I still can't believe this guy gets to walk away with 1.7 billion dollars just for building up fluff while all the people who helped him grow have dire consequences both financial and personal. Unbelievable that this guy gets a clean chit, and all this isn't considered criminal. This to me is almost at the scale of Theranos. Only, this guy was smarter in the legal side of things, perhaps.
I don’t really see why it’s his fault investors over valued his company — he believed in his own spin and was phenomenally successful at building a large, real business. This was not like Theranos where he was straight up lying about a product working — anyone could analyze the business based on the fundamentals, and investors seemed ever willing to invest at high valuations.
The self dealing was reprehensible and evidence of low morals in my view, but none of those events actually materially impact the value of the business. Instead, overnight, investors just came to their senses about what kind of value this type of business is worth. Definitely a strategic misstep on his part, but it’s not like he stole billions of value away from the company. The drop in value is more like what happened to Uber or Blue Apron post IPO, except, unfortunately for the employees, it happened before they could exit.
> was phenomenally successful at building a large, real business
What? How? He built an 8b business with 16b in investment. Anyone can do that. Take 16b, put it in index funds, call yourself an investment bank. You'd get better returns than -50%, for sure.
Or as Matt Levine might say, take the $16b, light half of it on fire, and put the other half under your mattress. Boom: You've just beaten negative interest rates.
Completely untrue. Even if all you do is take advantage of the investment opportunities that someone with, say, a million dollars get access to that someone with 20 doesn't, it's easy to grow large amounts of money.
"To turn $100 into $110 is work. To turn 100 million into $110 million is inevitable". Edgar Bronfman
So you have a good argument, but that basically means all that stands between someone making $10million is getting the credit to start their business? I’d love to offer you that credit and take half your profits after interest and taxes.
I guess I just don't know what you're saying then. It's easy to make money if you already have it? Maybe in terms of quantity, but in terms of % return i don't feel the ease of producing a return is really super linear or logical.
Looks like you've got it backward - as long as your $16b doesn't turn into $8b (negative fifty percent), you're doing better than this guy. If you put the $16b in any kind of mutual find, you're going to get a positive return, even if it's a single digit percentage, and it'll be much better than this guy.
Overall I agree with the point, but I was considering the idea of risk and the stock market, and I looked at what kind of return you would get if you invested in a major index at a peak and sold at the low point, and historically it's been in the ballpark of -70%.
So the odds are lower and the timescale is longer, but you could still lose more, potentially.
The issue i have with all these arguments is that while you can turn x into 2x, when you layer on interest, taxes, and any fees you encounter in the process...your cut won’t be what you thought it was going to be. Making money isn’t cheap and anyone who thinks it is hasn’t actually tried to do it yet.
Ah yes, "if it's legal, it's not his fault." It's not "his fault" for the gross incompetence that lead to this outcome? Whose was it? I would suggest that it is in fact "his fault," but why would he ever have cared? He lacked any incentive to fret any potential negative outcomes for the business, since after a point he had assured that they all ended in him being astronomically wealthy regardless.
This sort of thing sends ripples across peoples' lives. Normal people (outside of the idle rich who can afford to waste money on speculation with effectively no consequences) do lose out when things like this blow up.
The lack of regulation and legal accountability here is shocking. The fact that regulation doesn't currently exist shouldn't be used as a justification for excusing the behavior of bad actors!
> I don’t really see why it’s his fault investors over valued his company
> he believed in his own spin
It's his fault because he accepted the price for his business! He was in numerous conversations where people wanted to invest in WoWork and he told them that the valuations they were investing at were not just reasonable, but under the real market price - which is why venture buys into companies.
> none of those events actually materially impact the value of the business
> overnight, investors just came to their senses about what kind of value this type of business is worth
These things seem like they contradict each other. If Neumann's actions are not material, why did his removal reveal the true value of the company? Material just means it changes the value of the company. There are lots of "material" events that don't have anything to do with business fundamentals.
