WEBVTT - Inside WeWork's IPO Disaster 0:00:04.080 --> 0:00:07.080 This year, with much fanfare, some of the biggest startups 0:00:07.080 --> 0:00:11.280 in history have gone public, companies like Uber, Lift Slack. 0:00:11.880 --> 0:00:14.680 It was the big moment they were waiting for, But 0:00:14.800 --> 0:00:17.439 over the last few months, things haven't quite gone the 0:00:17.480 --> 0:00:21.919 way they hoped they would. Slack shares are sinking in 0:00:21.960 --> 0:00:24.720 the after hours, down more than those shares are falling 0:00:24.760 --> 0:00:28.640 this morning again. After that rocky, now another unicorn is 0:00:28.680 --> 0:00:31.320 preparing to go public, and if the last few weeks 0:00:31.320 --> 0:00:36.000 are any indication, it could end up being the rockiest 0:00:36.000 --> 0:00:42.480 I p O of all of them. Today in the show, 0:00:42.920 --> 0:00:46.200 you'll be hearing from our startups reporter Ellen Hewitt, well 0:00:46.240 --> 0:00:49.479 trace we Works meteoric rise to a forty seven billion 0:00:49.520 --> 0:00:52.560 dollar company and the chaos of the last few weeks 0:00:52.640 --> 0:00:54.840 as it scrambled to keep its I p O alive, 0:00:55.600 --> 0:00:59.280 with its controversial CEO now stepping down, Can we Work 0:00:59.360 --> 0:01:12.160 still pull it off? You're listening to Decrypted, stay with us, So, Ellen, 0:01:12.200 --> 0:01:14.760 I want to start today's episode at the very beginning, 0:01:15.600 --> 0:01:19.679 tell us about we Works founder Adam Newman. Adam Newman 0:01:20.280 --> 0:01:24.760 is forty years old and he was born in Israel 0:01:25.000 --> 0:01:27.679 and grew up in various parts of the country, including 0:01:28.080 --> 0:01:30.160 for a period of time on a kubboots, which he 0:01:30.160 --> 0:01:32.560 likes to reference a lot because the company that he 0:01:32.600 --> 0:01:36.120 ended up founding, we Work, is all about community togetherness. 0:01:36.280 --> 0:01:38.960 The metaphor is almost two on the news. And of course, 0:01:38.959 --> 0:01:42.400 his co founder, Miguel Mcalvey, also lived on a commune 0:01:42.640 --> 0:01:45.399 in Oregon when he was a kid, says, as you 0:01:45.480 --> 0:01:48.800 might know, is sort of an Israeli commune, and so 0:01:49.320 --> 0:01:51.760 they like to emphasize their communal backgrounds when they talk 0:01:51.800 --> 0:01:53.520 about the origin story of We Work, which is all 0:01:53.520 --> 0:01:57.120 about sharing and doing things together sort of. It's also 0:01:57.120 --> 0:02:03.559 about real estate. M he served in the really Navy 0:02:03.680 --> 0:02:07.960 and then came to the US and attended college in 0:02:08.160 --> 0:02:14.160 New York and was sort of a entrepreneur type person. 0:02:14.320 --> 0:02:17.959 Is a big dreamer, very visionary type of person who 0:02:18.320 --> 0:02:20.440 sees an idea and thinks, of course I can do that, 0:02:20.919 --> 0:02:23.959 and and did and attempted to do several different businesses 0:02:24.000 --> 0:02:27.320 before he started We Work, including most famously people liked 0:02:27.400 --> 0:02:30.919 Reference one, in which he had a company that sold 0:02:31.000 --> 0:02:36.160 baby clothes with kneepads for babies that crawl, and he 0:02:36.320 --> 0:02:39.600 also had a company that made high heel shoes. He 0:02:39.760 --> 0:02:42.320 was a little all over the place. He likes to 0:02:42.320 --> 0:02:44.840 tell a story about how by the time I was 0:02:44.919 --> 0:02:48.000 twenty five years after I arrived to New York City, 0:02:48.160 --> 0:02:51.000 I was thirty pounds lighter than today. I was smoking 0:02:51.040 --> 0:02:54.720 a pack of cigarettes a day. My hands were shaking violently, 0:02:55.120 --> 0:02:59.160 and I was confused and lost than he met his 0:02:59.240 --> 0:03:02.880 now wife, Rebecca Paltrow Newman, who you might guess from 0:03:02.880 --> 0:03:05.920 her name is actually related to Griddeth Paltrow, with actress 0:03:05.919 --> 0:03:09.960 their cousins. Rebecca went on the first state with me 0:03:10.760 --> 0:03:13.200 and within five minutes. Now I say five minutes to 0:03:13.240 --> 