As the fallout of WeWork being bailed out played out in the public eye it was obvious that there were tremendous problems at the company. But this article really goes into detail to show the true dysfunction that existed.
I mean a CEO that skipped board meetings entirely? An entire board that basically sat quietly as valuations grew ever further out of touch with reality and that the first time they brought it up as an issue was already after the failed IPO had been halted, really is something straight out of an episode of Silicon Valley on HBO.
The only reason that happened was because Masayoshi Son pioneered the idea that you could make any idea a success if you gave the company enough funding. Obviously, that turns out to a total disaster of an idea. The reality is that you still need to make customer satisfaction and value the number one priority. You need to make a product or service that people want, need and are willing to pay for (or allow you monetize it profitably). Of course, that turns out be very very hard to do in practice so it is understandable why Son was looking for a shortcut.
> An entire board that basically sat quietly as valuations grew ever further out of touch with reality and that the first time they brought it up as an issue was already after the failed IPO had been halted
Um, like, duh.
The whole point of that IPO was to leave the public holding the bag. If Adam Neumann had only been slightly less of a douchebag, it might have happened.
Banking on the public being stupid is not a good idea. Wisdom of the crowds is real. As long as there are regulations about financial reporting, these false valuations will come out eventually.
They needed to go all in, and commit fraud like Enron, if they really wanted to leave the public holding the bag.
> Banking on the public being stupid is not a good idea. Wisdom of the crowds is real.
Hardly.
It wasn't the fact that WeWork had horrific fundamentals that killed the IPO--look at Uber and Lyft. What killed the IPO was all the reporting on how Neumann was looting the company in just incredibly douchey ways.
If Neumann had been a touch more sophisticated or slightly less brazen in looting the company, the IPO probably would have succeeded.
It's apparently a Terry Pratchett quote: "The intelligence of that creature known as a crowd is the square root of the number of people in it."
A sixteen-year-old newsgroup poster explains it as follows:
> Sorry to disagree, but I thought the quote worked extremely well the first
time and on further reflection, still do. I think it's very apt and I would
hesitate to say that perhaps you didn't see the intended purpose on first
reading.
> Terry talks about the crowd as a creature, therefore implying one single IQ.
So, to use your own methods, let's say a crowd of 100 people would have an
IQ of 10 - not each, but altogether. Each person would have an IQ of 0.1
if you wanted to break it down, although to do so would be completely
counter-productive, because we are talking about a crowd and not a single
person. Once you start talking about single people, they are no longer part
of the crowd and their IQ would revert to normal status. The crowd is a
whole, and the description provides a picture of it being a single organism
with one purpose (to imply the fervour that people get swept up in, in
crowds, e.g. race riots, Paedophile lynchings, vigilantes that one person
would not do)
> I think the purpose behind the description was to provide the metaphor of a
crowd being a big, dumb, violent animal composed of intelligent, reasoning
people - a sort of paraphrase on "the sum is greater than the parts".
As an aside, I find it amazing that I was able to go from a paraphrased description of a quote to an in depth discussion of the accuracy of the quote with suggestions for alternative functions. Despite all its flaws, the hacks upon hacks upon hacks we call the internet is incredible when you step back and consider it all.
An interesting idea, but taken literally, it implies that any crowd larger than 22,500 people (150^2) has genius-level intelligence, which is kind of laughable.
The lower boundary of the 99 percentile goes up as 1/sqrt(N) and approaches the average member intelligence, but never reaches that level. At the same time, the upper boundary of the 99 percentile goes down at the same speed. However the number of super smart members, with IQ higher than say 160, grows linearly.
I agree completely, and I doubt Pratchett conducted much research to derive that algorithm. He might even be wrong about the constant factor at lower levels.
