Word on the street is that investors are so cool towards WeWork's IPO that the company may have to list at one-third of its $47 billion, private company valuation: as low as $15 billion to $18 billion, sources have told Reuters.
And there's one person who stands to lose the most money if that happened: WeWork founder CEO Adam Neumann, the company's single largest individual shareholder.
It's impossible to know just how much money Neumann could lose because WeWork hasn't revealed exactly how much of the company he owns.
On top of this, WeWork's parent company has adopted a complicated structure known as an UP-C, a collection of LLCs. Much of Neumann's stake involves something called "profits interests" which are shares in those various LLCs, which obscures his ownership stake even more.
However, there are some things we do know, and with that information and some educated estimating, we can deduce that Neumann could lose billions of dollars if the IPO falls so short.
So, just for the heck of it, let's try to estimate what he stands to lose if Wall Street stays cool on his company.
Over 104 million shares
WeWork says that Neumann owns 2.43 million shares of Class A stock, roughly 944,000 shares of Class C stock and that he controls 112.5 milion shares of Class B stock. The company's S-1 filing indicates that of that Class B stock, some 11.72 million shares are actually owned by others, even though Neumann controls their voting rights.
So, from a financial standpoint, Neumann appears to own a total of about 104.16 million shares of WeWork, according to the disclosures as they stand now.
The S-1 also says that in April, 2019, employees were able to sell Class A and Class B shares at a price of $54 per share. This sale was part of its investment deal with Softbank. The S-1 also notes that the price was "above the fair market value of the shares."
So, we can infer that in April, four months after Softbank's investment deal valued WeWork at $47 billion, its stock was worth not quite but somewhere around $54 a share.
If we use $54 a share, Neumann's 104.16 million shares are worth about $5.63 billion. This could be high. Forbes estimates Neumann is worth $4.1 billion.
Nevertheless, if the company's valuation drops to $18 billion, down 61%, and the value of his stock falls in line with that, than a stake that was worth $5.63 billion would be worth about $2.2 billion, a loss of $3.43 billion.
That's a lot of ifs, of course. Since we don't know how much of the company Neumann currently owns, or what the shares are really worth or what his stake will be after the IPO, we have no way of knowing exactly how much money he could actually lose.
Another 21.3 million shares at risk
However, we do know that Neumann faces potentially more losses than the value of his current stake.
Just before filing the IPO paperwork, the company also gave him an enormous grant of 42.5 million shares and some of those are tied to WeWork achieving soaring valuations.
As we previously reported, a chunk of this grant will vest simply if Neumann stays with the company, even if the company doesn't go public.
Plus he's currently slated to get 7.1 million shares over three years if the company hits a market cap of $50 billion, another 7.1 million shares over three years if it hits $72 billion, and another 7.1 million shares over three years if it hits $90 billion.
The way it's currently looking, WeWork would have to produce some Herculean growth in the next three years to achieve those goals and unlock those tranches.
So in theory, there are another 21.3 million in equity grants at risk. We can't even make an educated guess what that would be worth, but presumably many millions.
Then again, as Rosanna Landis Weaver, a compensation expert with nonprofit shareholder-advocacy group As You Sow, previously told us, such compensation agreements with CEOs are typically non-binding.
The board, which is controlled by Neumann and will remain so after the IPO, can change its mind and the conditions of these stock awards. If WeWork doesn't hit those lofty valuation numbers, it may find another reason to reward its founder.
And, even if the company's IPO values WeWork at $18 billion, Neumann's stake will probably still be worth billions. Plus this doesn't account for the $700 million he is said to have already pulled out of the company via selling his shares to investors and borrowing against them.