I think it's unlikely that Adam would be liable for having accepted an inflated valuation. Courts typically give management pretty wide latitude to make business decisions as along as they can give some plausible explanation. It's called the "business judgment rule" in corporate law and gives the company quite a bit of deference[0]. It derives from Delaware General Corporate Law § 141(a), then gets carved out through case law.
That said, there are a few ways to overcome it. Self-dealing is one way, assuming Adam didn't disclose the transactions. Fraud would be another.
All this stuff is pretty fact-specific. We can guess, but there's a lot we won't know until it gets litigated.
>It's his fault because he accepted the price for his business! He was in numerous conversations where people wanted to invest in WoWork and he told them that the valuations they were investing at were not just reasonable, but under the real market price - which is why venture buys into companies.
What? It's his fault that he was able to hoodwink all these amazingly smart venture capital owners into investing?
No. What happened was some venture capital owners made a bet that they could find a bigger sucker to dump their shares on. But that bet went sideways. Nothing more. There is no indication of any fraud yet. Just some people that thought an eccentric personality could help them ride the wave of funding.
Not before paying, I don't know, something like 10-20 million to have the deal and everything else made watertight and 110% legal. Other that, you cannot blame him for the 1.7 billion. For the way how he got them he can be blamed so, IMHO.
VC-s as a rule of thumb do due diligence before investing. They didn't throw money at him on the whim. They examined the books and everything else you could think of (or should have done so).
Unless he was cooking the books or conned some other way - you may say he is the one scumbag to rule them all if you like for walking with fuck you money squared while his employees get the shaft, but he did nothing wrong in pitching high valuations that the others side accepted.
> ...he believed in his own spin and was phenomenally successful at building a large, real business.
Successful at building a large, real business selling $10 bills for $8. It's a dreadful business, they lose money hand over fist with no path to stopping the bleeding.
For a while now, any company who could claim to be a "tech" company like WeWork (an objectively real estate company) did was able to raise on terms that are only suitable for zero-marginal-cost businesses. That is unlikely to continue.
There's a case to be made that the benefit of a recession is that it kills off these types of wildly unsustainable businesses as they're forced to prove their model. It's been over a decade since the last one. This allows us to remove some of the froth from the market without necessarily going through the same level of hardship en route.
> phenomenally successful at building a large, real business.
That's like saying the Soviet Union was successful at building a strong consumer economy. Anything can look good when you're able to under-price your services using someone else's money.
> I don’t really see why it’s his fault investors over valued his company ... This was not like Theranos where he was straight up lying about a product working
Hell of a low bar you're setting.
Self dealing is fraudulent. It sends a message to con-artists of the future to do exactly what Neumann did for a potential big payout.
Agreed. This is the direct and intended result of a society which values those with money (investors) over those without money (people who invest their time, talent and effort).
He did nothing wrong in this society, so maybe we ought to fucking change society.
That seems like an odd statement, considering that to participate in WeWork, employees got paid, customers got subsidized, and investors (Saudis, I guess) got charged vast amounts to no benefit for them. Nothing about it suggests valuing investors, but the opposite.
Just one small comment -- instead of investors, it was mostly Masayoshi Son at SoftBank that was pumping capital into WeWork and each round invested pumped up the valuation as well, so never had to face any reality from other investors, but it all came to a head in the prospectus for the IPO.
Wait, did he not use company funds to buy real estate in his own name and then lease them back to the company? That is still not illegal but super shady. You cannot paper over things with "investors overvalued it" logic. He went to extra lengths to make his cheating legal.
> The self dealing was reprehensible and evidence of low morals in my view, but none of those events actually materially impact the value of the business.
Materially WeWork is a real estate company selling itself as a tech company to get a higher valuation. Sure, it's expected that founders don't have a realistic idea of what their company is worth, investors should have done more research. But Neumann's ethical failings in regards to self-dealing is closely related to failing to accurately represent the state of his business. I think Neumann is fully responsible for WeWork's overvaluation, even if he fully believed his own spin.
