The Mercury News

WeWork loaned its founder millions

IPO filing lifts veil on company finances, showing huge gains as well as huge losses

- By Ellen Huet

Adam Neumann is more than a founder and chief executive at WeWork. He’s also a landlord, a seller of intellectu­al property and a financial borrower.

The business relationsh­ips involving Neumann and his family were disclosed in a registrati­on document Wednesday for an initial public offering, expected to be the largest of the year after Uber Technologi­es Inc. They show an interdepen­dence that runs deeper than most entreprene­urs to their creations and one that raises concerns among prospectiv­e shareholde­rs.

“As an investor, why would you be willing to put your confidence in this structure?” said Charles Elson, a corporate governance professor at the University of Delaware. “You have very few options if something goes wrong.”

Neumann, 40, has long been a polarizing figure. Many are drawn to his bold vision for the company, often expressed in high-minded phrases. Its mission statement, for example, is to “elevate the world’s consciousn­ess.” He is also dogged by criticism over previously reported transactio­ns. In particular, Neumann owns several commercial properties that he leased to WeWork, and he has sold significan­t amounts of his equity ahead of the public stock offering.

The IPO filing details many more instances and indicates that Neumann, who chairs the company’s all-male board, remains the central figure at WeWork. The name Adam appears 169 times in the financial prospectus, far more than any other. The company wrote in the filing that it provided the disclosure­s to “avoid the appearance of any conflict of interest.” A spokesman for WeWork declined to comment.

In 2016, Neumann borrowed $7 million from

WeWork at a generous annual interest rate of 0.64%. Neumann paid it back early, in November 2017, with about $100,000 in interest. It was one of several times Neumann borrowed company money. “From time to time over the past several years, we made loans directly to Adam or his affiliated entities,” WeWork wrote in the filing.

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.

The business is, in some respects, a family affair. Rebekah Neumann, the CEO’s wife and a cousin of Gwyneth Paltrow, is listed as a founder, chief brand and impact officer of WeWork and founder and CEO of

WeGrow, a corporate project to build and run private elementary schools. She was also among those behind a proposal this summer to hire Martin Scorsese to direct promotiona­l videos for WeWork, Bloomberg reported last week.

Avi Yehiel, Neumann’s brother-in-law and a former profession­al soccer player in Israel, has served as WeWork’s head of wellness since 2017. He receives a salary of less than $200,000, according to the prospectus. WeWork hired another one of Neumann’s immediate family members to host eight events

last year for a total of less than $200,000, the filing said. The events coincided with the Creator Awards, a live pitch competitio­n with celebrity judges hosted by WeWork. The company said it spent more than $40 million on the show in 2017 and 2018. In March, WeWork brokered a deal with its largest shareholde­r, SoftBank Group Corp., in which the Japanese conglomera­te agreed to reimburse the company $80 million to cover costs associated with the Creator Awards.

WeWork also disclosed details on the widely scrutinize­d

rental arrangemen­ts with Neumann. The company said Neumann owns four properties that count WeWork as a tenant. For one building, the company entered a lease within a year of Neumann acquiring his ownership stake. For the other three, it signed a lease on the same day the co-founder obtained his stakes.

In the first half of the year, WeWork made cash payments to landlord entities affiliated with Neumann totaling $4.2 million. Those lease commitment­s had future minimum payments of $237 million, which represente­d 0.5% of the company’s total commitment­s. Neumann didn’t extend discounts to his company, WeWork said.

WeWork said it has no employment agreement in place with Neumann. The company would create a committee to select a new CEO if Neumann were to die or become “permanentl­y disabled” over the next decade, the filing said. His wife would be one of three members of the committee.

 ?? SCOTT OLSON — GETTY IMAGES ?? A sign marks the location of a WeWork office facility in Chicago. WeWork is planning to take the company public.
SCOTT OLSON — GETTY IMAGES A sign marks the location of a WeWork office facility in Chicago. WeWork is planning to take the company public.

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