0:03:16.720 be nice, but it truly took ten seconds. She looked 0:03:16.760 --> 0:03:19.720 me straight and died and she said, you my friends 0:03:19.919 --> 0:03:25.680 are full of And she told him that he should 0:03:26.320 --> 0:03:28.440 kind of get his life in order. She told him, 0:03:28.480 --> 0:03:32.080 you're ambitious, you're smart, but this isn't working. There are 0:03:32.080 --> 0:03:34.000 some things that you need to get in line. This 0:03:34.040 --> 0:03:37.080 is after college. Yeah, this is after college. And yeah. 0:03:37.360 --> 0:03:40.800 The starting of we Work was something that came about 0:03:41.560 --> 0:03:45.440 when Adam and mcguel were working in an office space 0:03:45.560 --> 0:03:49.640 that was maybe under rented on. Landlord was having trouble 0:03:49.680 --> 0:03:52.040 filling it, and they suggested to the landlord, why don't 0:03:52.080 --> 0:03:55.120 you parcel up this space into smaller pieces and we 0:03:55.120 --> 0:03:58.680 can rent out just like smaller entrepreneurs or small businesses, 0:03:58.680 --> 0:04:00.520 and sort of this idea of co working, like why 0:04:00.520 --> 0:04:03.120 don't we bring in a lot of different tenants into 0:04:03.160 --> 0:04:05.320 this one space. And they did that for a while 0:04:05.320 --> 0:04:07.480 and it was called Green Desk. And then my understanding 0:04:07.520 --> 0:04:09.520 is that Adam and Miguel sold that business to the 0:04:09.600 --> 0:04:12.640 landlord of that property and then went often started what 0:04:12.760 --> 0:04:15.640 would become we Work. They had this idea of making 0:04:15.640 --> 0:04:18.919 the we vision much bigger than just renting office space. 0:04:18.960 --> 0:04:21.640 But they did start with the vision for we Work, 0:04:21.640 --> 0:04:25.040 which is taking out less, cutting them up into smaller 0:04:25.440 --> 0:04:27.479 parts of an office, maybe a desk here or there, 0:04:27.560 --> 0:04:29.360 or like five desks in a small office, and then 0:04:29.360 --> 0:04:33.120 renting them out to freelancers, startups, entrepreneurs, people who need 0:04:33.160 --> 0:04:39.560 flexible access to space. We Work was founded in so 0:04:39.600 --> 0:04:42.000 I think it spends the first few years kind of 0:04:42.200 --> 0:04:46.400 getting ramped up, and in twelve they had seven locations. 0:04:46.440 --> 0:04:48.960 The valuation was reported at maybe a hundred millions, so 0:04:49.320 --> 0:04:53.760 the next year evaluation of maybe around four. And then 0:04:53.839 --> 0:04:57.840 by they started having international locations, so they opened in London. 0:04:58.320 --> 0:05:00.680 They had twenty three locations at end of the year, 0:05:01.120 --> 0:05:04.920 they became a unicorn. First off, how have you how 0:05:04.920 --> 0:05:06.640 does this work? Have you been able to build a 0:05:06.640 --> 0:05:09.880 five billion dollar company in four years? They raised money 0:05:09.920 --> 0:05:13.480 at a five billion dollar valuation. It's phenomenal and it's 0:05:13.480 --> 0:05:16.680 a great concept, and it's continuing to explode. So starting 0:05:16.680 --> 0:05:19.440 to put them in the ranks of some of the 0:05:19.480 --> 0:05:23.360 biggest startups coming out of I won't say Silicon Valley 0:05:23.360 --> 0:05:25.520 because they were New York based company, but out of 0:05:25.560 --> 0:05:27.960 the sort of startups boom that was happening in this 0:05:28.000 --> 0:05:31.960 period of time. Then in things start to get much 0:05:32.000 --> 0:05:35.120 more heated. They get a big investment from soft Bank. 0:05:35.240 --> 0:05:37.640 And soft Bank is a Japanese conglomerate that over the 0:05:37.720 --> 0:05:40.200 last few years has made a ton of very large 0:05:40.200 --> 0:05:44.800 investments in Silicon Valley, has kind of inflated valuations and 0:05:44.839 --> 0:05:47.760 funding ground sizes in a way that even a casual 0:05:47.760 --> 0:05:51.000 observer might have started to notice. And soft Bank comes 0:05:51.000 --> 0:05:54.760 in and invests four point four billion dollars in we 0:05:54.880 --> 0:05:58.360 work Um and sets the postmoney valuation