1 00:00:04,080 --> 00:00:07,080 Speaker 1: This year, with much fanfare, some of the biggest startups 2 00:00:07,080 --> 00:00:11,280 Speaker 1: in history have gone public, companies like Uber, Lift Slack. 3 00:00:11,880 --> 00:00:14,680 Speaker 1: It was the big moment they were waiting for, But 4 00:00:14,800 --> 00:00:17,439 Speaker 1: over the last few months, things haven't quite gone the 5 00:00:17,480 --> 00:00:21,919 Speaker 1: way they hoped they would. Slack shares are sinking in 6 00:00:21,960 --> 00:00:24,720 Speaker 1: the after hours, down more than those shares are falling 7 00:00:24,760 --> 00:00:28,640 Speaker 1: this morning again. After that rocky, now another unicorn is 8 00:00:28,680 --> 00:00:31,320 Speaker 1: preparing to go public, and if the last few weeks 9 00:00:31,320 --> 00:00:36,000 Speaker 1: are any indication, it could end up being the rockiest 10 00:00:36,000 --> 00:00:42,480 Speaker 1: I p O of all of them. Today in the show, 11 00:00:42,920 --> 00:00:46,200 Speaker 1: you'll be hearing from our startups reporter Ellen Hewitt, well 12 00:00:46,240 --> 00:00:49,479 Speaker 1: trace we Works meteoric rise to a forty seven billion 13 00:00:49,520 --> 00:00:52,560 Speaker 1: dollar company and the chaos of the last few weeks 14 00:00:52,640 --> 00:00:54,840 Speaker 1: as it scrambled to keep its I p O alive, 15 00:00:55,600 --> 00:00:59,280 Speaker 1: with its controversial CEO now stepping down, Can we Work 16 00:00:59,360 --> 00:01:12,160 Speaker 1: still pull it off? You're listening to Decrypted, stay with us, So, Ellen, 17 00:01:12,200 --> 00:01:14,760 Speaker 1: I want to start today's episode at the very beginning, 18 00:01:15,600 --> 00:01:19,679 Speaker 1: tell us about we Works founder Adam Newman. Adam Newman 19 00:01:20,280 --> 00:01:24,760 Speaker 1: is forty years old and he was born in Israel 20 00:01:25,000 --> 00:01:27,679 Speaker 1: and grew up in various parts of the country, including 21 00:01:28,080 --> 00:01:30,160 Speaker 1: for a period of time on a kubboots, which he 22 00:01:30,160 --> 00:01:32,560 Speaker 1: likes to reference a lot because the company that he 23 00:01:32,600 --> 00:01:36,120 Speaker 1: ended up founding, we Work, is all about community togetherness. 24 00:01:36,280 --> 00:01:38,960 Speaker 1: The metaphor is almost two on the news. And of course, 25 00:01:38,959 --> 00:01:42,400 Speaker 1: his co founder, Miguel Mcalvey, also lived on a commune 26 00:01:42,640 --> 00:01:45,399 Speaker 1: in Oregon when he was a kid, says, as you 27 00:01:45,480 --> 00:01:48,800 Speaker 1: might know, is sort of an Israeli commune, and so 28 00:01:49,320 --> 00:01:51,760 Speaker 1: they like to emphasize their communal backgrounds when they talk 29 00:01:51,800 --> 00:01:53,520 Speaker 1: about the origin story of We Work, which is all 30 00:01:53,520 --> 00:01:57,120 Speaker 1: about sharing and doing things together sort of. It's also 31 00:01:57,120 --> 00:02:03,559 Speaker 1: about real estate. M he served in the really Navy 32 00:02:03,680 --> 00:02:07,960 Speaker 1: and then came to the US and attended college in 33 00:02:08,160 --> 00:02:14,160 Speaker 1: New York and was sort of a entrepreneur type person. 34 00:02:14,320 --> 00:02:17,959 Speaker 1: Is a big dreamer, very visionary type of person who 35 00:02:18,320 --> 00:02:20,440 Speaker 1: sees an idea and thinks, of course I can do that, 36 00:02:20,919 --> 00:02:23,959 Speaker 1: and and did and attempted to do several different businesses 37 00:02:24,000 --> 00:02:27,320 Speaker 1: before he started We Work, including most famously people liked 38 00:02:27,400 --> 00:02:30,919 Speaker 1: Reference one, in which he had a company that sold 39 00:02:31,000 --> 00:02:36,160 Speaker 1: baby clothes with kneepads for babies that crawl, and he 40 00:02:36,320 --> 00:02:39,600 Speaker 1: also had a company that made high heel shoes. He 41 00:02:39,760 --> 00:02:42,320 Speaker 1: was a little all over the place. He likes to 42 00:02:42,320 --> 00:02:44,840 Speaker 1: tell a story about how by the time I was 43 00:02:44,919 --> 00:02:48,000 Speaker 1: twenty five years after I arrived to New York City, 44 00:02:48,160 --> 00:02:51,000 Speaker 1: I was thirty pounds lighter than today. I was smoking 45 00:02:51,040 --> 00:02:54,720 Speaker 1: a pack of cigarettes a day. My hands were shaking violently, 46 00:02:55,120 --> 00:02:59,160 Speaker 1: and I was confused and lost than he met his 47 00:02:59,240 --> 00:03:02,880 Speaker 1: now wife, Rebecca Paltrow Newman, who you might guess from 48 00:03:02,880 --> 00:03:05,920 Speaker 1: her name is actually related to Griddeth Paltrow, with actress 49 00:03:05,919 --> 00:03:09,960 Speaker 1: their cousins. Rebecca went on the first state with me 50 00:03:10,760 --> 00:03:13,200 Speaker 1: and within five minutes. Now I say five minutes to 51 00:03:13,240 --> 00:03:16,720 Speaker 1: be nice, but it truly took ten seconds. She looked 52 00:03:16,760 --> 00:03:19,720 Speaker 1: me straight and died and she said, you