I'm not arguing that Neumann's actions meet the legal definition of fraud. I'm arguing that he has a moral responsibility. Investors are responsible for believing Neumann. But I think that if he had been an ethical person who did not self-deal, WeWork might not have been over valued so much. I think self-dealing and dishonestly representing your company's worth is related.
The self dealing was not hidden, so I am perplexed why one would think a company with self dealing is worth more than a company without self dealing.
Neumann, as a seller, went out into the market and found some buyers. A seller sells for the most they can, and the buyer buys for the least they can. Except in this case, the buyer wanted to flip it, so the buyer wanted to over value it, so that they could claim it was worth even more (due to the rate of increase in "valuations") when they try to IPO it.
If anyone was lacking in morals, it would be the buyer who intentionally paid more than they knew they would if their aim was to hold onto it as a business, just so they could pawn it off onto someone else who didn't know better.
“WeWork isn’t really a real estate company. It’s a state of consciousness, a generation of interconnected emotionally intelligent entrepreneurs.” -Adam Neumann.[1]
Even after hearing that media raved about him/WeWork, analysts were bullish and investors pumped Billions. Startup media are generally happy with their funding related news as it is glamorous.
And due to the funding noise, Startup ecosystem has forgotten that a Startup is a Business and a Business should make money, else it's just a hobby.
I don't understand how that doesn't trip the bullshit detectors of anyone that still has money to invest in the first place. That's language I'd expect from someone flogging a pyramid scheme.
Most investors are smart enough to recognize BS and pass. But they don't issue press releases announcing "We just decided not to invest in this much-hyped startup." It only takes one deep pocketed investor to buoy a deeply flawed startup for a while.
They know, they just do it to inflate the valuation & exit at the right time i.e. before the company goes down; The investor just before that is the real looser.
I don't even know who their target audience was. Many people who work from home do so because they enjoy the privacy of working from home. People who want more social interaction go to coffee shops, and plenty of people do both.
I don't see who would want to pay a few hundred bucks a month to work on a conference table surrounded by strangers.
A lot of people do this – coworking spaces are a huge thing, especially when they can host small companies who can't afford their own office.
Outside of smaller independent coworking spaces and WeWork's existing customer base there is IWG which does the same (albeit more sustainably): https://www.iwgplc.com
Please don't give your opinion on something you don't know anything about. You've clearly never even seen the inside of a WeWork because the majority of them were office spaces. The audience was small companies who preferred short time leasing, which in large cities, there were plenty of. Every wework I've been to in Manhattan has been completely full. There are 1-5 person offices, and sometimes single larger spaces, and you rented the "offices", which were just rooms. It's not like it's just a table where people sit together, that's crazy. It's office space. The benefit was you could get a place for a few months and then move somewhere else if your company isn't stable yet and you don't want to sign a year lease.
As I understand it, the goal was also to network with other small businesses using the same space. The spaces were set up to encourage people to find opportunities to work together -- cross-marketing, sharing resources, new ideas. Kind of an incubator, without the financial support or design.
Not inherently a bad idea, though it's full of Silicon Valley optimism where one serendipity produces tons of money while a lot of other things just fail to gel -- but some people get paid regardless.
I can't help but think that Neumann's taret audience was deep pocketed old-generation investors who've worked in corner offices for decades and fell hook, line and sinker for the "gig economy is the future" spiel.
I presume that by all the people who helped him you mean the WeWork employees and not investors like SoftBank. Well, these employees aren't walking away empty handed either. They've been getting paid all these years and most of them will probably continue getting paid for some time. That's also a fruit of Neumann's scheming. These people didn't have to fight for jobs in a real business, they are benefiting from the WeWork illusion of grandeur and bringing in paychecks month after month.
> These people didn't have to fight for jobs in a real business, they are benefiting from the WeWork illusion of grandeur and bringing in paychecks month after month.
