By Jack Ewing

Like other fast-growing companies that have sought to sell shares on the stock market recently, WeWork asked investors to put their money behind a business plan that aims to change the world.

Many investors had already grown wary of the transcendent visions of these young, unprofitable businesses. And WeWork appears to have exhausted whatever appetite they had left for such companies.

On Friday, in an 11th-hour effort to salvage an initial public offering, the We Co., WeWork’s parent, said it would reduce the control its co-founder and chief executive, Adam Neumann, wields over the business. The move was meant to assuage money managers who have pushed back against many of the features of the company’s business that other startups mostly got away with until very recently — huge losses, stratospheric valuations and arrangements that give founders outsize stakes in and control over their companies.

We Co.’s troubled offering is the latest example of how investors have soured on the so-called unicorns — businesses funded by venture capital firms that are valued at $1 billion or more. Shares in Uber and Lyft, two other unicorns, fell sharply after their public offerings this year.

WeWork’s main business is renting out attractively designed office space but says its mission is to “elevate how people work, live and grow.”

Wall Street executives now believe that We Co. will be forced to sell shares at a valuation that is tens of billions of dollars less than what it was valued at as recently as January from the Japanese technology giant SoftBank. That is, if it can pull off the offering at all.

“The fact that this is unraveling should not be shocking,” said Barrett Cohn, chief executive of Scenic Advisement, an investment bank that specializes in the shares of private companies. “There was too much excess and they hid it in the private market.”

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The company’s troubled offering could have far-reaching consequences for We Co., Neumann, his existing investors and the people behind other startups that hope to pull off public offerings soon.

One of those people is Masayoshi Son, chairman and chief executive of SoftBank, who has directed about $10.5 billion into We Co. through his business and its $100 billion Vision Fund.

It was a $2 billion investment by SoftBank in January that set the We Co.’s valuation at a staggering $47 billion. The IPO could value the company at as little as $15 billion, people familiar with the matter said.

WeWork’s travails will be the biggest public test yet of Son’s freewheeling and distinctive approach to investing. Since unveiling the Vision Fund in 2017, he has spent money on a dizzying array of businesses, including Uber, a startup that runs large-scale simulations and a dog-walking app.

Son has been known to invest hundreds of millions of dollars in startups with nascent, unproven business models as long as he thinks they can become giant businesses capable of reshaping the future.

SoftBank and WeWork formally established a relationship in late 2016 during a meeting between Son and Neumann that lasted less than half an hour. On a single sheet of paper, the two men sketched out the outlines of what became a $4.4 billion investment. (The deal was announced in August 2017, after months of subsequent negotiations and due diligence.)

Executives within SoftBank have been split over the last two years about how much money the company should invest in the We Co., people familiar with those deliberations have said. Over the past week, the We Co. and SoftBank have discussed whether the Japanese investor should put more money into the company to help with the IPO, according to people with knowledge of those talks.

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Son was hardly alone in thinking highly of WeWork. Bankers at Goldman Sachs, one of the lead underwriters for the IPO, told executives at the company in the spring that their shares could be worth as much as $65 billion.

But in meetings and phone calls over the past several days, the company’s bankers told Neumann and his team that investors were not prepared to buy into the stock sale at anywhere close to those lofty numbers. They also urged Neumann to give up some of his control over his business, which stood out even in an age when hot technology companies like Facebook and Lyft regularly granted their founders sweeping control.

Early Friday the We Co. acknowledged those concerns in an amended prospectus. The business would appoint a lead independent director and bar any member of Neumann’s family from the board. The special class of stock that Neumann owns will now have 10 votes per share, down from 20. Should he die or become permanently disabled, those shares will have only one vote apiece. Even so, Neumann will control a majority of shareholder votes after the change.

“All these governance changes matter, however, the core issue of control is still there,” said Glenn Davis, director of research at the Council of Institutional Investors, a group that represents pension funds, endowments and other big investors.

The board will also have the ability to choose Neumann’s successor; previously, succession was left to a three-person committee that included his wife, Rebekah.

And Neumann has pledged to give back any profits he makes from leasing properties to the We Co., transactions that prospective investors had highlighted as potential conflicts of interest.

“The next company that wants to go public and doesn’t have the right governance, might think twice,” said Reena Aggarwal, a finance and business professor at Georgetown University. “I think this will have a broader impact.” But those changes might do little to allay investors’ concerns about the company’s prospects.

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The We Co. is asking investors to provide billions of dollars even though it is expected to report losses for the foreseeable future. In the first half of this year, it had an operating loss of $1.37 billion and spent $1.5 billion of cash running its businesses and expanding its operations.

The company leases large amounts of office space from landlords and converts it into sleek work spaces that it rents out to professionals, small firms and some Fortune 500 companies. It is the biggest private tenant in Manhattan and is growing fast in other cities around the world.

Analysts and investors said the company has not provided detail on profits and occupancy that would give them greater insights into how its various locations are doing. Sometimes, companies provide additional numbers as they update their regulatory filings, but We Co. has not been forthcoming with more details.

“They gave us nothing new on economics,” said Rett Wallace, chief executive of Triton Research, which specializes in companies selling shares in public offerings.

Still, the We Co. intends to embark on a road show starting as soon as next week to pitch its shares to money managers across the United States, according to people with knowledge of its plans. The We Co. also disclosed on Friday that it had selected the Nasdaq stock exchange as the market where its shares will trade. The lateness of the decision — usually such a choice is made much earlier in the initial-offering process — underscores the turbulence that has dogged the company’s plans.



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