a train wreck that 0:02:00.960 --> 0:02:05.360 people like Andy just couldn't look away from. You're listening 0:02:05.360 --> 0:02:09.119 to Foundering In this episode, we're talking about the undoing 0:02:09.200 --> 0:02:13.519 of we Works. Big moment. It's I p O. Behind 0:02:13.560 --> 0:02:16.120 the scenes of We Works I p O saga. There 0:02:16.200 --> 0:02:19.720 was a power struggle between two men. First we have 0:02:19.800 --> 0:02:24.720 Adam Newman, we Works, brash, ambitious and extravagant CEO, and 0:02:24.760 --> 0:02:28.200 the second man is we works biggest backer, Massa Yoshi, 0:02:29.080 --> 0:02:33.799 CEO of soft Bank and an eccentric billionaire investor. Massa 0:02:34.080 --> 0:02:37.520 was betting big on Adam, and as we Work approached 0:02:37.560 --> 0:02:40.320 as ip O. He was about to find out if 0:02:40.360 --> 0:02:43.720 that had been the right call. By the way, we 0:02:43.760 --> 0:02:46.520 reached out to spokespeople for Adam Newman, we Work and 0:02:46.600 --> 0:02:50.720 soft Bank, they declined to give us a statement. In 0:02:50.840 --> 0:02:54.720 late we Work was in a cash crunch. That year. 0:02:54.880 --> 0:02:58.880 The company lost two billion dollars. They spent about two 0:02:58.919 --> 0:03:02.000 dollars for every all are they made in sales, So 0:03:02.080 --> 0:03:05.240 to get more cash, they were considering an I p O. 0:03:06.080 --> 0:03:08.560 But here's the thing. My sources tell me that we 0:03:08.600 --> 0:03:11.799 Work didn't necessarily want to go public because when you 0:03:11.880 --> 0:03:15.040 go public there's some clear downsides. You have to publish 0:03:15.080 --> 0:03:18.840 tons of financial information and do quarterly earnings reports. You 0:03:18.880 --> 0:03:21.320 have a lot of new shareholders to answer to. It 0:03:21.360 --> 0:03:24.840 could be a huge pain. So going public was plan B. 0:03:26.280 --> 0:03:29.480 Plan A was getting more money from soft Bank. Adam 0:03:29.560 --> 0:03:31.880 was pretty confident that he could get Massa to agree 0:03:31.880 --> 0:03:35.080 to a huge deal. Soft Bank would invest sixteen billion 0:03:35.080 --> 0:03:37.600 dollars more in We Work and would own more than 0:03:37.600 --> 0:03:40.000 half of the company, and that money would be enough 0:03:40.040 --> 0:03:42.400 cash to keep we were going for a long time, 0:03:43.200 --> 0:03:46.160 and Massa was interested in doing this deal too because 0:03:46.160 --> 0:03:50.360 he believed in Adam. Here's my colleague, Sarah McBride, who 0:03:50.360 --> 0:03:54.040 has spent years covering soft Bank and Massa. Massa is 0:03:54.080 --> 0:03:58.200 actually a very loyal, trusting guy. So there are certain 0:03:58.240 --> 0:04:01.720 people that Massa it just takes two and he thinks 0:04:01.800 --> 0:04:05.200 the world of like Jack ma for example, and for 0:04:05.240 --> 0:04:07.960 a while like Adam Human And if you fall into 0:04:08.040 --> 0:04:13.000 that category, he just assumes you're a stand up person 0:04:13.040 --> 0:04:16.320 who's just going to do the right thing, run your 0:04:16.360 --> 0:04:23.040 business really well, and he'll ignore all evidence to the contrary. 0:04:23.120 --> 0:04:26.719 So I think Adam kind of fell into this bucket. 