WeWork CEO cashes out before IPO—should MENA founders follow suit?

10x Industry

WeWork CEO cashes out before IPO—should MENA founders follow suit?

Priya Wadhwa
10x Industry
Published:
WeWork CEO cashes out before IPO—should MENA founders follow suit?
Here's the analysis of the $700 million cash out ahead of WeWork's IPO.

Adam Neumann, the co-founder and Chief Executive of WeWork, has made headlines for cashing out 700 million ahead of the company’s IPO.

In fact, he has already set up a family office and begun hiring financial professionals to run it.

The $47 billion real estate company providing co-working spaces for startups has become a household name for the industry. However, it has also been criticised for having a risky asset-heavy business model.

So while this news is shocking many around the world, as many haven’t ever heard of a CEO doing this, here is a fact that many might have overlooked:

In spite of cashing out, Adan Neumann still owns the majority of the company’s shares.

Here is the analysis behind Adam’s unprecedented move:

Many founders and CEOs wait until the IPO to cash out their holdings, because doing so helps the company gain the trust of the shareholders and the people as it goes public; it helps the company raise more funds.

Founders and CEOs cashing out essentially tells people that they do not have faith in the company getting a strong valuation, nor interest from the public investor. This is why Adam’s news shocked many in the industry.

However, because Adam still owns the majority of its shares, this is not the case. Or at least it shouldn’t be if people knew this truth.

Why it can and might harm WeWork’s IPO is because the shocking headline has the potential to drown out the fact that he still owns the majority share; which means he still has an immense vested interest in seeing the company succeed.

In fact, he has personally invested in commercial real estate that is leased to WeWork. He plans to transfer those property holdings to a WeWork-controlled fund—another reason why him cashing out is not a bad precedent.

Interestingly, the one good thing that has come out of this news breaking out, is the publicity WeWork is getting across the globe, which could very well help it during the IPO.

Should founders and CEOs in the region follow suit?

It depends upon the circumstances, as well as the market. One needs to sense the market before making any rash decisions. Considering the region’s startups and corporates are still young, and CEOs and founders have to maintain good relations with many, a rash move might not be welcomed.

However, if they do show solid justifiable reasoning behind cashing out, have the support of the other shareholders, and them doing so could help the company gain more positive attention that could support a good IPO, then why not?

Although, if Adam’s move does help WeWork have a strong IPO, and founders in MENA repeat the same move, they might not get the attention they are expecting to; as the novelty will die out. We’d suggest if they want to get the attention, they do something unique and unprecedented, just like Adam.