at about twenty 0:05:58.360 --> 0:06:01.640 billion dollars. Okay, so we get in eighteen we Works 0:06:01.640 --> 0:06:04.640 worth about twenty billion dollars, making it one of the 0:06:04.640 --> 0:06:09.040 biggest startups in the world. It's flying high. What happens next? 0:06:10.200 --> 0:06:13.880 So at the end of the start being stories about 0:06:13.880 --> 0:06:18.239 a potential majority takeover of we Work from soft Bank. 0:06:18.640 --> 0:06:21.719 So there's soft Bank is apparently floating this plan to 0:06:21.839 --> 0:06:25.000 invest something like sixteen billion dollars in we Work, which 0:06:25.000 --> 0:06:28.120 would give SoftBank a majority stake in the company, which 0:06:28.160 --> 0:06:32.080 is kind of unprecedented. That's not usually how venture investing works, 0:06:32.560 --> 0:06:34.960 and the deals discussed. This is happening sort of around 0:06:35.000 --> 0:06:38.359 Christmas time. And to underscore just how big of a deal, 0:06:38.400 --> 0:06:41.400 sixteen billion dollars is, I mean, that would make it 0:06:41.440 --> 0:06:46.080 one of the largest investments ever made in a private company. Yeah, 0:06:46.160 --> 0:06:49.479 it's huge, one for the record books. But as the 0:06:49.480 --> 0:06:52.920 discussions keep going on, soft Bank changes its mind. The 0:06:53.000 --> 0:06:57.159 Japanese conglomerate announced Monday it's investing and additional two billion 0:06:57.160 --> 0:07:00.600 dollars in the coworking startup, a step back from sixteen 0:07:00.640 --> 0:07:03.120 billion dollar investment that would have given soft Bank and 0:07:03.160 --> 0:07:06.919 controlling steak over. What ended up being announced was Softing 0:07:06.960 --> 0:07:09.479 had invested two billion dollars in we Work and the 0:07:09.520 --> 0:07:12.160 new valuation was around forty seven billion dollars, which, to 0:07:12.240 --> 0:07:15.120 be clear, would be a huge investment for almost any 0:07:15.120 --> 0:07:17.480 other company. For we Work, given that there had been 0:07:17.520 --> 0:07:19.840 done these other stories about how big the investment could 0:07:19.840 --> 0:07:22.920 have been, people generally saw it as soft bank scaling 0:07:22.960 --> 0:07:26.400 back it's commitment to the company. This is kind of 0:07:26.440 --> 0:07:30.360 like the first crack that appears and we works fundraising machine. 0:07:30.840 --> 0:07:34.080 It is a pretty public setback, whereas is at least 0:07:34.080 --> 0:07:36.400 interpreted by the public as a pretty serious setback for 0:07:36.440 --> 0:07:41.840 their fundraising. So then in late April they announced we 0:07:42.000 --> 0:07:45.080 filed confidentially, which means that they're at least starting the 0:07:45.120 --> 0:07:48.440 process of going public. So that that really sets us 0:07:48.440 --> 0:07:53.200 into gear as reporters covering all the steps towards becoming 0:07:53.200 --> 0:07:55.760 a public company. And that and one of the biggest 0:07:55.800 --> 0:07:58.640 days for a company in the lead up to an 0:07:58.640 --> 0:08:01.400 I p O is the day when that filing with 0:08:01.440 --> 0:08:05.200 the SEC becomes public. We've been expecting this, but it's 0:08:05.200 --> 0:08:07.200 the big day. It's the big day. It's finally coming 0:08:07.240 --> 0:08:10.000 out there. This is called the S one, So the 0:08:10.000 --> 0:08:12.160 document is called the S one. The day that it 0:08:12.160 --> 0:08:14.640 becomes public is sometimes called the S one. Flip um. 0:08:14.680 --> 0:08:17.640 I kind of really early for it. And and yeah, 0:08:17.640 --> 0:08:19.640 as soon as the document is out there. People are 0:08:19.680 --> 0:08:23.040 immediately combing through it looking for all sorts of information, 0:08:23.040 --> 0:08:27.480 and this is like hundreds of pages long. The S 0:08:27.520 --> 0:08:32.199 one showed that revenues were growing, but that losses grow 0:08:32.400 --> 0:08:35.720 basically as quickly as that, and in the year of 0:08:37.120 --> 0:08:40.800 the company had a close to two billion dollars in revenue, 0:08:41.080 --> 0:08:43.680 but also close to billion dollars in losses um, which 0:08:43.720 --> 0:08:46.640 means that they're losing a lot um compared to the 0:08:46.679 --> 0:08:49.600 amount of money they're bringing in. That's a lot of money, right, 0:08:49.760 --> 0:08:53.679 That's a lot of money, even for Silicon Valley start up. Yeah, 0:08:53.679 --> 0:08:56.360 I think even even my Silicon Valley standards. That's a 0:08:56.520 --> 0:08:59.959 very high rate of growth and very high rate of losses. 