I think there is some math behind that statement. The average IQ of a crowd remains the same when the crowd grows, but the variance of that IQ, or more precise, the standard deviation, is stddev(crowd) = stddev(person) / sqrt(N). This is the central limits theorem. Now, if we assume that the intelligence of a crowd equals the intelligence of its most stupid member, and translate the latter into the lower boundary of the 99 percentile, we'll indeed observe how this lower boundary goes up as sqrt(N).
>>Banking on the public being stupid is not a good idea.
By the time public wakes up, the thinking goes, we've already cashed our chips. How many investment firms buy solid businesses, only to chop them up, milk them dry, load with debt and then IPO?
This is why Silicon Valley stalwarts like a16z are pushing for an "alternative" stock market. They need a less transparent place to dump this stuff on the bagholders.
Edit: It's not fraud, they disclose it all but a lot of people are fooled by the low IPO price, even though the business is loaded with debt and has a gazillion shares issued.
I've been wondering lately about the similarities between startups and the movie industry. Most movies don't make a profit. But everyone involved makes money. One wonders what's in it for the investors using their own money. Along with the suspicion that making a profit isn't 1st on the list.
>>Most movies don't make a profit. But everyone involved makes money.
They do this to screw the small fish that might have a % agreement and/or for tax purposes. So ABC Movie makes no money for Disney but (say) Disney Productions made $XX million to produce it, Disney Promotions $XX to promote it and so on. In the end it all went to Disney' pockets, but the movie lost money.
Why does the article say, "It was a watershed moment for Silicon Valley"? WeWork was started in NY, has a bunch of facilities in SF but in SV just one in RWC.
I think you're underlining OP's point? WeWork is head-quartered in NYC but does some biz around the world and is called SV. Hollywood is the location of many of the headquarters of movie studios, though they do work around the world.
Why isn't the DOJ looking into him? He should be brought up on charges just like Elizabeth Holmes. There has to be a clear fraud cause in here somewhere.
He can't be allowed to get away with what he has done, he needs to be stripped of his money and spend some time in jail to act as a deterrent for others who would seek to do the same.
He didn't really commit fraud, though. He really did create a successful business. He didn't defraud anyone, he just convinced supposedly smart investors that he was somehow going to generate billions in profit from a company that just didn't have the business model for that.
He found a little glitch in the system, and honestly, that's fine. This is how the system learns, and hopefully fewer investors will waste their money on someone like him in the future. But at the end of the day, what he did wasn't really illegal, and it shouldn't be.
The bare essence of what happened is he asked some supposedly very smart and sophisticated people to give him billions of dollars, and they said "we like you, so yes". There's nothing intrinsically wrong with that, it's their money to throw away how they please, and they should have known better.
> In late 2015, WeWork was completing an investment round led by Beijing-based Hony Capital Ltd. that pushed its valuation to $16 billion. Mr. Neumann invited its CEO, John Zhao, to a party at 110 Wall Street, where WeWork was about to open its first WeLive dormlike apartment building. Toward the end of the night, Mr. Neumann led others to the roof of the 27-story building. There, guests passed around tequila shots. Mr. Neumann picked up a fire extinguisher and set it off, spraying Mr. Zhao and others with white foam.
> The deal went through. Mr. Zhao joined WeWork’s board in July 2016.
Spraying potential investors with a fire extinguisher... now there's a fundraising technique I won't be trying.
Probably only works if you're a 6'5, enigmatic, charismatic, handsome, youthful "Visionary" who is married to Gwyneth Paltrow's cousin. I'm just a 5'9, balding, middle-aged coding schmuck who's married to a school nurse.
Nothing! My wife loves her job and I love my wife. :) I'm just trying to point out that being married to a school nurse doesn't carry the same cache as being married to Gwyneth Paltrow's cousin.
Particularly for foreign investors, having a direct family connection to a US celebrity is a huuuge deal. Also she runs a $250 million consumer direct brand so I'm sure they were thinking all kinds of GOOP cross products and promotions in the WeWork locales etc.
Matt Levine wasn't so far off with his characterization of the Son Masayoshi Adam Neumann conversation:
"""
Son: What does your company do?