my friends 53 00:03:19,919 --> 00:03:25,680 Speaker 1: are full of And she told him that he should 54 00:03:26,320 --> 00:03:28,440 Speaker 1: kind of get his life in order. She told him, 55 00:03:28,480 --> 00:03:32,080 Speaker 1: you're ambitious, you're smart, but this isn't working. There are 56 00:03:32,080 --> 00:03:34,000 Speaker 1: some things that you need to get in line. This 57 00:03:34,040 --> 00:03:37,080 Speaker 1: is after college. Yeah, this is after college. And yeah. 58 00:03:37,360 --> 00:03:40,800 Speaker 1: The starting of we Work was something that came about 59 00:03:41,560 --> 00:03:45,440 Speaker 1: when Adam and mcguel were working in an office space 60 00:03:45,560 --> 00:03:49,640 Speaker 1: that was maybe under rented on. Landlord was having trouble 61 00:03:49,680 --> 00:03:52,040 Speaker 1: filling it, and they suggested to the landlord, why don't 62 00:03:52,080 --> 00:03:55,120 Speaker 1: you parcel up this space into smaller pieces and we 63 00:03:55,120 --> 00:03:58,680 Speaker 1: can rent out just like smaller entrepreneurs or small businesses, 64 00:03:58,680 --> 00:04:00,520 Speaker 1: and sort of this idea of co working, like why 65 00:04:00,520 --> 00:04:03,120 Speaker 1: don't we bring in a lot of different tenants into 66 00:04:03,160 --> 00:04:05,320 Speaker 1: this one space. And they did that for a while 67 00:04:05,320 --> 00:04:07,480 Speaker 1: and it was called Green Desk. And then my understanding 68 00:04:07,520 --> 00:04:09,520 Speaker 1: is that Adam and Miguel sold that business to the 69 00:04:09,600 --> 00:04:12,640 Speaker 1: landlord of that property and then went often started what 70 00:04:12,760 --> 00:04:15,640 Speaker 1: would become we Work. They had this idea of making 71 00:04:15,640 --> 00:04:18,919 Speaker 1: the we vision much bigger than just renting office space. 72 00:04:18,960 --> 00:04:21,640 Speaker 1: But they did start with the vision for we Work, 73 00:04:21,640 --> 00:04:25,040 Speaker 1: which is taking out less, cutting them up into smaller 74 00:04:25,440 --> 00:04:27,479 Speaker 1: parts of an office, maybe a desk here or there, 75 00:04:27,560 --> 00:04:29,360 Speaker 1: or like five desks in a small office, and then 76 00:04:29,360 --> 00:04:33,120 Speaker 1: renting them out to freelancers, startups, entrepreneurs, people who need 77 00:04:33,160 --> 00:04:39,560 Speaker 1: flexible access to space. We Work was founded in so 78 00:04:39,600 --> 00:04:42,000 Speaker 1: I think it spends the first few years kind of 79 00:04:42,200 --> 00:04:46,400 Speaker 1: getting ramped up, and in twelve they had seven locations. 80 00:04:46,440 --> 00:04:48,960 Speaker 1: The valuation was reported at maybe a hundred millions, so 81 00:04:49,320 --> 00:04:53,760 Speaker 1: the next year evaluation of maybe around four. And then 82 00:04:53,839 --> 00:04:57,840 Speaker 1: by they started having international locations, so they opened in London. 83 00:04:58,320 --> 00:05:00,680 Speaker 1: They had twenty three locations at end of the year, 84 00:05:01,120 --> 00:05:04,920 Speaker 1: they became a unicorn. First off, how have you how 85 00:05:04,920 --> 00:05:06,640 Speaker 1: does this work? Have you been able to build a 86 00:05:06,640 --> 00:05:09,880 Speaker 1: five billion dollar company in four years? They raised money 87 00:05:09,920 --> 00:05:13,480 Speaker 1: at a five billion dollar valuation. It's phenomenal and it's 88 00:05:13,480 --> 00:05:16,680 Speaker 1: a great concept, and it's continuing to explode. So starting 89 00:05:16,680 --> 00:05:19,440 Speaker 1: to put them in the ranks of some of the 90 00:05:19,480 --> 00:05:23,360 Speaker 1: biggest startups coming out of I won't say Silicon Valley 91 00:05:23,360 --> 00:05:25,520 Speaker 1: because they were New York based company, but out of 92 00:05:25,560 --> 00:05:27,960 Speaker 1: the sort of startups boom that was happening in this 93 00:05:28,000 --> 00:05:31,960 Speaker 1: period of time. Then in things start to get much 94 00:05:32,000 --> 00:05:35,120 Speaker 1: more heated. They get a big investment from soft Bank. 95 00:05:35,240 --> 00:05:37,640 Speaker 1: And soft Bank is a Japanese conglomerate that over the 96 00:05:37,720 --> 00:05:40,200 Speaker 1: last few years has made a ton of very large 97 00:05:40,200 --> 00:05:44,800 Speaker 1: investments in Silicon Valley, has kind of inflated valuations and 98 00:05:44,839 --> 00:05:47,760 Speaker 1: funding ground sizes in a way that even a casual 99 00:05:47,760 --> 00:05:51,000 Speaker 1: observer might have started to notice. And soft Bank comes 100 00:05:51,000 --> 00:05:54,760 Speaker 1: in and invests four point four billion dollars in we 101 00:05:54,880 --> 00:05:58,360 Speaker 1: work Um and sets the postmoney valuation at about twenty 102 00:05:58,360 --> 00:06:01,640 Speaker 1: billion dollars. Okay, so we get in eighteen we Works 103 00:06:01,640 --> 00:06:04,640 Speaker 1: worth about twenty billion dollars, making it one of the 104 00:06:04,640 --> 00:06:09,040 