Kramer, 36, said he’s fairly lucky. He hadn’t signed a lease yet for his new company, and doesn’t have employees that he would have to cut. But without the money from the stock sale, his business dream is on indefinite hold. In the meantime, he’s tutoring kids in reading comprehension over Zoom and looking for a different job.
Other people were depending on the SoftBank sale to help defray costs they’d incurred when WeWork’s stock seemed much more valuable. One current WeWork employee, who also asked not to be named because of a non-disclosure agreement, said they bought a house last summer thinking they'd be able to pay for it after selling shares in the IPO. When that didn't happen, they had still been hoping cash from this stock sale could help offset some of those costs.
A former employee, who asked not to be named because they signed a non-disclosure agreement, said that once the company’s IPO prospectus was made public in August, they figured that meant the IPO was likely to take place. Right after that, this person took out a loan in order to buy the shares they had access to. The idea was to buy early to try to avoid short-term capital gains tax.
Over the next month, though, as WeWork’s bankers struggled to get institutional investors to commit to buying into WeWork’s IPO, the company’s prospects started to look shakier. The former employee said that WeWork’s then chief financial officer, Artie Minson, repeatedly tried to reassure workers at all-hands meetings. Minson told them the company had strong revenue, that its numbers had never been better, and that the company would go public by the end of the year.
But quickly, WeWork withdrew its IPO and turned to SoftBank for bailout funding to avoid going bankrupt. Employees were offered the chance to reprice their shares at around $4 each. The former employee, though, still had a tax bill based on the value of the shares at their time of purchase, around $50 apiece. That left this person with a six-figure tax bill—and no way to sell the shares in order to pay it off. The former employee had been hoping that they’d be able to sell enough shares to SoftBank this week to pay off the loan taken out to buy the shares in the first place—not the profit this person had envisioned, but just enough to break even.
Some employees might be able to find some relief, said Deep Gujral, a principal who works with venture-backed companies at the professional services firm Withum. Gujral recommended trying to negotiate with creditors: "Given the current climate, and Covid-19, they might be more receptive" to relaxing payment requirements, he said. "If you have a mortgage, and you go to the lender, they might be flexible." Gujral also expects to see class-action lawsuits that include current and former WeWork employees as a result of the withdrawn tender offer. After energy-services company Enron filed for bankruptcy in 2001, employees were able to use federal laws around benefit plans and stock to their advantage in court, and the same could apply here, he said.
But hypothetical lawsuits are of little comfort to most WeWork shareholders. “The rest of the world needs to know that there are 500 to 1,000 early employees who are paying the price for this,” Kramer said. “All we ever did was work hard and make this company an $8 billion company. This was our moment. SoftBank came in and made a deal: ‘We're going to take care of you.’ And now all of a sudden it's, ‘Eh, we're not doing that.’”
--With assistance from Sarah McBride.
This article was provided by Bloomberg News.