0:04:26.839 --> 0:04:33.840 He basically could do no wrong, and Massa just trusted him. 0:04:33.880 --> 0:04:37.159 But already there were some bad signs, some hints that 0:04:37.279 --> 0:04:40.599 all might not be well in We Work land. Sarah 0:04:40.680 --> 0:04:43.159 told me there was a lot of tension within soft 0:04:43.160 --> 0:04:46.000 Bank about the amount of money they were pouring into 0:04:46.080 --> 0:04:52.520 We Work, So internally, people at soft Bank didn't like 0:04:52.640 --> 0:04:55.720 the Wee Work investment, it was just too much, and 0:04:56.279 --> 0:05:01.480 nobody internally or very few people internally, whanted we Work 0:05:01.600 --> 0:05:05.479 to get more money, but Massa kept finding ways to 0:05:05.560 --> 0:05:10.080 do it. So Massa had indicated to Adam that he'd 0:05:10.120 --> 0:05:12.920 be able to make another big soft Bank investment and 0:05:13.040 --> 0:05:17.320 we Work, and Adam was kind of counting on that cash. 0:05:17.640 --> 0:05:22.200 But on Christmas Eve, Massa gave Adam a call. He 0:05:22.240 --> 0:05:26.040 had bad news. Soft Bank stock had taken a tumble, 0:05:26.720 --> 0:05:30.320 plus his biggest investors had gotten cold feet about investing 0:05:30.440 --> 0:05:33.479 so much more in We Work, so Massa was stuck. 0:05:34.279 --> 0:05:37.640 He told Adam he couldn't invest the sixteen billion dollars 0:05:37.680 --> 0:05:41.040 as planned. Instead, he was able to come up with 0:05:41.279 --> 0:05:44.839 only two billion dollars. Now regarding we Works owned fresh 0:05:44.920 --> 0:05:47.760 to billion dollars in funding from soft Bank announced this week. 0:05:47.960 --> 0:05:50.000 At one point that was supposed to be as much 0:05:50.040 --> 0:05:53.679 as sixteen billion dollars. So the Japanese conglomerate announced Monday 0:05:53.680 --> 0:05:57.799 it's investing and additional two billion dollars in the coworking startup, 0:05:57.800 --> 0:06:00.919 a step back from the sixteen million dollar investment that 0:06:00.960 --> 0:06:04.280 would have given soft Bank a controlling steak over late 0:06:04.320 --> 0:06:06.360 last year. They had floated this plan like what we're 0:06:06.360 --> 0:06:08.479 going to take over? We work, We want to be 0:06:08.640 --> 0:06:11.960 wholly invested in this business. We want an ownership steak. 0:06:12.279 --> 0:06:15.960 And then the stock market went haywire. SoftBank shares in 0:06:16.000 --> 0:06:19.960 particular have taken a dive. Massa's decision to back pedal 0:06:20.040 --> 0:06:23.320 on the investment was a pretty rough setback for Adam. 0:06:23.360 --> 0:06:25.720 I actually got to speak to Adam about this pivotal 0:06:25.720 --> 0:06:29.479 moment after Massa had disappointed him, but before the I 0:06:29.560 --> 0:06:32.640 p O. I asked him how he'd felt when he 0:06:32.720 --> 0:06:36.120 got that call from Massa. He responded in kind of 0:06:36.160 --> 0:06:40.280 an indirect way. He told me his superpower is change, 0:06:40.640 --> 0:06:43.760 which is a very atom thing to say. He and 0:06:43.800 --> 0:06:47.200 his wife, Rebecca Newman, really loved the idea of superpowers. 0:06:47.800 --> 0:06:51.240 Remember the mission of their elementary school, We Grow, was 0:06:51.360 --> 0:06:56.960 to unleash every human superpowers. Anyway, he said his superpower 0:06:57.040 --> 0:07:00.960 helped him navigate through his disappointment with Massa. My superpower 0:07:01.160 --> 0:07:06.360 is change, and change is painful. Change is uncomfortable. You've 0:07:06.360 --> 0:07:08.480 got to be open to feedback. You gotta admit things 0:07:08.520 --> 0:07:11.280 that are working. Yes, say yes. Massa and I spoke 0:07:11.360 --> 0:07:12.560 and we're not going to do the big deal that 0:07:12.600 --> 0:07:14.160 we were going to do and be comfort sent. Well, 0:07:14.160 --> 0:07:15.960 what can I learn from that? Good or bad? But 0:07:16.080 --> 0:07:17.840 I don't know that. We'll look backwards and half for 0:07:17.920 --> 0:07:20.760 your adviser. I'm not sure if you caught that, but 0:07:20.800 --> 0:07:23.120 he said that he and Massa were not going to 0:07:23.120 --> 0:07:25.680 be able to do the deal they'd agreed to, and 0:07:25.760 --> 0:07:29.280 now Adam had to adapt and change to move forward. 