Speaker 1: biggest startups in the world. It's flying high. What happens next? 105 00:06:10,200 --> 00:06:13,880 Speaker 1: So at the end of the start being stories about 106 00:06:13,880 --> 00:06:18,239 Speaker 1: a potential majority takeover of we Work from soft Bank. 107 00:06:18,640 --> 00:06:21,719 Speaker 1: So there's soft Bank is apparently floating this plan to 108 00:06:21,839 --> 00:06:25,000 Speaker 1: invest something like sixteen billion dollars in we Work, which 109 00:06:25,000 --> 00:06:28,120 Speaker 1: would give SoftBank a majority stake in the company, which 110 00:06:28,160 --> 00:06:32,080 Speaker 1: is kind of unprecedented. That's not usually how venture investing works, 111 00:06:32,560 --> 00:06:34,960 Speaker 1: and the deals discussed. This is happening sort of around 112 00:06:35,000 --> 00:06:38,359 Speaker 1: Christmas time. And to underscore just how big of a deal, 113 00:06:38,400 --> 00:06:41,400 Speaker 1: sixteen billion dollars is, I mean, that would make it 114 00:06:41,440 --> 00:06:46,080 Speaker 1: one of the largest investments ever made in a private company. Yeah, 115 00:06:46,160 --> 00:06:49,479 Speaker 1: it's huge, one for the record books. But as the 116 00:06:49,480 --> 00:06:52,920 Speaker 1: discussions keep going on, soft Bank changes its mind. The 117 00:06:53,000 --> 00:06:57,159 Speaker 1: Japanese conglomerate announced Monday it's investing and additional two billion 118 00:06:57,160 --> 00:07:00,600 Speaker 1: dollars in the coworking startup, a step back from sixteen 119 00:07:00,640 --> 00:07:03,120 Speaker 1: billion dollar investment that would have given soft Bank and 120 00:07:03,160 --> 00:07:06,919 Speaker 1: controlling steak over. What ended up being announced was Softing 121 00:07:06,960 --> 00:07:09,479 Speaker 1: had invested two billion dollars in we Work and the 122 00:07:09,520 --> 00:07:12,160 Speaker 1: new valuation was around forty seven billion dollars, which, to 123 00:07:12,240 --> 00:07:15,120 Speaker 1: be clear, would be a huge investment for almost any 124 00:07:15,120 --> 00:07:17,480 Speaker 1: other company. For we Work, given that there had been 125 00:07:17,520 --> 00:07:19,840 Speaker 1: done these other stories about how big the investment could 126 00:07:19,840 --> 00:07:22,920 Speaker 1: have been, people generally saw it as soft bank scaling 127 00:07:22,960 --> 00:07:26,400 Speaker 1: back it's commitment to the company. This is kind of 128 00:07:26,440 --> 00:07:30,360 Speaker 1: like the first crack that appears and we works fundraising machine. 129 00:07:30,840 --> 00:07:34,080 Speaker 1: It is a pretty public setback, whereas is at least 130 00:07:34,080 --> 00:07:36,400 Speaker 1: interpreted by the public as a pretty serious setback for 131 00:07:36,440 --> 00:07:41,840 Speaker 1: their fundraising. So then in late April they announced we 132 00:07:42,000 --> 00:07:45,080 Speaker 1: filed confidentially, which means that they're at least starting the 133 00:07:45,120 --> 00:07:48,440 Speaker 1: process of going public. So that that really sets us 134 00:07:48,440 --> 00:07:53,200 Speaker 1: into gear as reporters covering all the steps towards becoming 135 00:07:53,200 --> 00:07:55,760 Speaker 1: a public company. And that and one of the biggest 136 00:07:55,800 --> 00:07:58,640 Speaker 1: days for a company in the lead up to an 137 00:07:58,640 --> 00:08:01,400 Speaker 1: I p O is the day when that filing with 138 00:08:01,440 --> 00:08:05,200 Speaker 1: the SEC becomes public. We've been expecting this, but it's 139 00:08:05,200 --> 00:08:07,200 Speaker 1: the big day. It's the big day. It's finally coming 140 00:08:07,240 --> 00:08:10,000 Speaker 1: out there. This is called the S one, So the 141 00:08:10,000 --> 00:08:12,160 Speaker 1: document is called the S one. The day that it 142 00:08:12,160 --> 00:08:14,640 Speaker 1: becomes public is sometimes called the S one. Flip um. 143 00:08:14,680 --> 00:08:17,640 Speaker 1: I kind of really early for it. And and yeah, 144 00:08:17,640 --> 00:08:19,640 Speaker 1: as soon as the document is out there. People are 145 00:08:19,680 --> 00:08:23,040 Speaker 1: immediately combing through it looking for all sorts of information, 146 00:08:23,040 --> 00:08:27,480 Speaker 1: and this is like hundreds of pages long. The S 147 00:08:27,520 --> 00:08:32,199 Speaker 1: one showed that revenues were growing, but that losses grow 148 00:08:32,400 --> 00:08:35,720 Speaker 1: basically as quickly as that, and in the year of 149 00:08:37,120 --> 00:08:40,800 Speaker 1: the company had a close to two billion dollars in revenue, 150 00:08:41,080 --> 00:08:43,680 Speaker 1: but also close to billion dollars in losses um, which 151 00:08:43,720 --> 00:08:46,640 Speaker 1: means that they're losing a lot um compared to the 152 00:08:46,679 --> 00:08:49,600 Speaker 1: amount of money they're bringing in. That's a lot of money, right, 153 00:08:49,760 --> 00:08:53,679 Speaker 1: That's a lot of money, even for Silicon Valley start up. Yeah, 154 00:08:53,679 --> 00:08:56,360 Speaker 1: I think even even my Silicon Valley standards. That's a 155 00:08:56,520 --> 00:08:59,959 Speaker 1: very high rate of growth and very high rate of losses. 