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Adam Neumann owns about a quarter of WeWork, sources say, tying much of his wealth to the company.

CHINA STRINGER NETWORK/Reuters

When WeWork’s directors voted Tuesday to oust Adam Neumann as chief executive after a failed attempt to take the office-sharing startup public, Mr. Neumann cast his vote against himself, according to three people familiar with the situation.

The vote by Mr. Neumann, who remains non-executive chairman but gave up majority control of the company he co-founded, was the culmination of a stunning coup to remove him led by his biggest backer, Masayoshi Son, the billionaire CEO of SoftBank Group Corp., these sources said.

Mr. Neumann’s downfall came after WeWork’s parent, We Company, spent months preparing for an initial public offering, only to have to postpone its plans last week, as estimates of its value fell by tens of billions of dollars amid investor concerns about its corporate governance under Mr. Neumann, 40, and its ability to generate a profit.

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The falling estimates came as a shock to Mr. Son, who had ploughed in more than US$10-billion to WeWork, the last investment at a US$47-billion valuation, according to three people familiar with the matter. At that level, WeWork was the world’s fourth most valuable private startup, according to data firm CB Insights. By the time the IPO was pulled, estimates of WeWork’s value had come down as low as US$10-billion.

By last weekend, some WeWork directors started to lay the groundwork for Mr. Neumann’s departure, according to a source familiar with the seven-member board’s deliberations.

The notion would have been unthinkable only a few months ago, with the WeWork brand strongly tied to the flamboyant, freewheeling Israel-born entrepreneur, who has said his company’s mission was to “elevate the world’s consciousness.”

The substance of the message to Mr. Neumann from them: “Listen, this IPO has gotten distracted by you,” the source said.

Mr. Neumann decided to back the management changes because he became convinced they were in the best interest of the company, according to a person close to him. Mr. Neumann owns about a quarter of WeWork, sources have previously said, tying much of his wealth to the company. WeWork has not disclosed what percentage of the company he owns.

Mr. Neumann did not respond to calls and e-mails requesting an interview.

SoftBank and WeWork declined to comment.

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HANDSHAKE DEAL

Things looked very different just a year ago. New York-based WeWork, which leases office spaces and rents them out to individuals and startups, was seen as a disrupter, with a business model unhindered by property ownership.

It was expanding at breakneck speed, increasing revenue but also racking up steep losses, as demand for flexible office space steadily grew. Backed by Mr. Son, the company commanded massive valuations as it expanded globally.

Last October, Mr. Neumann struck a handshake deal with Mr. Son for SoftBank to invest an additional US$16-billion, valuing WeWork at US$35-billion, according to a person with direct knowledge of the discussions inside SoftBank.

But some investors in SoftBank’s US$100-billion private equity Vision Fund were concerned about the size of the check, given that Mr. Son had already invested more than US$8-billion into the startup, the source said.

Mr. Son backed down. In January, he agreed to a more modest US$2-billion investment in WeWork at valuations of up to US$47-billion.

INVESTOR PRESSURE

Much is at stake for Mr. Son, ranked by Forbes as Japan’s second-richest person. Perhaps best known for his US$20-million investment in 2000 to the then-obscure Chinese e-commerce firm Alibaba Group Holding Ltd., the 62-year-old billionaire executive has become one of the most powerful investors in the world. But his investment record is coming under greater scrutiny.

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The precipitous fall in WeWork’s estimated valuation followed dips in other high-profile SoftBank investments. Shares of Uber Technologies Inc., another of its major holdings, have fallen nearly 30 per cent since the ride-hailing firm went public in May. The patchy record comes at a particularly sensitive time for SoftBank – the company is in the midst of raising a second US$100-billion-plus Vision Fund.

SoftBank said last month that the first Vision Fund’s operating profit jumped 66 per cent year-on-year, to US$3.74-billion, for the three months ended in June. But much of the returns are on paper, and it needs to be able to exit investments such as WeWork to execute its plans.

A source close to Mubadala, a major investor in the first Vision Fund, said the Abu Dhabi sovereign wealth fund is closely watching the WeWork situation as it considers investing in the second fund.

This time, the source added, Mubadala is looking at having a larger voice in how the fund deploys its money.

FALLING VALUATION

Mr. Son started to have some misgivings about WeWork this summer, as he grew concerned the company would not be able to achieve a US$47-billion value in an IPO, two of the sources said.

In August, We Company’s IPO filing revealed extensive and unusual ties between the startup and Mr. Neumann, including him being a landlord to the company on some properties, drawing criticism from investors.

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WeWork’s potential valuation in its IPO kept falling as bankers tested the market for demand.

“It was so frustrating,” the source familiar with the board’s deliberations said. “The company was misreading the market too optimistically.”

Last week, Mr. Neumann agreed to delay the IPO when it became clear that the company would not even manage to raise US$3-billion, the minimum amount needed to fund its growth plans, according to two of the sources familiar with the situation.

For some directors it was the final straw, as they realized that the market was too focused on Mr. Neumann, said the source familiar with the board’s deliberations.

At the board meeting Tuesday, Mr. Neumann did not put up much of a fight, four sources familiar with the situation said.

“Since the announcement of our IPO, too much of the focus has been placed on me,” he wrote in a memo to employees, following his decision to step aside.

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