0:09:00.520 --> 0:09:03.400 And there was a pretty stunning disclosure in the S 0:09:03.440 --> 0:09:08.400 one documents too. Yeah. The related Party transaction section is 0:09:08.400 --> 0:09:11.240 where they discussed potential conflicts of interest, and there was 0:09:11.280 --> 0:09:13.920 a lot of stuff in there, including this one detail 0:09:14.000 --> 0:09:17.680 that a few people noticed about how Adam Newman had 0:09:17.760 --> 0:09:21.800 owned the trademark rights to the word we and had 0:09:21.840 --> 0:09:25.360 sold them to we Work, which had recently rebranded as 0:09:25.400 --> 0:09:29.319 the We Company UH and had accepted six million dollars 0:09:29.360 --> 0:09:32.559 in exchange um. And that was pretty shocking to a 0:09:32.600 --> 0:09:35.400 lot of people. Yeah, I mean I was shocked when 0:09:35.440 --> 0:09:40.000 I read about it. It feels really improper. Yeah, you know, 0:09:40.120 --> 0:09:43.040 it's a small amount of money compared to you know, 0:09:43.080 --> 0:09:44.880 the billions of dollars that we talked about related to 0:09:44.920 --> 0:09:47.440 WE work. But I think the ethos behind it just 0:09:47.520 --> 0:09:49.480 didn't sit right with people when they read about it. 0:09:49.920 --> 0:09:54.640 And there were a few other disclosures too, and the prospectives. Yeah, 0:09:54.679 --> 0:09:57.720 certainly some stuff that raised eyebrows. For example, the amount 0:09:57.760 --> 0:10:01.280 of control that Adam Newman has over the company made 0:10:01.280 --> 0:10:03.600 it such that even the board couldn't remove him if 0:10:03.600 --> 0:10:07.600 they wanted, And if he became incapacitated or no longer 0:10:07.640 --> 0:10:10.360 able to serve as CEO, his wife, who is also 0:10:10.440 --> 0:10:12.600 a co founder but who is not part of the board, 0:10:13.080 --> 0:10:16.199 would play a major role in picking his successor, which 0:10:16.240 --> 0:10:19.520 is pretty uncommon. Usually that's a role for the board 0:10:19.559 --> 0:10:21.560 of directors. So there were a lot of stuff that 0:10:21.600 --> 0:10:23.880 people looked at and just thought like, this isn't how 0:10:23.920 --> 0:10:26.160 most public companies are set up to be run or 0:10:26.200 --> 0:10:30.360 to be governed. Okay, So at this point in late August, 0:10:30.720 --> 0:10:33.880 investors are starting to have some pretty serious doubts about 0:10:34.000 --> 0:10:37.000 we Work the company, and also some serious doubts about 0:10:37.040 --> 0:10:41.080 its CEO. Adam Newman walk us through the next few weeks. 0:10:42.040 --> 0:10:44.120 Then we're starting to get closer to the date when 0:10:44.200 --> 0:10:46.959 it's expected that the company might start the road show, 0:10:47.080 --> 0:10:52.199 which is the process for going around and getting investors 0:10:52.240 --> 0:10:55.160 to here a formal pitch about the company and maybe 0:10:55.240 --> 0:10:58.079 make some commitments to how much they might buy at 0:10:58.080 --> 0:11:00.480 the I p O. So this is Adam Newman flying 0:11:00.520 --> 0:11:04.120 around the world talking to some of the world's biggest investors. 