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WeWork Gave Founder Loans as It Paid Him Rent, IPO Filing Shows

75 points by AndrewBissell 7y ago

quaquaqua1 7y ago
I think this is a very similar strategy to what Eddie Lampert did with Sears. Through a network of companies and controlling stakes, Lampert took possession of Sears, sold its assets to his own fund, and then leased the buildings to other tenants. It's a very interesting network of financial engineering that really is quite intricate since I imagine commercial real estate is a very supply-constrained market, which is why they can charge such high rent with seemingly not much value provided.
halfmatthalfcat 7y ago
Articles have been trickling out about We’s shadiness over the past year or two, so what is the average person suppose to do/think? Capitalism gonna capitalism? Don’t buy We stock? Or just watch another episode of “Startup Drama in America” play itself out? With the turmoil of Uber/Lyft, Tesla and now We, I’m just looking for more popcorn...
- whenchamenia 7y ago
  No, but lately, SV capitolism seems especially myopic. It seems we may be part of the problem more than the solution right now. Most startups would accept funding from satan himself at this point. I don't want to watch the world burn, but a few IPOs in flames might be better for us in the long run. Pass the popcorn.
- AndrewBissell 7y ago
  "Don't buy We stock" is not a bad start. It requires some effort though as you may need to follow up on whether any funds you own are planning to purchase the stock. It might be useful to have a "name and shame" list of funds which intend to buy into the IPO so investors can easily tell where they need to divest.
- bradleyjg 7y ago
  > Don’t buy We stock? That means forgoing most of the broad based index funds. I don't love that idea either.
  - AndrewBissell 7y ago
    Which broad based index is going to include WeWork?
    - bradleyjg 7y ago
      VT and VTI certainly. At anything close to its proposed valuation S&P500 funds too.
      - AndrewBissell 7y ago
        No, stocks cannot be added to the S&P 500 unless the previous 4 reporting quarters taken in aggregate were profitable.
        bradleyjg 7y ago
        Good to know, thanks.
40acres 7y ago
It's almost as if this company was founded with the explicit mandate to maximize grift. I don't understand why any investor would get involved.
- AndrewBissell 7y ago
  All the cultish language around "raising the world's consciousness" is particularly bizarre. Like an episode of Silicon Valley made real. Referring to a CEO by his first name is a red flag, too.
durron 7y ago
https://outline.com/AW7mde https://outline.com/AW7mde Non paywall
MFLoon 7y ago
> Neumann took out a much bigger loan from WeWork a few months ago. The company lent him $362 million in April at 2.89% interest to help him exercise options to buy stock. This month, Neumann repaid the debt by surrendering the shares back to the company. It’s not clear from the filing why these transactions happened. Can anyone explain a possible motivation for doing this? It seems like it's a completely circular transaction, or is my fraudster-fu just not strong enough to see the upside?
- c3534l 7y ago
  Sometimes CEOs who don't know better treat their corporation like a sole proprietorship. The company's money is "theirs," like a piggy bank. So I will guess stupidity rather than fraud.
- nickmolnar2 7y ago
  I wouldn't assume it went as planned. Seemed plausible they tried to lend him $362m to exercise his options, and then chickened out amid bad press.
- TylerE 7y ago
  If the stock goes up, he pockets the upside?
  - deleted 7y ago
    [deleted]
- harryh 7y ago
  We's corporate structure is a bit complicated, but the short answer is that Adam relinquished the options in questions in return for an interest in a different piece of the company. See this in the S-1: Shortly after the option awards were issued, Adam exercised the time-based option described above in exchange for a $362.1 million full recourse promissory note payable to the Company (with an interest rate of 2.89% and a maturity date of April 11, 2029). In August 2019, Adam repaid the promissory note (including interest) in full by surrendering to the Company all of the shares received in respect of the time-based option described above. Following the settlement of this loan, the Company issued to Adam the number of profits interests equal to the number of shares surrendered by Adam in settlement of the loan.
boston_sre 7y ago
Another tech ponzi scheme...
hendzen 7y ago
Yet another recent display of aggressive, excessive financial engineering. This is notable in WeWork’s case for being done in a pre-IPO startup, but is inflicted every day upon lesser known companies by legions of PE firms. This is late cycle business tactics - the relentless, desperate pull of any future value - real, imagined or invented - in to the present. The result of greed, hubris, and a decade of overly loose monetary policy. That this shameful IPO is coming to market is a sign the music is coming to a stop. Batten down the hatches.
huffmsa 7y ago
I feel like this guy thinks he's playing 5D chess, but his friendly neighborhood SEC agent keeps dropping by and ruining everything and the plan du jour fizzles out.
AndrewBissell 7y ago
Can the HN mods point to the preexisting link to this article? This was #1 on the front page when it was marked as [dupe].