Yikes. I have worked in two different startups that imploded quickly, largely due to an inability to find an effective sales and growth strategy. The fact that I was sold on the vision and that vision wasn't realized doesn't make the work I was doing any less challenging, nor did it make the job or business any less real.
The jobs are definitely real and I was careful to not make any claims otherwise. I've worked in failed startups myself, so I certainly know.
As far as WeWork not being a real business, I think this was fairly well documented during the IPO attempt. However, more generally, when I say real business I mean a business that can survive without getting most of its funds from an unrelated source, i.e. investors. All evidence points towards WeWork not being able to continue without continued burning of investor money and there's no path to profitability on the horizon even.
Options in a startup are always a lottery ticket. I would argue that no rational person assigns any significant value to them, because even career investors aren't able to pick winners and instead earn money by betting on a lot of different startups.
The reason he made bank is because Softbank decided it would be a good idea to let Neumann burn money, gave Neumann a shit ton of money without actually buying control of Wework from Neumann, found that nobody else thought burning money was a good idea and so WeWork couldn't IPO, decided that burning money wasn't a great idea after all, found that Neumann liked burning money and would continue to run WeWork into the ground burning money every step of the way, found that they couldn't do shit because WeWork still belonged to Neumann, couldn't walk away because they were billions in the hole, and so decided to give Neumann even more money so they could actually control the company this time.
The employees pretty much got the typical outcome of working at a startup (startup runs along for a couple years, then fails). The fact that Adam Neumann made bank is rankling, but Rich People Burning Money and Also Accidentally Giving Some Away to Undeserving People Because They Did Incredibly Stupid Things isn't exactly something we can or should stop. You can't make it illegal to be stupid.
People aren't and will never be rational economic actors -- homo economicus -- and while we can chide them for making mistakes a rational person wouldn't, I feel like there must be a way to structure the world that doesn't set up this expectation no one will ever live up to. (edit to fix a typo)
Big difference between a startup and a massive valuation that everyone assumes is about to IPO.
WeWork deflated more than any company in HISTORY. You’re technically correct but people are irrational and I’m sure they were being lied to their face in all hands about how great the future would be.
At that stage as an employee you’re counting on those to be able to put down a down payment or do a much needed renovation, or hopefully not payback debt.
>WeWork deflated more than any company in HISTORY.
Cisco went from 77$ per share in 2000 to $10 per share in 2002, while being public (so the value was much more real than WeWork, you could hit the 'sell' button to make it real money in 5 minutes, unlike WeWork equity).
IIRC it was valued around 500 billions in 2000, so it was much larger destruction in value. It still hasn't recovered, with $45 per share right now, never reaching its 2000 peak during these 19 years.
Options are a risk you take, and every analysis out there says that one should discount them almost to zero, especially for startups.
It does suck for those employees that their risk didn't work out, but for most of them it was a conscious decision to take on the risk, presumably for a high potential upside.
And if you accept the risk, then its unfortunate that it didn't work out, but that is what risk is.
Investors did not do due diligence (unless there was fraud, but I have not heard of that). It is therefore not surprising AN got away with it. There are several companies with the same business model as WeWork that do not have nearly the same valuation (before all the recent hullaballoo, that is). There have been a number good articles about this topic in the WSJ lately. There is no reason to compare Adam Neumann to Elizabeth Holmes at this point.
Agreed, all the public statements from them were highly bullish, right up until the point where they realized the public markets weren't going to be suckered after the Uber IPO bombed.
Hey, it's the bank's fault they approved a 20K credit limit without even checking my ID. They should've done their due diligence beyond seeing the credit score /s
Your statement doesn't make sense to me. If you're claiming that this WeWork situation is similar to someone fraudulently obtaining $20,000 by claiming they are someone else, I have to disagree because there has been no misrepresentations in the WeWork saga that I am aware of.
Then I don't understand how a lender that lends money using the information they requested has been wronged. Even if borrowing money without intending to pay it back is wrong, it's still not relevant to this WeWork situation, so I don't see the point.