0:07:30.160 --> 0:07:33.360 To him, it was a skill he'd spent a lifetime developing, 0:07:34.280 --> 0:07:36.440 and as I grew up all of my life, I've 0:07:36.440 --> 0:07:38.680 had to change a lot, a lot of challenges when 0:07:38.680 --> 0:07:41.400 I was a kid, and being dyslexic forced me to 0:07:41.560 --> 0:07:43.800 always change how I tried to solve a problem and 0:07:43.960 --> 0:07:47.520 try to do things, but mainly embrace it. Change is 0:07:47.640 --> 0:07:51.840 always slightly painful, but how you change, how you embrace it, 0:07:51.880 --> 0:07:54.000 how you enjoyed the journey, and being willing to do 0:07:54.040 --> 0:07:56.440 it again and again. It is what defines an organization 0:07:56.880 --> 0:08:01.000 and leader or an individual. What strikes me about this 0:08:01.040 --> 0:08:04.480 moment is that this is a pretty vulnerable topic for Adam. 0:08:04.480 --> 0:08:07.320 He's clearly sad that the soft Bank deal didn't happen, 0:08:08.560 --> 0:08:11.880 but in classic Atom fashion, he didn't want to focus 0:08:11.880 --> 0:08:14.840 on his disappointment for too long. He wanted to make 0:08:14.880 --> 0:08:17.920 sure that I understood that his relationship with Massa was 0:08:17.960 --> 0:08:20.920 still very strong. You can even hear in the tape 0:08:20.960 --> 0:08:26.480 that he pounded the table for emphasis. Let's my biggest 0:08:26.520 --> 0:08:29.680 investor giving ten a half billion. Yeah, very nice week, 0:08:31.560 --> 0:08:34.040 but so but I mean the thing, I think that's 0:08:34.080 --> 0:08:36.480 overstated a little bit. That's a huge investment, one of 0:08:36.480 --> 0:08:41.120 the largest ones in history. Yeah, so very very very 0:08:41.200 --> 0:08:44.760 very positive. We were contemplating a larger deal and the 0:08:44.800 --> 0:08:47.120 world crashed for a second and must have felt that 0:08:47.240 --> 0:08:51.160 things changed. But we're very very happy with where we 0:08:51.200 --> 0:08:54.720 came to. Both sides feel perfect. Softing is very comfortable 0:08:54.720 --> 0:08:58.080 with their total holdings. Were very comfortable with their total holding. 0:08:58.679 --> 0:09:01.320 So very good. And my relationship with us has never 0:09:01.360 --> 0:09:03.679 been stronger because we had opened communication and talk this 0:09:03.840 --> 0:09:06.240 problem and I told him what I wanted. The basis great, 0:09:06.240 --> 0:09:10.040 it's good for you, and then we executed them. And 0:09:10.080 --> 0:09:13.640 I think you can measure relationships in time of church. 0:09:15.720 --> 0:09:18.000 So Adam didn't get the money from MASSA that he 0:09:18.040 --> 0:09:20.959 was counting on, but he did get something else out 0:09:21.000 --> 0:09:24.719 of the deal, a new valuation for we work as 0:09:24.760 --> 0:09:27.400 part of the Investment, soft Bank and we Work agreed 0:09:27.440 --> 0:09:30.520 that the company was now worth forty seven billion dollars. 0:09:30.920 --> 0:09:33.840 It's a wildly high number that comes up again and again, 0:09:34.600 --> 0:09:38.720 forty seven billion dollars, forty seven billion dollars, forty seven 0:09:38.720 --> 0:09:43.760 billion dollars, forty seven billion dollars, forty seven billion dollars. 0:09:45.240 --> 0:09:48.960 So Adams company now had this flashy new valuation, but 0:09:49.120 --> 0:09:53.360 they still needed cash. Because MASSA didn't come through, Adam 0:09:53.400 --> 0:09:56.680 turned to Plan B. He decided to go all in 0:09:56.840 --> 0:09:59.680 on an i p O, whether his company was ready 0:10:00.240 --> 0:10:09.880 or not. For a few months, we were kept its 0:10:09.880 --> 0:10:13.640 planned secret, and then in April, office rental giant we 0:10:13.720 --> 0:10:16.280 Work is aiming to go public. That initial public offering 0:10:16.280 --> 0:10:19.880 could take place in September, earlier than many investors had anticipated. 