Teddy Kramer worked at WeWork from 2013 to 2015. When he left the company, he had been a director of new market development, helping the co-working startup open new offices in different regions. He’d put in the time and been granted shares in the company. At first, he thought he might be able to sell them after WeWork’s much-anticipated initial public offering in September, but the IPO attempt flopped.
As a backup option, Kramer and other current and ex-WeWork staff were told they would be able to sell their shares to SoftBank Group Corp. in a deal set to take place on Wednesday. Kramer was expecting to sell between $50,000 and $100,000, he said, and he was depending on the cash to cover expenses while he started his new business, a co-working space in San Francisco called Neon.
On Thursday, though, SoftBank sent a letter to all WeWork shareholders: The deal was off. The Japanese conglomerate, the largest investor in WeWork parent We Co., was pulling out of the agreement to purchase billions in WeWork stock from existing shareholders.
The abrupt about-face has impacted many people like Kramer—rank-and-file employees who had been banking on the payout from SoftBank, some of whom are now left in a lurch as the coronavirus pandemic slams the global economy. They’d already faced the disappointment of losing the chance to sell after the promised IPO and seeing their highly valued WeWork shares lose almost all their worth in the fallout. SoftBank’s decision to pull out underlines the precarious nature of owning shares in a startup, even when the company was, at one point, the most valuable startup in the U.S.
Less than a year ago, WeWork was on pace for an IPO that would add to the rolls of tech millionaires. New York was bracing for an infusion of wealth akin to the bonanza that beset Silicon Valley overnight when Facebook Inc. went public in 2012. An IPO or multibillion-dollar stock transaction like the one SoftBank agreed to with WeWork provides the seed money for people to buy homes and start businesses. For WeWork, those opportunities evaporated with little forewarning, coming as a shock to some shareholders who had already begun laying the foundation for their new lives.
SoftBank cited several reasons for pulling out of the deal, including that WeWork was currently facing government inquiries from U.S. attorneys, the Securities and Exchange Commission, attorneys general in California and New York and the Manhattan district attorney. Those ongoing inquiries, the company said, meant that the conditions of the original deal had not been met. Representatives for SoftBank and WeWork declined to comment.
In the letter sent early Thursday confirming the deal was off, SoftBank framed the called-off stock sale as something that would have mainly benefited WeWork’s ousted chief executive officer, Adam Neumann, and WeWork’s investors. The bulk of the proceeds of the $3 billion stock sale was set to go to just five investors, including Neumann and venture capital firm Benchmark.
"Adam Neumann, his family, and certain large institutional stockholders, such as Benchmark Capital, were the parties who stood to benefit most from the tender offer," SoftBank said in a statement about the decision. "Together, Mr. Neumann’s and Benchmark’s equity constitute more than half of the stock tendered in the offering. In contrast, current WeWork employees tendered less than 10% of the total."
But for employees, a tenth of $3 billion is still a lot of money. Add in additional workers who have recently left the company, and that figure could climb even higher. Some current and former staff at WeWork have taken issue with SoftBank’s statements about its decision to pull out, arguing that the money they stood to receive from the sale would make more of a difference in their lives than to Neumann and others.
“They’re trying to leverage the negative press that has followed Adam since the IPO by saying ‘This is just a billionaire making more money,’” Kramer said.