0:11:04.600 --> 0:11:07.520 Please please buy some we Work stock when we go public. Yeah, 0:11:07.559 --> 0:11:11.000 this is sort of the like pre sale pitch. But 0:11:11.080 --> 0:11:14.240 this is when the company and the banks have to 0:11:14.240 --> 0:11:17.000 start putting out, you know, a general idea of what 0:11:17.080 --> 0:11:19.840 the valuation of the company might be. And this is 0:11:19.840 --> 0:11:23.679 where things start to get a little complicated. So the 0:11:23.679 --> 0:11:26.160 banks that are leading the i p O are JPMorgan 0:11:26.280 --> 0:11:29.760 and Golden Sacks. And it starts to become clear that 0:11:30.240 --> 0:11:34.760 potential investors in we Work stock are not in agreement 0:11:35.160 --> 0:11:38.000 that the company is valued or should be valued at 0:11:38.000 --> 0:11:40.760 forty seven billion dollars. In fact, they think it should 0:11:40.760 --> 0:11:43.040 be valued a lot less. You know, there were some 0:11:43.080 --> 0:11:45.920 stories that suggested Goldman Sacks had told we work, we 0:11:45.960 --> 0:11:48.320 think you can be valued at sixty five billion dollars, 0:11:49.240 --> 0:11:54.560 And in these later discussions it turns out that, okay, now, 0:11:54.600 --> 0:12:00.199 maybe we're discussing valuations of twenty billion dollars or fifteen 0:12:00.280 --> 0:12:02.719 billion dollars um. In the last few days, I've even 0:12:02.720 --> 0:12:07.120 seen headlines that suggest ten. So all of a sudden, 0:12:07.160 --> 0:12:11.080 things are in flux. We work slash Adam Newman would 0:12:11.120 --> 0:12:13.520 really like to continue with the i p O. Meanwhile, 0:12:13.720 --> 0:12:19.120 banks and other involved parties, for complicated reasons, they are like, look, 0:12:19.120 --> 0:12:21.640 we would rather you not proceed with an IPO if 0:12:21.800 --> 0:12:24.439 if the valuation is going to be so low. So, guys, 0:12:24.480 --> 0:12:27.160 the longer this drags on, the more difficult it will 0:12:27.200 --> 0:12:30.560 be for we work to actually complete and offering, which 0:12:30.559 --> 0:12:32.760 could mean I mean now, and we should note here 0:12:32.800 --> 0:12:35.360 that this is really not how an i p O 0:12:35.480 --> 0:12:38.560 is supposed to go. For a company that was valued 0:12:38.600 --> 0:12:41.839 at forty seven billion in the private markets to then 0:12:41.840 --> 0:12:45.400 try to go public out evaluation, that's you know, one third, 0:12:45.559 --> 0:12:50.040 one four, That is crazy. As you're reporting on this, 0:12:50.480 --> 0:12:54.160 what's going through your head, It's it's kind of shocking. 0:12:54.200 --> 0:12:56.120 I think when you cover a private company you spend 0:12:56.160 --> 0:12:58.120 a lot of time thinking about it, and then as 0:12:58.160 --> 0:13:00.400 it gets close to I p O, all a sudden, 0:13:00.480 --> 0:13:04.160 all these public market investors, public market machinery starts paying 0:13:04.200 --> 0:13:07.599 attention to it. And even though as someone who was 0:13:07.600 --> 0:13:09.920 pretty familiar with we Work, I knew that there was 0:13:09.920 --> 0:13:13.240 a lot of discussion and skepticism about its valuation, it 0:13:13.320 --> 0:13:17.400 was still really surprising to see just how dramatically it 0:13:17.559 --> 0:13:21.760 dropped in this month or so of discussing a potential 0:13:21.840 --> 0:13:24.920 i PO valuation price. And so I was just sort 0:13:24.920 --> 0:13:26.800 of watching it on all unfold, and we're trying to 0:13:26.840 --> 0:13:29.520 stay ahead of the news, and it just seems like 0:13:29.559 --> 0:13:33.040 it's becoming a more and more stressful situation. Internally. You 0:13:33.080 --> 0:13:36.199 have to imagine there's just a lot of tense discussions 0:13:36.240 --> 0:13:38.920 going on inside between different parties about should we move 0:13:38.960 --> 0:13:42.240 forward with this? I mean, why is we Work pushing 0:13:42.360 --> 0:13:44.760 so hard for the i p O when it's getting 0:13:44.800 --> 0:13:47.080 so much pushback. It doesn't seem like that big of 0:13:47.120 --> 0:13:49.880 a deal to wait it out if investors have so 0:13:49.920 --> 0:13:53.880 many concerns. Yeah, So, when we Work talked about the 0:13:53.880 --> 0:13:57.160 I p O, their plan is to raise around three 0:13:57.280 --> 0:14:00.520 billion in cash by selling new shares the market. That's 0:14:00.520 --> 0:14:03.000 what an IPO does. But in this case, it's not 0:14:03.120 --> 0:14:06.480 just the three billion dollars at stake, which they do need. 0:14:07.200 --> 0:14:10.280 It's that they have these agreements with these banks where 0:14:10.400 --> 0:14:13.920 they're going to get access to six billion more