0:10:19.920 --> 0:10:22.120 Now they're tech Unicorn has filed to go public. This 0:10:22.200 --> 0:10:25.240 time it is we Work, now known as the we Company. 0:10:25.280 --> 0:10:28.520 It has announced that it has confidentially submitted its paperwork 0:10:28.640 --> 0:10:32.160 to the SEC. Four. An i p O follows several 0:10:32.160 --> 0:10:35.280 other big money losing companies like Uber and Live but 0:10:35.280 --> 0:10:37.840 I've also gone public this year as well. The filings 0:10:37.840 --> 0:10:40.760 reveal some lofty goals. It says its mission is to 0:10:40.920 --> 0:10:45.679 elevate the world's consciousness. To reporters, that announcement is like 0:10:45.720 --> 0:10:48.920 the gun firing at the start of a race. High 0:10:48.920 --> 0:10:51.480 profile I p O s like we Works are huge news. 0:10:52.280 --> 0:10:54.840 And once it was clear we Work was definitely planning 0:10:54.840 --> 0:10:58.640 to go public, big banks like Morgan, Stanley, Goldman, Sachs 0:10:58.679 --> 0:11:01.280 and JP Morgan were lining up to try to get 0:11:01.360 --> 0:11:05.840 Adam to pick their bank to lead the deal. To 0:11:05.880 --> 0:11:08.000 help me explain we worked wild ride to an I 0:11:08.080 --> 0:11:10.679 p O. I want to introduce my colleague Jillian Tan 0:11:11.080 --> 0:11:14.280 who covers Wall Street. Yeah, everyone was very up to mistake. 0:11:14.320 --> 0:11:16.200 A lot of the bankers, you know, it was on 0:11:16.240 --> 0:11:18.600 their radar. It was something that was sort of going 0:11:18.600 --> 0:11:22.880 to happen in later So folks were pretty excited. They 0:11:23.120 --> 0:11:26.040 knew Adam Newman. He was obviously known to be one 0:11:26.080 --> 0:11:28.840 of those founders that had a big personality. So folks 0:11:29.120 --> 0:11:31.480 were very much already talking about we Work. But it 0:11:31.520 --> 0:11:33.920 was all very much in a positive life. And what 0:11:33.960 --> 0:11:37.079 do banks get out of doing an I p O 0:11:37.160 --> 0:11:39.920 for a company? A lot of money? So banks charged 0:11:39.960 --> 0:11:41.920 these companies or feats, not that they just wanted to 0:11:41.920 --> 0:11:43.640 do it out of the kindness. Through their hearts, they're 0:11:43.640 --> 0:11:47.200 earning millions of dollars. Hundreds of millions of dollars. Each 0:11:47.240 --> 0:11:50.480 bank wanted Adam to pick them for this deal. So 0:11:50.520 --> 0:11:53.199 when they pitched themselves to we Work, they told Adam 0:11:53.320 --> 0:11:56.480 numbers that he would be excited to hear. They said 0:11:56.520 --> 0:11:59.880 that we Work could go public at huge valuations as 0:12:00.160 --> 0:12:04.080 just a hundred billion dollars. Those estimates played a big 0:12:04.200 --> 0:12:07.320 role in over hyping the We Work. I po to 0:12:07.400 --> 0:12:10.040 explain this a little more, we talked to Matt Levine, 0:12:10.120 --> 0:12:12.680 a Bloomberg opinion columnist who used to be one of 0:12:12.720 --> 0:12:16.840 those bankers who advised companies ongoing public. Yeah, I was. 0:12:17.280 --> 0:12:20.000 It was an equity capital markets banker, and I would 0:12:20.000 --> 0:12:22.240 pitch companies on deals, and we would want to pitch 0:12:22.280 --> 0:12:24.160 them on deals that they would want to do. And 0:12:24.200 --> 0:12:27.000 Matt says that because banks are competing to be the 0:12:27.120 --> 0:12:30.319 lead bank to take We Work public, they're incentivized to 0:12:30.360 --> 0:12:34.480 throw out bigger and bigger numbers even if they're totally unrealistic. 