Reading WeWork's S-1 Is Like Staring Into Adam Neumann's Soul

One doesn’t have to read far into WeWork’s highly anticipated S-1 filing to get a sense of Adam Neumann’s lofty goals for his company.

“Our mission is to elevate the world’s consciousness,” reads the second line of the coworking giant’s prospectus summary. Deploying a “worldwide platform” that provides its clients with “flexible access to beautiful spaces,” as well as “a culture of inclusivity and the energy of an inspired community,” WeWork believes that it “has the power to elevate how people work, live and grow.”

For those who have followed WeWork’s rise from shared office space startup to global powerhouse valued at $47 billion, this sort of language is par for the course. “There are 150 million orphans in the world,” he noted at a company event last year, according to New York magazine. “We want to solve this problem and give them a new family: the WeWork family.” More famously, in 2017, he declared that WeWork’s size and valuation was “much more based on our energy and spirituality than it is on a multiple of revenue.” (As Polina Marinova noted in Wednesday morning’s Term Sheet, the word “energy” is mentioned 13 times in WeWork’s S-1.)

If such proclamations seem awash in hubris, it’s not hard to see where Neumann gets his confidence and self-belief from. In a little over a decade, the WeWork co-founder and CEO has transformed himself from a 20-something failed baby clothes entrepreneur into the 40-year-old head of a company that—despite continuing to post prolific losses (nearly $690 million in the first six months of 2019 alone)—has shaken the commercial real estate industry to its core.

WeWork is now valued at more than America’s largest office landlord, Boston Properties, despite the fact that the company owns little real estate of its own and mostly relies on leasing space from institutional property owners. Its very business model has been considered by some as a death knell for the commercial office market’s status quo; after all, why would any small- to mid-sized company that finds itself growing or contracting on an annual basis lock itself into a long-term, 10-year lease for office space, when they could simply go to WeWork and book a highly-amenitized, centrally located office on much more flexible terms?

With this approach having spawned an entire generation of imitators (see: Knotel and Industrious), Neumann may rightfully consider himself a disruptor of the highest caliber. Yet while he may believe WeWork’s success to be the product of the “energy and spirituality” instilled through his vision, when it comes to tapping the public markets via the company’s upcoming IPO, Neumann may offer more questions than answers.

By now, Neumann’s various financial maneuvers around his sizable stake in WeWork have been well-documented. As the Wall Street Journal has previously reported, the S-1 discloses that WeWork has entered “several transactions,” including lease agreements, with “landlord entities in which Adam has or had a significant ownership interest.”

It also gets into the extent to which Neumann has leveraged his sizable stake in WeWork—he will control more than 50% of the company’s voting stock, per the S-1—via a $500 million line of credit from a consortium of banks including UBS, JPMorgan Chase, and Credit Suisse. That debt is secured by an undisclosed amount of Neumann’s Class B stock, and should he default, the lenders would be able to “foreclose on and sell the amount of Class A common stock” that Neumann’s pledged Class B shares would be converted into.

Meanwhile, WeWork itself issued a $362 million loan to Neumann this past April, in connection with his early exercise of a stock option, according to the S-1. Yet the document also discloses that Neumann hasn’t actually sold off any shares of his company since October, and has entered a “lock-up agreement” to not offload any of his WeWork equity for a year after the IPO.

While some observers have noted that Neumann’s financial moves could give off an appearance of “self-dealing,” WeWork’s prospectus stresses that Neumann is an integral part of the company’s success. It goes as far as to list his possible departure under the S-1’s “Risk Factors” section, describing him as “key to setting our vision, strategic direction and execution priorities.”

As far as the extent to which Neumann’s personal finances have intersected with his company’s dealings, WeWork said that as it transitions into a public company, “We aim to provide clarity and transparency on the history of these relationships and transactions.”

That will be critical to the success of WeWork’s IPO, and Neumann is finding out that leading a public enterprise and being accountable to shareholders is far different from running his very own private decacorn. Indeed, he may already be in hot water for interviews this past May with business publications Axios and Business Insider that could potentially be “in violation of the Securities Act,” according to the S-1.

While WeWork says it doesn’t believe that the articles, in which Neumann discussed the company’s “business strategy and results,” are in violation of the law, it would be a damaging development if he was found to have done so—one that could potentially require the company to “repurchase the shares sold… in this offering at the original purchase price.”

As Neumann may be about to find out, life running a public company can be an energy-draining proposition.