156 00:09:00,520 --> 00:09:03,400 Speaker 1: And there was a pretty stunning disclosure in the S 157 00:09:03,440 --> 00:09:08,400 Speaker 1: one documents too. Yeah. The related Party transaction section is 158 00:09:08,400 --> 00:09:11,240 Speaker 1: where they discussed potential conflicts of interest, and there was 159 00:09:11,280 --> 00:09:13,920 Speaker 1: a lot of stuff in there, including this one detail 160 00:09:14,000 --> 00:09:17,680 Speaker 1: that a few people noticed about how Adam Newman had 161 00:09:17,760 --> 00:09:21,800 Speaker 1: owned the trademark rights to the word we and had 162 00:09:21,840 --> 00:09:25,360 Speaker 1: sold them to we Work, which had recently rebranded as 163 00:09:25,400 --> 00:09:29,319 Speaker 1: the We Company UH and had accepted six million dollars 164 00:09:29,360 --> 00:09:32,559 Speaker 1: in exchange um. And that was pretty shocking to a 165 00:09:32,600 --> 00:09:35,400 Speaker 1: lot of people. Yeah, I mean I was shocked when 166 00:09:35,440 --> 00:09:40,000 Speaker 1: I read about it. It feels really improper. Yeah, you know, 167 00:09:40,120 --> 00:09:43,040 Speaker 1: it's a small amount of money compared to you know, 168 00:09:43,080 --> 00:09:44,880 Speaker 1: the billions of dollars that we talked about related to 169 00:09:44,920 --> 00:09:47,440 Speaker 1: WE work. But I think the ethos behind it just 170 00:09:47,520 --> 00:09:49,480 Speaker 1: didn't sit right with people when they read about it. 171 00:09:49,920 --> 00:09:54,640 Speaker 1: And there were a few other disclosures too, and the prospectives. Yeah, 172 00:09:54,679 --> 00:09:57,720 Speaker 1: certainly some stuff that raised eyebrows. For example, the amount 173 00:09:57,760 --> 00:10:01,280 Speaker 1: of control that Adam Newman has over the company made 174 00:10:01,280 --> 00:10:03,600 Speaker 1: it such that even the board couldn't remove him if 175 00:10:03,600 --> 00:10:07,600 Speaker 1: they wanted, And if he became incapacitated or no longer 176 00:10:07,640 --> 00:10:10,360 Speaker 1: able to serve as CEO, his wife, who is also 177 00:10:10,440 --> 00:10:12,600 Speaker 1: a co founder but who is not part of the board, 178 00:10:13,080 --> 00:10:16,199 Speaker 1: would play a major role in picking his successor, which 179 00:10:16,240 --> 00:10:19,520 Speaker 1: is pretty uncommon. Usually that's a role for the board 180 00:10:19,559 --> 00:10:21,560 Speaker 1: of directors. So there were a lot of stuff that 181 00:10:21,600 --> 00:10:23,880 Speaker 1: people looked at and just thought like, this isn't how 182 00:10:23,920 --> 00:10:26,160 Speaker 1: most public companies are set up to be run or 183 00:10:26,200 --> 00:10:30,360 Speaker 1: to be governed. Okay, So at this point in late August, 184 00:10:30,720 --> 00:10:33,880 Speaker 1: investors are starting to have some pretty serious doubts about 185 00:10:34,000 --> 00:10:37,000 Speaker 1: we Work the company, and also some serious doubts about 186 00:10:37,040 --> 00:10:41,080 Speaker 1: its CEO. Adam Newman walk us through the next few weeks. 187 00:10:42,040 --> 00:10:44,120 Speaker 1: Then we're starting to get closer to the date when 188 00:10:44,200 --> 00:10:46,959 Speaker 1: it's expected that the company might start the road show, 189 00:10:47,080 --> 00:10:52,199 Speaker 1: which is the process for going around and getting investors 190 00:10:52,240 --> 00:10:55,160 Speaker 1: to here a formal pitch about the company and maybe 191 00:10:55,240 --> 00:10:58,079 Speaker 1: make some commitments to how much they might buy at 192 00:10:58,080 --> 00:11:00,480 Speaker 1: the I p O. So this is Adam Newman flying 193 00:11:00,520 --> 00:11:04,120 Speaker 1: around the world talking to some of the world's biggest investors. 194 00:11:04,600 --> 00:11:07,520 Speaker 1: Please please buy some we Work stock when we go public. Yeah, 195 00:11:07,559 --> 00:11:11,000 Speaker 1: this is sort of the like pre sale pitch. But 196 00:11:11,080 --> 00:11:14,240 Speaker 1: this is when the company and the banks have to 197 00:11:14,240 --> 00:11:17,000 Speaker 1: start putting out, you know, a general idea of what 198 00:11:17,080 --> 00:11:19,840 Speaker 1: the valuation of the company might be. And this is 199 00:11:19,840 --> 00:11:23,679 Speaker 1: where things start to get a little complicated. So the 200 00:11:23,679 --> 00:11:26,160 Speaker 1: banks that are leading the i p O are JPMorgan 201 00:11:26,280 --> 00:11:29,760 Speaker 1: and Golden Sacks. And it starts to become clear that 202 00:11:30,240 --> 00:11:34,760 Speaker 1: potential investors in we Work stock are not in agreement 203 00:11:35,160 --> 00:11:38,000 Speaker 1: that the company is valued or should be valued at 204 00:11:38,000 --> 00:11:40,760 Speaker 1: forty seven billion dollars. In fact, they think it should 205 