0:12:34.800 --> 0:12:36.440 You know, the banker is not on the hook for 0:12:36.480 --> 0:12:38.600 the amount for the number, they say, like, you can 0:12:38.679 --> 0:12:41.000 kind of make up any number you want and justify it. 0:12:41.280 --> 0:12:42.679 So if you go to a company and say we 0:12:42.720 --> 0:12:45.720 think you could do an IPO at a dollar evaluation. 0:12:46.360 --> 0:12:49.319 Then they'll be excited because they want to raise a 0:12:49.360 --> 0:12:51.960 lot of money at a high price, and they'll hire you. 0:12:52.440 --> 0:12:54.920 And then things can go wrong and you'll say, oh, 0:12:55.000 --> 0:12:56.839 things went wrong, that's why we couldn't get you the 0:12:56.920 --> 0:13:00.599 number we originally promised. So you have a lot of incentives. 0:13:00.640 --> 0:13:03.559 Just give people the numbers they want to hear. So 0:13:03.600 --> 0:13:05.840 that summer, we Work was prepping for its I p 0:13:05.920 --> 0:13:08.520 O and they were really depending on it going well. 0:13:08.960 --> 0:13:11.959 The company was counting on getting nine billion dollars from 0:13:11.960 --> 0:13:15.600 going public by selling stock and borrowing money from banks. 0:13:16.320 --> 0:13:19.160 And then they released a document called the S one. 0:13:19.360 --> 0:13:22.920 It's basically a requirement for going public. Reporters love the 0:13:23.120 --> 0:13:26.120 S one. It's like Christmas. We wake up early and 0:13:26.160 --> 0:13:28.920 wait for it to be released because the S one 0:13:29.000 --> 0:13:34.240 is full of new information, profits, losses, expenses, lists of 0:13:34.320 --> 0:13:36.959 all the ways things could go wrong. These are things 0:13:37.040 --> 0:13:41.440 companies don't usually like sharing with reporters, but we Works 0:13:41.559 --> 0:13:44.920 S one was not normal. It dropped like a bombshell. 0:13:45.520 --> 0:13:49.319 It detailed so many problems within the company, huge losses, 0:13:49.480 --> 0:13:53.360 conflicts of interest, weird nepotism. We're going to go through 0:13:53.480 --> 0:13:56.559 one by one the problems and WE Works S one. 0:13:57.000 --> 0:13:59.560 I'll start with what will probably be remembered as the 0:13:59.559 --> 0:14:04.400 most gregious and ridiculous item on the list. Adam owned 0:14:04.440 --> 0:14:08.520 the trademark to the word we Well. Technically the trademark 0:14:08.600 --> 0:14:11.640 was owned by his holding company, and then when WE 0:14:11.679 --> 0:14:13.920 Work wanted to change its name from WE Worked to 0:14:14.360 --> 0:14:18.000 the Wei company, Adam sold that trademark to his own 0:14:18.040 --> 0:14:22.480 company for five point nine million dollars in stock. This 0:14:22.640 --> 0:14:26.720 blew my mind. Yeah, that was the probably most outrageous 0:14:27.160 --> 0:14:30.080 item in the whole S one that the CEO had 0:14:30.120 --> 0:14:32.120 taken money out of the company and put it in 0:14:32.240 --> 0:14:35.400 his own pocket. And the reason that's outrageous is because 0:14:35.400 --> 0:14:37.880 WE Work had rebranded itself to we and he had 0:14:37.920 --> 0:14:41.400 profited from that rebranding, as opposed to any other normal 0:14:41.440 --> 0:14:45.000 CEO who would just make the rebranding happen, as opposed 0:14:45.040 --> 0:14:48.880 to secretly owning the trademark when that rebranding happened. Another 0:14:48.920 --> 0:14:51.800 thing that came up in the asmen was Adam's succession plan, 0:14:51.840 --> 0:14:55.440 which is that if Adam dies, his wife Rebecca gets 0:14:55.440 --> 0:14:59.120 to help pick his successor, which is very strange, hugely strange. 