of 0:14:14.280 --> 0:14:17.600 UM debt that they could access to help the business run. 0:14:17.960 --> 0:14:21.520 But it's contingent on having a successful IPO, raising three 0:14:21.520 --> 0:14:25.400 billion in IPO and doing it in So there's this 0:14:25.480 --> 0:14:27.760 immense pressure not just for three billion dollars, but for 0:14:27.800 --> 0:14:30.800 a total of more like nine which is more on 0:14:30.800 --> 0:14:32.440 the scale of the amount of money that they need 0:14:32.480 --> 0:14:35.880 to keep the business going. So with a total of 0:14:36.040 --> 0:14:39.360 nine billion dollars at stake, walk us through what WE 0:14:39.400 --> 0:14:42.000 worked does to see if it's I p O. Well, 0:14:42.120 --> 0:14:45.320 it starts by responding to some of the criticisms that 0:14:45.400 --> 0:14:48.960 have come up since the first public S one. So 0:14:49.040 --> 0:14:53.200 for example, Adam Newman agrees to sort of walk back 0:14:53.760 --> 0:14:56.800 this six million that he received in exchange for the 0:14:56.840 --> 0:15:01.040 trademark of WE. So that's a relatively small all concession, 0:15:01.080 --> 0:15:04.560 but a concession nonetheless. Yeah, and they actually continue to 0:15:04.600 --> 0:15:07.720 make more changes. They file another amended S one a 0:15:07.720 --> 0:15:10.560 few weeks later, and that one has more changes this 0:15:10.600 --> 0:15:14.040 time focused on corporate governance. So some of the changes 0:15:14.080 --> 0:15:17.960 include changing the super voting shares from twenty votes per 0:15:18.000 --> 0:15:21.320 share down to a mirror ten, so still super voting, 0:15:21.400 --> 0:15:23.960 but just a little bit less so. And now the 0:15:24.080 --> 0:15:27.440 succession plan for a CEO following Adam no longer includes 0:15:27.880 --> 0:15:30.200 his wife, Rebecca Newman. Now it's going to be picked 0:15:30.240 --> 0:15:32.080 by the board of directors, which is more in line 0:15:32.120 --> 0:15:35.360 with what you'd expect from a public company, and they've 0:15:35.400 --> 0:15:37.680 pledged to add more independent directors to the board, so 0:15:37.720 --> 0:15:40.600 they're trying to balance out his power. So this is 0:15:40.920 --> 0:15:45.360 we Work really doing everything it can to appease investors. Yeah, 0:15:45.400 --> 0:15:47.160 it's trying to make changes to see if it can 0:15:47.160 --> 0:15:50.720 make it work. But ultimately we Work has canceled its 0:15:50.800 --> 0:15:52.840 road show this week and is postponing it's i p 0:15:53.000 --> 0:15:55.800 O here it's a parent company is delaying the offering 0:15:55.920 --> 0:15:58.680 until at least October. They come out with a statement 0:15:58.760 --> 0:16:01.880 saying that the IPO is going to be delayed, although 0:16:01.920 --> 0:16:05.320 they are committed to doing it in calendar year nineteen. 0:16:05.440 --> 0:16:08.240 Are reporting suggests that that means it's probably gonna happen 0:16:08.280 --> 0:16:11.880 in mid to late October, and that gets us into 0:16:11.920 --> 0:16:16.080 this past weekend, Yes, a very dramatic weekend. On Sunday, 0:16:16.120 --> 0:16:18.760 there was news that maybe a board meeting this week 0:16:18.760 --> 0:16:21.800 where some directors are expected to encourage Newman to step 0:16:21.840 --> 0:16:23.880 down as CEO and take the position of a non 0:16:23.960 --> 0:16:28.400 executive chairman position. Some of the board members and investors 0:16:28.440 --> 0:16:31.200 and WE Work, we're starting to have discussions about whether 0:16:31.240 --> 0:16:34.280 Adam Newman should step down as CEO. So this is 0:16:34.320 --> 0:16:38.240 a very dramatic change. And what was super interesting about 0:16:38.280 --> 0:16:41.360 it was are reporting and other people's reporting showed that 0:16:41.440 --> 0:16:45.640 among those supporting this plan were members of the board 0:16:45.640 --> 0:16:50.120 from soft Bank and Masochison, the head of soft Bank, Yes, 0:16:50.160 --> 0:16:52.440 someone who has traditionally been a big champion of WE 0:16:52.560 --> 0:16:55.440 Work and of Adam. And then just this morning West 0:16:55.480 --> 0:17:01.480 Coast Time, Tuesday, September reporting that Adam Newman basically is 0:17:01.520 --> 0:17:05.840 expected to step down as We Companies CEO. However, it 0:17:05.920 --> 0:17:09.159 comes out that Newman has decided to step down. I know, 0:17:09.480 --> 0:17:13.400 it was really shocking. I've had a very busy morning, 0:17:14.280 --> 0:17:18.120 and yeah, it seems like there had been a call 0:17:18.200 --> 0:17:21.199 with the board of directors and the executives this morning 0:17:22.000 --> 0:17:24.840 decision was finalized, and the news started to leak out 0:17:24.880 --> 0:17:28.239 that Adam Newman will no longer be CEO. He's going 0:17:28.280 --> 0:17:31.240 to become non executive chairman. The company has picked two 0:17:31.320 --> 0:17:35.200 new co CEOs to take over, and our sources say 0:17:35.240 --> 0:17:37.560 that these are permanent and they're not meant to be 0:17:37.600 --> 0:17:41.600 interim CEOs. They are Artie Manson, who's the CFO, and 0:17:41.760 --> 0:17:44.480 Sebastian Gunningham and other executive. Both of them are WE 0:17:44.560 --> 0:17:48.000 Work senior executives who notably have experience outside of we 0:17:48.119 --> 0:17:51.240 Work at companies like Time Warner, Cable and Amazon, so 0:17:52.000 --> 0:17:56.800 they will be leading the company effective immediately. Um Adam 0:17:57.280 --> 0:18:01.040 Adam's voting shares, which were original twenty to one and 0:18:01.040 --> 0:18:02.920 then We're made ten to one, are now three to 0:18:03.000 --> 0:18:05.880 one votes, so we no longer has a majority voting 0:18:05.920 --> 0:18:09.240 control of the company. His wife, Rebecca Newman, who was 0:18:09.240 --> 0:18:12.320 a co founder and the CEO of the education arm 0:18:12.400 --> 0:18:14.679 of We Work, is leaving the company. She will no 0:18:14.720 --> 0:18:19.280 longer have those titles. There's a lot that's happening, and 0:18:19.320 --> 0:18:22.439 there was even a statement from some of the executives, 0:18:22.520 --> 0:18:26.480 and my favorite line from Adam statement says the scrutiny 0:18:26.480 --> 0:18:29.640 directed towards me has become a significant distraction and I've 0:18:29.680 --> 0:18:31.359 decided that it is in the best interest of the 0:18:31.359 --> 0:18:34.239 company to step down as chief executive. So that's that, 0:18:34.840 --> 0:18:37.720 you know. I was expecting this dramatic showdown where he 0:18:37.760 --> 0:18:41.080 would still try to cling onto power, but it sounds 0:18:41.160 --> 0:18:45.560 like ultimately he decided to not fight the investors. I mean, 0:18:45.600 --> 0:18:49.160 we don't know how dramatic the discussions were behind closed doors, 0:18:49.160 --> 0:18:52.040 but it did happen very quickly. Insiders that I have 0:18:52.080 --> 0:18:54.120 been chatting with this morning trying to get a sense 0:18:54.160 --> 0:18:57.600 of what their thoughts were, have told me, Yeah, they 0:18:57.960 --> 0:19:01.000 they're not surprised that this happened, but they are surpreasent 0:19:01.080 --> 0:19:04.159 how quickly it happened, because there was clearly pressure to 0:19:04.200 --> 0:19:07.160 make a big change. It just usually these things are 0:19:07.240 --> 0:19:11.240 very complicated, so there may be more bumps along the way. 0:19:11.280 --> 0:19:13.320 There may end up being a search for a different CEO. 0:19:14.200 --> 0:19:17.040 We'll just have to keep watching. So what does this 0:19:17.119 --> 0:19:20.720 mean for the I p O. I think it's going 0:19:20.800 --> 0:19:23.720 to affect how quickly they can do it, because it's 0:19:23.760 --> 0:19:28.000 just such a major upheaval. The company has said that 0:19:28.359 --> 0:19:32.400 they will continue evaluating the optimal time for an IPO, 0:19:32.720 --> 0:19:34.359 which I think, if you read between the lines, means 0:19:34.440 --> 0:19:36.480 they want to keep doing it, they just don't want 0:19:36.480 --> 0:19:39.600 to commit yet to when it's going to happen. Um, 0:19:39.640 --> 0:19:43.040 there's still a need for money. The company still has 0:19:43.080 --> 0:19:46.080 to get cash to keep growing. There were