00:11:40,760 --> 00:11:43,040 Speaker 1: be valued a lot less. You know, there were some 206 00:11:43,080 --> 00:11:45,920 Speaker 1: stories that suggested Goldman Sacks had told we work, we 207 00:11:45,960 --> 00:11:48,320 Speaker 1: think you can be valued at sixty five billion dollars, 208 00:11:49,240 --> 00:11:54,560 Speaker 1: And in these later discussions it turns out that, okay, now, 209 00:11:54,600 --> 00:12:00,199 Speaker 1: maybe we're discussing valuations of twenty billion dollars or fifteen 210 00:12:00,280 --> 00:12:02,719 Speaker 1: billion dollars um. In the last few days, I've even 211 00:12:02,720 --> 00:12:07,120 Speaker 1: seen headlines that suggest ten. So all of a sudden, 212 00:12:07,160 --> 00:12:11,080 Speaker 1: things are in flux. We work slash Adam Newman would 213 00:12:11,120 --> 00:12:13,520 Speaker 1: really like to continue with the i p O. Meanwhile, 214 00:12:13,720 --> 00:12:19,120 Speaker 1: banks and other involved parties, for complicated reasons, they are like, look, 215 00:12:19,120 --> 00:12:21,640 Speaker 1: we would rather you not proceed with an IPO if 216 00:12:21,800 --> 00:12:24,439 Speaker 1: if the valuation is going to be so low. So, guys, 217 00:12:24,480 --> 00:12:27,160 Speaker 1: the longer this drags on, the more difficult it will 218 00:12:27,200 --> 00:12:30,560 Speaker 1: be for we work to actually complete and offering, which 219 00:12:30,559 --> 00:12:32,760 Speaker 1: could mean I mean now, and we should note here 220 00:12:32,800 --> 00:12:35,360 Speaker 1: that this is really not how an i p O 221 00:12:35,480 --> 00:12:38,560 Speaker 1: is supposed to go. For a company that was valued 222 00:12:38,600 --> 00:12:41,839 Speaker 1: at forty seven billion in the private markets to then 223 00:12:41,840 --> 00:12:45,400 Speaker 1: try to go public out evaluation, that's you know, one third, 224 00:12:45,559 --> 00:12:50,040 Speaker 1: one four, That is crazy. As you're reporting on this, 225 00:12:50,480 --> 00:12:54,160 Speaker 1: what's going through your head, It's it's kind of shocking. 226 00:12:54,200 --> 00:12:56,120 Speaker 1: I think when you cover a private company you spend 227 00:12:56,160 --> 00:12:58,120 Speaker 1: a lot of time thinking about it, and then as 228 00:12:58,160 --> 00:13:00,400 Speaker 1: it gets close to I p O, all a sudden, 229 00:13:00,480 --> 00:13:04,160 Speaker 1: all these public market investors, public market machinery starts paying 230 00:13:04,200 --> 00:13:07,599 Speaker 1: attention to it. And even though as someone who was 231 00:13:07,600 --> 00:13:09,920 Speaker 1: pretty familiar with we Work, I knew that there was 232 00:13:09,920 --> 00:13:13,240 Speaker 1: a lot of discussion and skepticism about its valuation, it 233 00:13:13,320 --> 00:13:17,400 Speaker 1: was still really surprising to see just how dramatically it 234 00:13:17,559 --> 00:13:21,760 Speaker 1: dropped in this month or so of discussing a potential 235 00:13:21,840 --> 00:13:24,920 Speaker 1: i PO valuation price. And so I was just sort 236 00:13:24,920 --> 00:13:26,800 Speaker 1: of watching it on all unfold, and we're trying to 237 00:13:26,840 --> 00:13:29,520 Speaker 1: stay ahead of the news, and it just seems like 238 00:13:29,559 --> 00:13:33,040 Speaker 1: it's becoming a more and more stressful situation. Internally. You 239 00:13:33,080 --> 00:13:36,199 Speaker 1: have to imagine there's just a lot of tense discussions 240 00:13:36,240 --> 00:13:38,920 Speaker 1: going on inside between different parties about should we move 241 00:13:38,960 --> 00:13:42,240 Speaker 1: forward with this? I mean, why is we Work pushing 242 00:13:42,360 --> 00:13:44,760 Speaker 1: so hard for the i p O when it's getting 243 00:13:44,800 --> 00:13:47,080 Speaker 1: so much pushback. It doesn't seem like that big of 244 00:13:47,120 --> 00:13:49,880 Speaker 1: a deal to wait it out if investors have so 245 00:13:49,920 --> 00:13:53,880 Speaker 1: many concerns. Yeah, So, when we Work talked about the 246 00:13:53,880 --> 00:13:57,160 Speaker 1: I p O, their plan is to raise around three 247 00:13:57,280 --> 00:14:00,520 Speaker 1: billion in cash by selling new shares the market. That's 248 00:14:00,520 --> 00:14:03,000 Speaker 1: what an IPO does. But in this case, it's not 249 00:14:03,120 --> 00:14:06,480 Speaker 1: just the three billion dollars at stake, which they do need. 250 00:14:07,200 --> 00:14:10,280 Speaker 1: It's that they have these agreements with these banks where 251 00:14:10,400 --> 00:14:13,920 Speaker 1: they're going to get access to six billion more of 252 00:14:14,280 --> 00:14:17,600 Speaker 1: UM debt that they could access to help the business run. 253 00:14:17,960 --> 00:14:21,520 Speaker 1: But it's contingent on having a successful IPO, raising three 254 00:14:21,520 --> 00:14:25,400 Speaker 1: billion in IPO and doing it in So there's this 255 00:14:25,480 --> 00:14:27,760 Speaker 1: immense pressure not just for three billion dollars, but for 256 00:14:27,800 --> 00:14:30,800 