0:14:59.200 --> 0:15:02.800 That's something you might expect for like a blueberry farm operation, right, like, 0:15:03.000 --> 0:15:06.640 not a giant company backed by a huge conglomerate like 0:15:06.760 --> 0:15:10.200 soft Bank, that the successor is picked by the CEO's 0:15:10.280 --> 0:15:12.960 wife and two directors who he's close to. Like, it 0:15:13.000 --> 0:15:16.800 couldn't be more brigged if you'd like. Yeah, usually this 0:15:16.880 --> 0:15:19.240 is a decision that the board of directors makes independently, 0:15:20.000 --> 0:15:22.720 that's the standard. This was very surprising. It does not 0:15:22.800 --> 0:15:25.160 usually involve your wife, even if she is an executive 0:15:25.160 --> 0:15:27.640 at the company. Absolutely, So that's already a sign of 0:15:27.720 --> 0:15:31.920 undue influence. And just to keep adding to the list, 0:15:32.040 --> 0:15:36.040 Adam personally owned stakes in buildings where we work. Was 0:15:36.080 --> 0:15:38.760 a tenant, which means that we work his company is 0:15:38.800 --> 0:15:42.240 paying him Adam Newman rent, which is a total conflict 0:15:42.240 --> 0:15:44.440 of interest. It means kind of you're on both sides 0:15:44.480 --> 0:15:46.720 of this transaction and it's just one of these things 0:15:46.760 --> 0:15:49.920 that people don't do. And it was a huge red flag. Yes, 0:15:50.040 --> 0:15:52.400 so he was literally buying up these properties and then 0:15:52.440 --> 0:15:55.320 immediately leasing them to we work. So another thing that 0:15:55.360 --> 0:15:58.040 the s one revealed was that Adam had twenty to 0:15:58.200 --> 0:16:01.000 one super voting shares, which me he owned shares in 0:16:01.040 --> 0:16:02.960 the company that had twenty votes while all the other 0:16:03.000 --> 0:16:06.200 shares had one, which means essentially, even if he owns 0:16:06.240 --> 0:16:09.800 a small portion of the company, he has voting control 0:16:10.080 --> 0:16:12.480 of every major decision that companies ever going to make. 0:16:12.560 --> 0:16:14.720 Investors found the fact that the board had signed off 0:16:14.720 --> 0:16:16.880 on all of these things, including the twenty to one 0:16:16.920 --> 0:16:19.960 super voting shares, is super worrisome just because it showed 0:16:20.000 --> 0:16:22.200 a lack of governance at the top. Yeah, it means 0:16:22.200 --> 0:16:25.320 no one is saying no to Adam. I was wondering, like, 0:16:25.520 --> 0:16:28.400 all these things point to the same pattern, right, which 0:16:28.440 --> 0:16:30.920 is that like Adam looks at his company as a 0:16:30.960 --> 0:16:34.720 way for him to like grow his prestigion also his 0:16:34.920 --> 0:16:36.880 personal wealth. It was sort of strange. I feel like 0:16:36.880 --> 0:16:38.960 I didn't quite understand why it was all set up 0:16:38.960 --> 0:16:41.720 this way. Yeah. One thing I think was the word 0:16:41.760 --> 0:16:44.840 Adam was among the most used words in the whole document. 0:16:44.960 --> 0:16:48.560 So to excuse the pun, but it's not it's not 0:16:48.600 --> 0:16:50.640 a way. It's all about an eye, right, This is 0:16:50.680 --> 0:16:53.960 about one man. This is his show. Yeah. Yeah, And 0:16:54.240 --> 0:16:56.360 unlike other s ones, for example, they also refer to 0:16:56.360 --> 0:16:59.000 Adam by his first name I think the generous interpretation 0:16:59.080 --> 0:17:01.240 is that his wife was also an executive at the company, 0:17:01.320 --> 0:17:04.080 is the same last name. But it certainly struck people 0:17:04.320 --> 0:17:06.960 that it was this whole document, and so much of 0:17:06.960 --> 0:17:09.640 it seemed to me about this one person, Adam, who 0:17:09.720 --> 0:17:12.760 was doing a lot of things outside the company or 0:17:12.800 --> 0:17:15.840 relating to the company that were not necessarily in his 0:17:15.960 --> 0:17:18.760 company's best interests, which if you're an investor, you are 0:17:18.800 --> 0:17:21.479 not excited to hear because you're hoping that the CEO 0:17:21.600 --> 0:17:24.840 does things to the company's best interests and not to 0:17:24.960 --> 0:17:27.880 his own. Absolutely, so the number of things that were 0:17:27.960 --> 0:17:30.760 not Kosha from an investors point of view, would just, 0:17:31.240 --> 0:17:36.359 you know, bountiful. When the S one came out, it 0:17:36.480 --> 0:17:40.000 was supposed to be we works, big debut, but instead 0:17:40.359 --> 0:17:44.160 it landed like a pile of bricks. Analysts and potential 0:17:44.160 --> 0:17:47.280 investors were combing through the rubble and they were not thrilled. 0:17:47.960 --> 0:17:51.159 Pundits started writing blog posts about all the warning signs 0:17:51.160 --> 0:17:54.080 that they saw detailed in the S one, and maybe 0:17:54.080 --> 0:17:56.720 what scared investors the most was that it was such 0:17:56.720 --> 0:18:00.560 a bad look. It made Adam look greedy, like he 0:18:00.600 --> 0:18:03.639 wanted to score points for himself against his own company. 0:18:04.400 --> 0:18:07.119 Here's Matt Levine again. I like to joke and I 0:18:07.119 --> 0:18:10.080 think this is kind of true that the actual thing 0:18:10.160 --> 0:18:13.520 that broke that we were at IPO is the story 0:18:13.560 --> 0:18:16.639 about Adam Newman selling the trademark for the word we 0:18:17.400 --> 0:18:19.960 to the company for six million dollars, which is such 0:18:19.960 --> 0:18:24.000 an absurd story of like of like poor governance and 0:18:24.040 --> 0:18:27.439 conflict of interest and like not looking at for the 0:18:27.480 --> 0:18:30.840 shareholders and like short termism and not thinking about the 0:18:30.840 --> 0:18:33.160 good of the company and not thinking about optics. It's 0:18:33.200 --> 0:18:36.280 just like you tell anyone that story and they get offended, 0:18:36.480 --> 0:18:39.600 and it's such an easy like point to rally around. 0:18:40.600 --> 0:18:43.080 After the S one came out, a lot of people 0:18:43.119 --> 0:18:48.280 were wondering what was Adam thinking? For what it's worth. 0:18:48.600 --> 0:18:50.800 A person close to Adam told me that when Adam 0:18:50.840 --> 0:18:53.679 sold the trademark to WE Work, he was following advice 0:18:53.680 --> 0:18:57.240 from his lawyers, and a few months earlier I got 0:18:57.280 --> 0:19:00.360 to ask Adam about a different conflict of interest him 0:19:00.400 --> 0:19:03.520 acting as landlord to WE Work. I asked if he 0:19:03.560 --> 0:19:06.399 thought that decision was inappropriate, and he gave me a 0:19:06.440 --> 0:19:10.760 surprising answer. He was a little defensive. Did you think 0:19:10.760 --> 0:19:12.880 in the end that it was inappropriate to have those 0:19:12.880 --> 0:19:15.639 whom things for you personally. Do you think it's inappropriate? 0:19:15.720 --> 0:19:18.520 I think its founders is our job to lead into 0:19:18.800 --> 0:19:21.320 growth and innovate, and I think we need to struct 0:19:21.359 --> 0:19:23.360 an industry. If you don't have to care, if I 0:19:23.359 --> 0:19:25.480 don't put my own money on it, I would other 0:19:25.520 --> 0:19:28.119 real estate owners ever have the courage to find final 0:19:28.160 --> 0:19:32.280 things of an investment. Why would anyone else? Think? Yeah? 0:19:32.280 --> 0:19:33.920 But it doesn't make it a little different if you're 0:19:33.920 --> 0:19:35.840 sitting on both sides of the table. If I'm losing 0:19:35.840 --> 0:19:38.360 money on the side of the real estate, which is fashion, 0:19:39.520 --> 0:19:41.879 not if what I did was purely for the sake 0:19:41.880 --> 0:19:47.600 of pushing the business app. Okay, so you hear Adam 0:19:47.680 --> 0:19:51.240 saying here that he lost money. That's actually open to debate. 