Adam Neumann was flying high. Literally.
His office-rental giant WeWork was months away from being valued at $47 billion. Revenue was doubling annually. And Mr. Neumann was zipping across the Atlantic Ocean in a Gulfstream G650 private jet with friends last summer, smoking marijuana.
After the group landed in Israel and left the plane, the flight crew found a sizable chunk of the drug stuffed in a cereal box for the return flight, according to people familiar with the incident. The jet’s owner, upset and fearing repercussions of trans-border marijuana transport, recalled the plane, leaving Mr. Neumann to find his own way back to New York, these people said.
Since Mr. Neumann co-founded WeWork—recently renamed We Co.—with Miguel McKelvey nine years ago, he has led with unusual exuberance and excess. His combination of entrepreneurial vision, personal charisma and brash risk-taking helped the company surpass $2 billion in annual revenue, and made it the country’s most valuable startup.
Now many of the same qualities that helped fuel his company’s breakneck growth in the private market are piling up as potential liabilities as the company prepares to go public—helmed by a CEO who looks little like a typical public-company chief.
Mr. Neumann muses about the implausible:
- becoming leader of the world,
- living forever,
- amassing more than $1 trillion in wealth.
Partying has long been a feature of his work life, heavy on the tequila.
Public investors are increasingly skeptical of the formula that has worked for Mr. Neumann so far: his pitch that We is far more than a real-estate company. With its rapid growth and use of technology, he argued, the company deserves rich valuations normally reserved for tech companies.
Instead, many potential investors now see a fast-growing office subleasing company with losses of more than $1.6 billion last year.
Since We filed the prospectus for its initial public offering last month, it has been besieged with criticism over its governance, business model and ability to turn a profit. It is now expecting an IPO valuation as low as a third of the $47 billion sticker price it garnered in a January funding round—a drop without recent precedent. This week, We postponed the offering until October at the earliest.
Wall Street and Silicon Valley investors have been dismayed by the number of potential conflicts of interest disclosed in the “S-1” IPO prospectus, including Mr. Neumann leasing properties he owns back to the company and borrowing heavily against his stock. Even some of We’s private investors said they were angered to learn that an entity Mr. Neumann controls sold the rights to the word “We” to the company for almost $6 million—before public pressure led him to unwind the deal.
“This is not the way everybody behaves,” said Dick Costolo, former CEO of Twitter Inc., who led the company through one of the larger tech IPOs of the past decade. “The degree of self-dealing in the S-1 is so egregious, and it comes at a time when you’ve got regulators and politicians and folks across the country looking out at Silicon Valley and wondering if there’s the appropriate level of self-awareness.”
Given the prominence of the IPO, he added, “that is a big problem.”
Mr. Neumann, 40, declined to comment through a spokesman, who cited rules surrounding the planned IPO. Mr. Neumann told We employees Tuesday the process had been humbling and he would learn from it, say people who heard him. We executives have previously said he is strongly devoted to the company, and many of his personal transactions were made with the company’s best interests at heart.
This account is based on interviews with current and former employees, investors and friends who interacted with Mr. Neumann as he built We.
For startup investors, the 6-foot-5 Mr. Neumann has always had the qualities they crave in Silicon Valley founders, despite being based in New York. He is intensely ambitious and a masterful storyteller with a magnetic personality who can inspire and sell.
Raised in Israel on a kibbutz, Mr. Neumann moved to the U.S. when he was 22, where he attended Baruch College and tried to start businesses. One was a collapsible heel on women’s shoes that didn’t get off the ground. Working out of his Tribeca apartment, he started Krawlers, which sought to make baby clothes with knee pads to make crawling more comfortable. The slogan, he has said: “Just because they don’t tell you, doesn’t mean they don’t hurt.” It never gained traction.
He and Mr. McKelvey started a small co-working space on the side during the recession that followed the financial crisis and were amazed by the demand.
By 2010, they had started WeWork, with essentially the same core business model that exists today: They lease an office long-term, renovate it to make it hip and inviting, and sublease smaller desks and offices short-term.