Speaker 1: a total of more like nine which is more on 257 00:14:30,800 --> 00:14:32,440 Speaker 1: the scale of the amount of money that they need 258 00:14:32,480 --> 00:14:35,880 Speaker 1: to keep the business going. So with a total of 259 00:14:36,040 --> 00:14:39,360 Speaker 1: nine billion dollars at stake, walk us through what WE 260 00:14:39,400 --> 00:14:42,000 Speaker 1: worked does to see if it's I p O. Well, 261 00:14:42,120 --> 00:14:45,320 Speaker 1: it starts by responding to some of the criticisms that 262 00:14:45,400 --> 00:14:48,960 Speaker 1: have come up since the first public S one. So 263 00:14:49,040 --> 00:14:53,200 Speaker 1: for example, Adam Newman agrees to sort of walk back 264 00:14:53,760 --> 00:14:56,800 Speaker 1: this six million that he received in exchange for the 265 00:14:56,840 --> 00:15:01,040 Speaker 1: trademark of WE. So that's a relatively small all concession, 266 00:15:01,080 --> 00:15:04,560 Speaker 1: but a concession nonetheless. Yeah, and they actually continue to 267 00:15:04,600 --> 00:15:07,720 Speaker 1: make more changes. They file another amended S one a 268 00:15:07,720 --> 00:15:10,560 Speaker 1: few weeks later, and that one has more changes this 269 00:15:10,600 --> 00:15:14,040 Speaker 1: time focused on corporate governance. So some of the changes 270 00:15:14,080 --> 00:15:17,960 Speaker 1: include changing the super voting shares from twenty votes per 271 00:15:18,000 --> 00:15:21,320 Speaker 1: share down to a mirror ten, so still super voting, 272 00:15:21,400 --> 00:15:23,960 Speaker 1: but just a little bit less so. And now the 273 00:15:24,080 --> 00:15:27,440 Speaker 1: succession plan for a CEO following Adam no longer includes 274 00:15:27,880 --> 00:15:30,200 Speaker 1: his wife, Rebecca Newman. Now it's going to be picked 275 00:15:30,240 --> 00:15:32,080 Speaker 1: by the board of directors, which is more in line 276 00:15:32,120 --> 00:15:35,360 Speaker 1: with what you'd expect from a public company, and they've 277 00:15:35,400 --> 00:15:37,680 Speaker 1: pledged to add more independent directors to the board, so 278 00:15:37,720 --> 00:15:40,600 Speaker 1: they're trying to balance out his power. So this is 279 00:15:40,920 --> 00:15:45,360 Speaker 1: we Work really doing everything it can to appease investors. Yeah, 280 00:15:45,400 --> 00:15:47,160 Speaker 1: it's trying to make changes to see if it can 281 00:15:47,160 --> 00:15:50,720 Speaker 1: make it work. But ultimately we Work has canceled its 282 00:15:50,800 --> 00:15:52,840 Speaker 1: road show this week and is postponing it's i p 283 00:15:53,000 --> 00:15:55,800 Speaker 1: O here it's a parent company is delaying the offering 284 00:15:55,920 --> 00:15:58,680 Speaker 1: until at least October. They come out with a statement 285 00:15:58,760 --> 00:16:01,880 Speaker 1: saying that the IPO is going to be delayed, although 286 00:16:01,920 --> 00:16:05,320 Speaker 1: they are committed to doing it in calendar year nineteen. 287 00:16:05,440 --> 00:16:08,240 Speaker 1: Are reporting suggests that that means it's probably gonna happen 288 00:16:08,280 --> 00:16:11,880 Speaker 1: in mid to late October, and that gets us into 289 00:16:11,920 --> 00:16:16,080 Speaker 1: this past weekend, Yes, a very dramatic weekend. On Sunday, 290 00:16:16,120 --> 00:16:18,760 Speaker 1: there was news that maybe a board meeting this week 291 00:16:18,760 --> 00:16:21,800 Speaker 1: where some directors are expected to encourage Newman to step 292 00:16:21,840 --> 00:16:23,880 Speaker 1: down as CEO and take the position of a non 293 00:16:23,960 --> 00:16:28,400 Speaker 1: executive chairman position. Some of the board members and investors 294 00:16:28,440 --> 00:16:31,200 Speaker 1: and WE Work, we're starting to have discussions about whether 295 00:16:31,240 --> 00:16:34,280 Speaker 1: Adam Newman should step down as CEO. So this is 296 00:16:34,320 --> 00:16:38,240 Speaker 1: a very dramatic change. And what was super interesting about 297 00:16:38,280 --> 00:16:41,360 Speaker 1: it was are reporting and other people's reporting showed that 298 00:16:41,440 --> 00:16:45,640 Speaker 1: among those supporting this plan were members of the board 299 00:16:45,640 --> 00:16:50,120 Speaker 1: from soft Bank and Masochison, the head of soft Bank, Yes, 300 00:16:50,160 --> 00:16:52,440 Speaker 1: someone who has traditionally been a big champion of WE 301 00:16:52,560 --> 00:16:55,440 Speaker 1: Work and of Adam. And then just this morning West 302 00:16:55,480 --> 00:17:01,480 Speaker 1: Coast Time, Tuesday, September reporting that Adam Newman basically is 303 00:17:01,520 --> 00:17:05,840 Speaker 1: expected to step down as We Companies CEO. However, it 304 00:17:05,920 --> 00:17:09,159 Speaker 1: comes out that Newman has decided to step down. I know, 305 00:17:09,480 --> 00:17:13,400 Speaker 1: it was really shocking. I've had a very busy morning, 306 00:17:14,280 --> 00:17:18,120 Speaker 1: and yeah, it seems like there had been a call 307 