0:19:51.680 --> 0:19:55.199 But let me explain some of his reasoning. Adam agreed 0:19:55.240 --> 0:19:57.760 publicly to sell his stakes in the buildings back to 0:19:57.840 --> 0:20:01.800 we Work at cost, So assuming those buildings rose in value, 0:20:02.200 --> 0:20:04.320 Adam was losing out on the profits he could have 0:20:04.400 --> 0:20:08.040 made by selling them. At the same time, Adam was 0:20:08.080 --> 0:20:11.240 still collecting rent. I spoke to two people close to 0:20:11.320 --> 0:20:14.359 him who told me that Adam was charging below market rates, 0:20:14.880 --> 0:20:17.440 but one of them said, Adam also made a profit 0:20:17.520 --> 0:20:20.920 on at least one of the buildings he owned. Regardless, 0:20:21.320 --> 0:20:23.879 Adam acting as a landlord to his own company is 0:20:23.920 --> 0:20:27.480 a pretty glaring conflict of interest. While I was sitting 0:20:27.520 --> 0:20:29.920 down with Adam, there was one point he really wanted 0:20:29.960 --> 0:20:33.440 me to understand. He felt that his actions were justified 0:20:33.560 --> 0:20:36.000 because he did it to help we work grow. He 0:20:36.119 --> 0:20:39.080 was a founder, trying to lead. He said that he 0:20:39.200 --> 0:20:41.440 had to buy those buildings in order to show other 0:20:41.560 --> 0:20:45.000 landlords it was a good investment work once to develop 0:20:46.160 --> 0:20:50.159 cities in the future, but wasn't able to buy anything. Yeah, 0:20:50.840 --> 0:20:54.000 if funds weren't buy landlords, we were talkings and come 0:20:54.040 --> 0:20:56.160 to this with us. No one was doing it. Yeah, okay, 0:20:56.160 --> 0:21:00.480 if no one's going to do it, we'll do it first. Sure, sure, sure, sure, yeah, 0:21:00.640 --> 0:21:02.359 So that's that's why we did it. Then, I'm very 0:21:02.359 --> 0:21:03.879 excited that they did it because if I, if I 0:21:03.920 --> 0:21:05.639 wasn't able to do it, I don't think we wouldn't 0:21:05.640 --> 0:21:09.199 be today at this stage. I'm excited I did it. 0:21:09.640 --> 0:21:11.480 If I wasn't able to do it, we wouldn't be 0:21:11.520 --> 0:21:15.639 at this stage. It's amazing that Adam said this, even 0:21:15.680 --> 0:21:18.240 after he had been criticized for this conflict of interest, 0:21:18.920 --> 0:21:21.040 and after the S one came out and revealed even 0:21:21.080 --> 0:21:24.880 more conflicts, a lot of people were asking why did 0:21:24.920 --> 0:21:27.120 we Work think it was a good idea to publish 0:21:27.119 --> 0:21:30.800 the S one? Well, I heard one theory that we 0:21:30.880 --> 0:21:33.639 Work had always been running their business this way and 0:21:33.760 --> 0:21:36.400 it hadn't been a problem for them before. Here's Matt, 0:21:36.880 --> 0:21:40.120 Why were they comfortable with those conflicts of interest is 0:21:40.160 --> 0:21:42.280 an interesting question, right? I mean, part of it is 0:21:42.320 --> 0:21:44.760 like a lack of self awareness that sort of permeated 0:21:44.800 --> 0:21:47.080 everything and we Work. So this aligns with what a 0:21:47.119 --> 0:21:49.520 few different sources have told me over the years that 0:21:49.640 --> 0:21:53.080 Adam is not a detail oriented guy that he rarely 0:21:53.160 --> 0:21:55.680 used as a computer. And there's a second part to 0:21:55.760 --> 0:21:57.800 Matt's theory. I mean, part of it is that a 0:21:57.800 --> 0:22:01.960