there was 0:19:46.119 --> 0:19:48.359 also language some of the press releases, and there's been 0:19:48.359 --> 0:19:51.159 some reporting that suggests that in the coming weeks and 0:19:51.280 --> 0:19:54.280 months there may be some major changes at the company 0:19:54.320 --> 0:19:56.320 in order to cut costs. So you can imagine there's 0:19:56.320 --> 0:19:59.920 an opportunity for layoffs or changes in some of the 0:20:00.080 --> 0:20:03.160 side businesses. You know, apart from we work, which runts 0:20:03.160 --> 0:20:05.960 out office space, in this remain business, they run an 0:20:06.000 --> 0:20:09.399 elementary school, they have a residential business, they own a 0:20:09.760 --> 0:20:12.280 they own meetup dot com, they have a coding school. 0:20:12.280 --> 0:20:14.560 There's a lot of stuff that is pretty ancillary to 0:20:14.720 --> 0:20:17.680 we works business that has been part of their acquisition strategy. 0:20:18.080 --> 0:20:20.680 Those avenues seem like they might be more vulnerable now 0:20:20.720 --> 0:20:30.320 to changes this debacle over the last few weeks, from 0:20:30.480 --> 0:20:35.040 the plunging valuations to the corporate governance issue to the 0:20:35.080 --> 0:20:39.200 CEO drama. I'm sure you're exhausted now, I'm a little tired. 0:20:40.119 --> 0:20:42.479 What do you think will be the lesson that the 0:20:42.520 --> 0:20:47.160 rest of the industry takes from this. I think they're 0:20:47.160 --> 0:20:49.919 going to reevaluate a few things because this whole we 0:20:50.040 --> 0:20:54.480 Work saga has been emblematic of a few trends that 0:20:54.560 --> 0:20:56.840 we've been watching in Silicon Valley for the last year 0:20:56.960 --> 0:21:02.600 or two. First is whether this brash, visionary, take no 0:21:02.720 --> 0:21:06.480 prisoners um the Travis Kellen yeah, whether that style of 0:21:06.560 --> 0:21:10.879 CEO has a long lifetime is able to go from 0:21:11.000 --> 0:21:14.120 the scrap young startup to the public company. I think 0:21:14.560 --> 0:21:18.080 people are questioning whether that's the right and prized attitude 0:21:18.080 --> 0:21:21.080 to have a founder. And then I think we're also 0:21:21.119 --> 0:21:24.639 seeing this big gap between private market valuations and public 0:21:24.640 --> 0:21:28.919 market valuations, and you're seeing how a few investors in 0:21:29.000 --> 0:21:32.960 c a CEO gets to set a private valuation um 0:21:33.080 --> 0:21:36.639 that everyone else disagrees with, that that actually maybe doesn't 0:21:36.680 --> 0:21:39.639 hold water um in a big way. Right. Sometimes I 0:21:39.640 --> 0:21:41.840 think everyone understood there was maybe going to be a 0:21:41.840 --> 0:21:44.240 little bit of difference, but we work, we're talking about 0:21:44.600 --> 0:21:47.200 a major difference and that has had big effects for 0:21:47.240 --> 0:21:50.000 the company. And then last, I think we're going to 0:21:50.119 --> 0:21:53.200 examine the role of soft bank. Soft Bank has sort 0:21:53.200 --> 0:21:58.400 of barged in and become this huge, influential, controversial investor 0:21:58.480 --> 0:22:02.440 in Silicon Valley, and they've come in with this particular 0:22:02.480 --> 0:22:05.440 investing vision, which is to, you know, invest a ton 0:22:05.480 --> 0:22:09.040 of money, try to make one of the companies in 0:22:09.040 --> 0:22:11.720 a particular sector be the richest and therefore the most 0:22:11.760 --> 0:22:15.440 successful one. And we're starting to see that maybe that 0:22:15.680 --> 0:22:19.560 is not the best strategy for venture investing. And when 0:22:19.560 --> 0:22:20.919 we look back at this time in history, I think 0:22:20.920 --> 0:22:22.720 stopping it's gonna be a major part of it. We're 0:22:22.720 --> 0:22:26.760 gonna be examining whether their approach is a good idea, 0:22:30.160 --> 0:22:33.800 Ellen Hewitt, we will continue posting your stories on Bloomberg 0:22:33.880 --> 0:22:37.119 dot com Slash Technology. Where else can our listeners follow 0:22:37.160 --> 0:22:40.360 your reporting. You can find me on Twitter at Ellen Hewitt, 0:22:40.400 --> 0:22:44.680