00:17:18,200 --> 00:17:21,199 Speaker 1: with the board of directors and the executives this morning 308 00:17:22,000 --> 00:17:24,840 Speaker 1: decision was finalized, and the news started to leak out 309 00:17:24,880 --> 00:17:28,239 Speaker 1: that Adam Newman will no longer be CEO. He's going 310 00:17:28,280 --> 00:17:31,240 Speaker 1: to become non executive chairman. The company has picked two 311 00:17:31,320 --> 00:17:35,200 Speaker 1: new co CEOs to take over, and our sources say 312 00:17:35,240 --> 00:17:37,560 Speaker 1: that these are permanent and they're not meant to be 313 00:17:37,600 --> 00:17:41,600 Speaker 1: interim CEOs. They are Artie Manson, who's the CFO, and 314 00:17:41,760 --> 00:17:44,480 Speaker 1: Sebastian Gunningham and other executive. Both of them are WE 315 00:17:44,560 --> 00:17:48,000 Speaker 1: Work senior executives who notably have experience outside of we 316 00:17:48,119 --> 00:17:51,240 Speaker 1: Work at companies like Time Warner, Cable and Amazon, so 317 00:17:52,000 --> 00:17:56,800 Speaker 1: they will be leading the company effective immediately. Um Adam 318 00:17:57,280 --> 00:18:01,040 Speaker 1: Adam's voting shares, which were original twenty to one and 319 00:18:01,040 --> 00:18:02,920 Speaker 1: then We're made ten to one, are now three to 320 00:18:03,000 --> 00:18:05,880 Speaker 1: one votes, so we no longer has a majority voting 321 00:18:05,920 --> 00:18:09,240 Speaker 1: control of the company. His wife, Rebecca Newman, who was 322 00:18:09,240 --> 00:18:12,320 Speaker 1: a co founder and the CEO of the education arm 323 00:18:12,400 --> 00:18:14,679 Speaker 1: of We Work, is leaving the company. She will no 324 00:18:14,720 --> 00:18:19,280 Speaker 1: longer have those titles. There's a lot that's happening, and 325 00:18:19,320 --> 00:18:22,439 Speaker 1: there was even a statement from some of the executives, 326 00:18:22,520 --> 00:18:26,480 Speaker 1: and my favorite line from Adam statement says the scrutiny 327 00:18:26,480 --> 00:18:29,640 Speaker 1: directed towards me has become a significant distraction and I've 328 00:18:29,680 --> 00:18:31,359 Speaker 1: decided that it is in the best interest of the 329 00:18:31,359 --> 00:18:34,239 Speaker 1: company to step down as chief executive. So that's that, 330 00:18:34,840 --> 00:18:37,720 Speaker 1: you know. I was expecting this dramatic showdown where he 331 00:18:37,760 --> 00:18:41,080 Speaker 1: would still try to cling onto power, but it sounds 332 00:18:41,160 --> 00:18:45,560 Speaker 1: like ultimately he decided to not fight the investors. I mean, 333 00:18:45,600 --> 00:18:49,160 Speaker 1: we don't know how dramatic the discussions were behind closed doors, 334 00:18:49,160 --> 00:18:52,040 Speaker 1: but it did happen very quickly. Insiders that I have 335 00:18:52,080 --> 00:18:54,120 Speaker 1: been chatting with this morning trying to get a sense 336 00:18:54,160 --> 00:18:57,600 Speaker 1: of what their thoughts were, have told me, Yeah, they 337 00:18:57,960 --> 00:19:01,000 Speaker 1: they're not surprised that this happened, but they are surpreasent 338 00:19:01,080 --> 00:19:04,159 Speaker 1: how quickly it happened, because there was clearly pressure to 339 00:19:04,200 --> 00:19:07,160 Speaker 1: make a big change. It just usually these things are 340 00:19:07,240 --> 00:19:11,240 Speaker 1: very complicated, so there may be more bumps along the way. 341 00:19:11,280 --> 00:19:13,320 Speaker 1: There may end up being a search for a different CEO. 342 00:19:14,200 --> 00:19:17,040 Speaker 1: We'll just have to keep watching. So what does this 343 00:19:17,119 --> 00:19:20,720 Speaker 1: mean for the I p O. I think it's going 344 00:19:20,800 --> 00:19:23,720 Speaker 1: to affect how quickly they can do it, because it's 345 00:19:23,760 --> 00:19:28,000 Speaker 1: just such a major upheaval. The company has said that 346 00:19:28,359 --> 00:19:32,400 Speaker 1: they will continue evaluating the optimal time for an IPO, 347 00:19:32,720 --> 00:19:34,359 Speaker 1: which I think, if you read between the lines, means 348 00:19:34,440 --> 00:19:36,480 Speaker 1: they want to keep doing it, they just don't want 349 00:19:36,480 --> 00:19:39,600 Speaker 1: to commit yet to when it's going to happen. Um, 350 00:19:39,640 --> 00:19:43,040 Speaker 1: there's still a need for money. The company still has 351 00:19:43,080 --> 00:19:46,080 Speaker 1: to get cash to keep growing. There were there was 352 00:19:46,119 --> 00:19:48,359 Speaker 1: also language some of the press releases, and there's been 353 00:19:48,359 --> 00:19:51,159 Speaker 1: some reporting that suggests that in the coming weeks and 354 00:19:51,280 --> 00:19:54,280 Speaker 1: months there may be some major changes at the company 355 00:19:54,320 --> 00:19:56,320 Speaker 1: in order to cut costs. So you can imagine there's 356 00:19:56,320 --> 00:19:59,920 Speaker 1: an opportunity for layoffs or changes in some of the 357 00:20:00,080 --> 00:20:03,160 Speaker 1: side businesses. You know, apart from we work, which runts 358 00:20:03,160 --> 00:20:05,960 Speaker 1: out office space, in this remain business, they run an 359 00:20:06,000 --> 00:20:09,399 Speaker 1: elementary school, they have a residential business, they own a 360 00:20:09,760 --> 00:20:12,280 Speaker 1: they own meetup dot com, they have a coding school. 