75 points by AndrewBissell 7y ago

I think this is a very similar strategy to what Eddie Lampert did with Sears. Through a network of companies and controlling stakes, Lampert took possession of Sears, sold its assets to his own fund, and then leased the buildings to other tenants. It's a very interesting network of financial engineering that really is quite intricate since I imagine commercial real estate is a very supply-constrained market, which is why they can charge such high rent with seemingly not much value provided.

halfmatthalfcat 7y ago

Articles have been trickling out about We’s shadiness over the past year or two, so what is the average person suppose to do/think? Capitalism gonna capitalism? Don’t buy We stock? Or just watch another episode of “Startup Drama in America” play itself out? With the turmoil of Uber/Lyft, Tesla and now We, I’m just looking for more popcorn...

whenchamenia 7y ago
No, but lately, SV capitolism seems especially myopic. It seems we may be part of the problem more than the solution right now. Most startups would accept funding from satan himself at this point. I don't want to watch the world burn, but a few IPOs in flames might be better for us in the long run. Pass the popcorn.
AndrewBissell 7y ago
"Don't buy We stock" is not a bad start. It requires some effort though as you may need to follow up on whether any funds you own are planning to purchase the stock. It might be useful to have a "name and shame" list of funds which intend to buy into the IPO so investors can easily tell where they need to divest.
bradleyjg 7y ago
> Don’t buy We stock? That means forgoing most of the broad based index funds. I don't love that idea either.
- AndrewBissell 7y ago
  Which broad based index is going to include WeWork?
  - bradleyjg 7y ago
    VT and VTI certainly. At anything close to its proposed valuation S&P500 funds too.
    - AndrewBissell 7y ago
      No, stocks cannot be added to the S&P 500 unless the previous 4 reporting quarters taken in aggregate were profitable.
      - bradleyjg 7y ago
        Good to know, thanks.

40acres 7y ago

It's almost as if this company was founded with the explicit mandate to maximize grift. I don't understand why any investor would get involved.

AndrewBissell 7y ago
All the cultish language around "raising the world's consciousness" is particularly bizarre. Like an episode of Silicon Valley made real. Referring to a CEO by his first name is a red flag, too.

durron 7y ago

https://outline.com/AW7mde https://outline.com/AW7mde Non paywall

MFLoon 7y ago

> Neumann took out a much bigger loan from WeWork a few months ago. The company lent him $362 million in April at 2.89% interest to help him exercise options to buy stock. This month, Neumann repaid the debt by surrendering the shares back to the company. It’s not clear from the filing why these transactions happened. Can anyone explain a possible motivation for doing this? It seems like it's a completely circular transaction, or is my fraudster-fu just not strong enough to see the upside?

c3534l 7y ago
Sometimes CEOs who don't know better treat their corporation like a sole proprietorship. The company's money is "theirs," like a piggy bank. So I will guess stupidity rather than fraud.
nickmolnar2 7y ago
I wouldn't assume it went as planned. Seemed plausible they tried to lend him $362m to exercise his options, and then chickened out amid bad press.
TylerE 7y ago
If the stock goes up, he pockets the upside?
- deleted 7y ago
  [deleted]
harryh 7y ago
We's corporate structure is a bit complicated, but the short answer is that Adam relinquished the options in questions in return for an interest in a different piece of the company. See this in the S-1: Shortly after the option awards were issued, Adam exercised the time-based option described above in exchange for a $362.1 million full recourse promissory note payable to the Company (with an interest rate of 2.89% and a maturity date of April 11, 2029). In August 2019, Adam repaid the promissory note (including interest) in full by surrendering to the Company all of the shares received in respect of the time-based option described above. Following the settlement of this loan, the Company issued to Adam the number of profits interests equal to the number of shares surrendered by Adam in settlement of the loan.

boston_sre 7y ago

Another tech ponzi scheme...

hendzen 7y ago

Yet another recent display of aggressive, excessive financial engineering. This is notable in WeWork’s case for being done in a pre-IPO startup, but is inflicted every day upon lesser known companies by legions of PE firms. This is late cycle business tactics - the relentless, desperate pull of any future value - real, imagined or invented - in to the present. The result of greed, hubris, and a decade of overly loose monetary policy. That this shameful IPO is coming to market is a sign the music is coming to a stop. Batten down the hatches.

huffmsa 7y ago

I feel like this guy thinks he's playing 5D chess, but his friendly neighborhood SEC agent keeps dropping by and ruining everything and the plan du jour fizzles out.

AndrewBissell 7y ago

Can the HN mods point to the preexisting link to this article? This was #1 on the front page when it was marked as [dupe].