> for the people who got laid off, obviously it's very bad, they should sue and they may get something back as settlement.
On what possible grounds? They were fairly compensated and got severance. There is no indication that they were hired under false pretenses. They're angry cause they didn't get to rip off Softbank too.
The employees deserve more cause they didn't get their share of the grift? By all accounts they were well compensated for working in a wealth destroying venture.
To be clear, Neumann's $1.7 billion payout is from SoftBank shareholders. There's nothing obviously criminal about SoftBank's bailout. But I agree SoftBank didn't have to do it. WeWork was ostensibly bankrupt and SoftBank could have dictated pretty much any terms they wanted.
SoftBank is trying to obtain a $2.8B loan for turning around WeWork [1]. Sunk cost fallacy at scale. SoftBank should've burned WeWork and Neumann's comp to the ground, while still paying out severance to the rank and file ("shoot the hostage").
Instead, SoftBank looks incompetent, Son looks incompetent, Neumann walks away a billionaire for delivering nothing of value, and layoffs are still happening. They're doubling down on financially destructive decisions. This is what happens when you have more money and vanity than courage.
They're doubling down to save face. They're betting that WeWork can survive as a much smaller company and that in 5 years people will forget what a disaster this was.
If I owned shares in softbank, I’d be livid about him flushing more money down that hole. It makes me suspect that if WeWork collapses, softbank would go down with it.
I'd argue that they would have been reasonably happy with their salaries (and any other perks) while they were employed (otherwise they would have gone elsewhere). And whilst I've not read the article chances are there will be some severance payout. And whilst it's inconvenient there's a good chance many of them will find employment elsewhere. Lastly, the writing's been on the wall for some time now. I'd like to think that they would have braced themselves for this eventuality.
Look even if you want to be obtuse and pretend its not bad that people got lured into jobs that couldn't possibly last, and may have uprooted families only to get laid off now, and have to uproot them again, even pretending that is no big deal, which it is, but let's pretend.
MAYBE you can feel some emotion for the investors whose money was essentially stolen, by a scam artist?
>MAYBE you can feel some emotion for the investors whose money was essentially stolen, by a scam artist?
Honestly, I think investors were quite aware of what kind of business WeWork is. They were hoping to dump the whole hot mess to public markets and walk away, and they failed.
I don't agree with the person you are replying to either, however I don't feel much emotion for VCs who throw their money around and don't do their proper due diligence.
A property leasing company that sub-leases property owned personally by the CEO is a massive conflict of interest and a huge red flag, how these "professional investors" came to the conclusion that it would be a good idea to invest is beyond me.
> MAYBE you can feel some emotion for the investors whose money was essentially stolen, by a scam artist?
I've got plenty of sympathy for people being laid off I was just putting forward the case that it was good while it lasted. Less so for investors. From the perspective of the latter you win some, you lose some. And any concerns should be raised with people that funded the company to the tune of billions with what appears to be little governance or due diligence.
I feel no emotion for the investors since these are professional VC funds which should be fully aware of the risks involved. However, the situation would have been very different if they pulled out the IPO, cashed out to (among others) individual investors and then folded.
>MAYBE you can feel some emotion for the investors whose money was essentially stolen, by a scam artist?
Please explain what the scam was, and how money was forcefully or fraudulent taken from the investors. Was the scam the public knowledge of a CEO using private jets to smoke weed and vacation with company money and speaking in cultish phrases? Was it the lack of cash flow? Was it the obvious lack of any moat?
Well if you define a market simply as a mechanism of wealth transmission from dumb people to smarter people then I think that Adam Neumann deserves every single cent of 1.7 billion dollars.
> if you define a market simply as a mechanism of wealth transmission from dumb people to smarter
Who defines a market with that kind of cynical, silly definition? I don't think most of us want that kind of "market". And if that's the only way to make Neumann look good, then maybe the reverse is true.
There is a definition of stock market as a mechanism of wealth transfer from active investors to patient/intelligent investors.