361 00:20:12,280 --> 00:20:14,560 Speaker 1: There's a lot of stuff that is pretty ancillary to 362 00:20:14,720 --> 00:20:17,680 Speaker 1: we works business that has been part of their acquisition strategy. 363 00:20:18,080 --> 00:20:20,680 Speaker 1: Those avenues seem like they might be more vulnerable now 364 00:20:20,720 --> 00:20:30,320 Speaker 1: to changes this debacle over the last few weeks, from 365 00:20:30,480 --> 00:20:35,040 Speaker 1: the plunging valuations to the corporate governance issue to the 366 00:20:35,080 --> 00:20:39,200 Speaker 1: CEO drama. I'm sure you're exhausted now, I'm a little tired. 367 00:20:40,119 --> 00:20:42,479 Speaker 1: What do you think will be the lesson that the 368 00:20:42,520 --> 00:20:47,160 Speaker 1: rest of the industry takes from this. I think they're 369 00:20:47,160 --> 00:20:49,919 Speaker 1: going to reevaluate a few things because this whole we 370 00:20:50,040 --> 00:20:54,480 Speaker 1: Work saga has been emblematic of a few trends that 371 00:20:54,560 --> 00:20:56,840 Speaker 1: we've been watching in Silicon Valley for the last year 372 00:20:56,960 --> 00:21:02,600 Speaker 1: or two. First is whether this brash, visionary, take no 373 00:21:02,720 --> 00:21:06,480 Speaker 1: prisoners um the Travis Kellen yeah, whether that style of 374 00:21:06,560 --> 00:21:10,879 Speaker 1: CEO has a long lifetime is able to go from 375 00:21:11,000 --> 00:21:14,120 Speaker 1: the scrap young startup to the public company. I think 376 00:21:14,560 --> 00:21:18,080 Speaker 1: people are questioning whether that's the right and prized attitude 377 00:21:18,080 --> 00:21:21,080 Speaker 1: to have a founder. And then I think we're also 378 00:21:21,119 --> 00:21:24,639 Speaker 1: seeing this big gap between private market valuations and public 379 00:21:24,640 --> 00:21:28,919 Speaker 1: market valuations, and you're seeing how a few investors in 380 00:21:29,000 --> 00:21:32,960 Speaker 1: c a CEO gets to set a private valuation um 381 00:21:33,080 --> 00:21:36,639 Speaker 1: that everyone else disagrees with, that that actually maybe doesn't 382 00:21:36,680 --> 00:21:39,639 Speaker 1: hold water um in a big way. Right. Sometimes I 383 00:21:39,640 --> 00:21:41,840 Speaker 1: think everyone understood there was maybe going to be a 384 00:21:41,840 --> 00:21:44,240 Speaker 1: little bit of difference, but we work, we're talking about 385 00:21:44,600 --> 00:21:47,200 Speaker 1: a major difference and that has had big effects for 386 00:21:47,240 --> 00:21:50,000 Speaker 1: the company. And then last, I think we're going to 387 00:21:50,119 --> 00:21:53,200 Speaker 1: examine the role of soft bank. Soft Bank has sort 388 00:21:53,200 --> 00:21:58,400 Speaker 1: of barged in and become this huge, influential, controversial investor 389 00:21:58,480 --> 00:22:02,440 Speaker 1: in Silicon Valley, and they've come in with this particular 390 00:22:02,480 --> 00:22:05,440 Speaker 1: investing vision, which is to, you know, invest a ton 391 00:22:05,480 --> 00:22:09,040 Speaker 1: of money, try to make one of the companies in 392 00:22:09,040 --> 00:22:11,720 Speaker 1: a particular sector be the richest and therefore the most 393 00:22:11,760 --> 00:22:15,440 Speaker 1: successful one. And we're starting to see that maybe that 394 00:22:15,680 --> 00:22:19,560 Speaker 1: is not the best strategy for venture investing. And when 395 00:22:19,560 --> 00:22:20,919 Speaker 1: we look back at this time in history, I think 396 00:22:20,920 --> 00:22:22,720 Speaker 1: stopping it's gonna be a major part of it. We're 397 00:22:22,720 --> 00:22:26,760 Speaker 1: gonna be examining whether their approach is a good idea, 398 00:22:30,160 --> 00:22:33,800 Speaker 1: Ellen Hewitt, we will continue posting your stories on Bloomberg 399 00:22:33,880 --> 00:22:37,119 Speaker 1: dot com Slash Technology. Where else can our listeners follow 400 00:22:37,160 --> 00:22:40,360 Speaker 1: your reporting. You can find me on Twitter at Ellen Hewitt, 401 00:22:40,400 --> 00:22:44,680 Speaker 1: that's h U E. T Um, and you will occasionally 402 00:22:44,680 --> 00:22:47,560 Speaker 1: see me on Bloomberg t V or on Bloomberg podcasts 403 00:22:47,560 --> 00:22:51,439 Speaker 1: such as this one. Thanks for being on the show today, 404 00:22:51,720 --> 00:23:05,240 Speaker 1: Thanks for having me. M Decrypted is produced by Miyaki 405 00:23:05,280 --> 00:23:08,440 Speaker 1: Ito and Ethan Brooks. Emily Busso and Anne vander May 406 00:23:08,520 --> 00:23:12,560 Speaker 1: are story editors. Francesca Levie is the head of Bloomberg Podcast. 407 00:23:12,840 --> 00:23:13,760 Speaker 1: We'll see you next week.