Most of the people are jumping one over the other to lose money as quickly as possible on some fantastical promise of profits. Human nature is like that. Intelligent people made money out of this sentiment since money had been invented.
I’m pretty neutral. Why does he deserve it less than the billionaire VCs who didn’t do due diligence before handing it over? I don’t see moral superiority on either side of the table from where I’m standing.
Besides by that principle his employees didn’t deserve to get paid either, since by your reasoning his employees were only paid by the fruits of fraud. That doesn’t make sense to me.
I think you could consider WeWork worse than Thernanos in many ways. Far more people understood what was going on at the highest level, and when all was said and done Elizabeth Holmes walked away with nothing but criminal prosecution. Both screwed their investors, arguably Thernanos did worse, but investors prepare for potentially big losses.
The employees on the other hand are all screwed: at Thernanos Holmes was the most screwed given the potential jail time, but at WeWork Neumann is walking away with over a billion, which is sort of like spitting on your employees.
WeWork (Neumann) preached about the 'We Generation' and 'elevating the world to a new consciousness,' but really his actions were traitorous against the people who made him. Thernanos never claimed the moral high ground, nor did the leader get off like a bandit.
He's not getting that for building fluff. Adam is walking away with 1.7 billion dollars because he fooled whoever is in charge at Softbank into getting into bed with him for WeWork and Softbank decided that that was an appropriate amount to pay in order to get rid of him.
I wouldn't say workers suffered from "dire personal and financial consequences". The employees had good jobs that could help build their career with relatively little risk.
If he was not able to manage that kind of money the first time, he will not go very far the second time. Most likely he will come up with a similar Ponzi scheme and burn all his cash.
> while all the people who helped him grow have dire consequences both financial and personal.
That's definitely a glass half empty way to look at this;
On the other hand, with 20/20 hindsight, knowing it was selling space it rented for a $.80 for $1 of cost, knowing that this hype meant and in a low unemployment time means that these were effectively a jobs program, with above average market salaries, funded by Softbank (and the Saudis).
Also a jobs program for any companies that would have paid $1/$1 of office space but saved the discount.
And, from a being laid off perspective; while it's not fun to have a job end at someone else's discretion, if you worked at WeWork and the August headlines weren't a hint to get the resume ready, I'm not sure what else might; Effectively, 4+ months of notice combined with now actual severance.
The downstream effects of this are probably worse from a capitalism / worker piece; As WeWork reduces leasing office space, buildings or service companies will likely pocket the contract termination fees while reducing jobs/hours of contract staff -- who, unlike wework employees, were closer to minimum wage, may not even have benefits, and definitely won't get severance.
What's not to believe, or be (more than momentarily) surprised by? His behavior is not only perfectly consistent with, but emblematic of the governing ideology of his, and our time:
He'll Epstein his way back into the good graces of the upper classes. Fully expect to see the "Adam and Rebekah Neumann centre for cancer research" or something like that at a major university sooner rather than later.
He really doesn't. For that kind of investor, the portfolio is more about having strategic connections to big players rather than purely making money. I'd imagine the next time Son comes around to ask for money, MBS will have more leverage than he previously did.
Even well beyond the usual norms of Silicon Valley, this dude has lost so many people so much money um, I gotta wonder what sort of security detail he has for himself to prevent some pissed off people from making themselves feel a little bit better.
You could look at this as a shifting of talent. Instead of those 2,400 people wasting their time managing short term office rentals for yuppies, perhaps they'll move on to more meaningful work! Some will start companies, some will join companies that provide more value to society, some will spend time with their families.
Which new reality? The one where most of the population can read and write and where most hold degrees and diplomas? This isn’t the 1900s industrialization era, where employees were picked out of the farm fields to work in factories, having never gone to school. People are smart these days, layoffs aren’t as destructive as they used to be.
I mean, I don't know you personally, but if those are your priorities, then there are plenty of big stable boring companies to work for. Maybe apply at one of those instead of wildly unprofitable startups with idiosyncratic founders?