Neumann: We lease office buildings, spruce up the space and sublet it in small chunks.
Son: Hmm I invest in visionary tech stuff, this doesn’t really sound like my thing.
Neumann: Did I mention we are a state of consciousness. A generation of interconnected emotionally intelligent entrepreneurs.
Son: Okay yeah that’s more like—
Neumann: The world’s first physical social network. We encompass all aspects of people’s lives, in both physical and digital worlds.
Son: You’re crazy! I love it! But could you be, say, ten times crazier?
Neumann: You’re going to invest $10 billion in my company, which I will use as kindling to light the whole edifice on fire, and then when we are both standing in the ashes you will pay me another billion dollars to walk away while I laugh at you.
Son: All my life I have dreamed of meeting someone as crazy as you, but I never really believed this day would come.
Neumann: I’m gonna use your money to buy a mansion with a room shaped like a guitar, where I will play the world’s tiniest violin after all your money is gone.
Son: YES PUNCH ME IN THE FACE.
Neumann: Also I’ll rename the company “We” and charge it $6 million for the name.
What I find the most depressing in this saga is that all the people mentionned are now sipping champagne from their 5 star hotel room. All are billionaires/millionnairs thanks to a fraud. While good/normal/working people are just trying to pay their bills.
How do you build a society where lying/cheating/bullshitting is more valuable to the community than working ?
We tend to focus on juicy scandals. In this case, it was/is terrible conflicts of interest combined with a "pump-and-dump" mentality that exit focused startups are prone to during boom times.
OTOH, the "system" worked, and wework investors got "busted" before IPO. It never reached the stage where pros and insiders cash out to public investors.
In retrospect, investor cash was spent/wasted by operating expenses... Operating expenses are salaries and such. It may be wasteful, but the losers are risk tolerant investors so c'est la vie.
In a "dot-com" scenario, a much larger amount (market cap) goes from public investors to private ones. If wework had succeeded in getting to this stage, it would be aweful.
Imo, we need more risk, not less. Professional risk investors though, they are too good at offloading that risk to where it isn't supposed to be.
Most of the institutional fixers (large funds, banks, regulators, sec, etc) suggest "fixes" that reduce risk. This is not a good thing. We need risk, and that includes a risk of shenanigans. I'd rather have a public blowup than an even more conservative professional investor class.
Adam Neumann is now a billionaire. In the meritocratic, rational-markets mythology of how many people believe the system works, you're only supposed to get a billion dollars if you create value for a lot of people. After 18.5 billion dollars of investment, thanks to Adam Neumann's leadership, WeWork is now worth 8 billion dollars. So rather than creating value, he actually destroyed a shitload of it. And now he's richer than you or I will ever be.
You're also ignoring one group of victims here. I wonder how the current and former employees of WeWork would feel about your assessment that it's "not so bad"? Their labor was no doubt compensated largely in the form of now-worthless equity grants. "Sorry you got screwed but this is necessary for the health of the investor class. Won't somebody please think of the investor class?!" How totally fucking odious.
I don't know how you look at WeWork and arrive at the conclusion that professional investors are at risk of becoming too conservative. Clearly, venture capital has stopped functioning with any sort of discipline or rationality if it can invest in companies like WeWork and Theranos which later turn out to be obvious mirages of pure ineptitude and greed.
Well, all societies are bound to collapse, and that's probably one reason. More tactically, the wealthy are often polite, non-violent, and spend a lot of money in their near vicinity, and this serves to completely insulate them from the social/emotional effects of how they acquired the money. Nasty looks, shunning, or the threat of it, goes a long way toward enforcing social norms.
Another issue is the often jaw-dropping cynicism of a business world so obsessed with doing things, that any concern with how they are done is totally ignored. It's a world in which "cheating" loses its meaning; anyone who is incensed at unethical, or even illegal (but not enforced) behavior is a naive rube. Ultimately, I think this happens because of a catastrophic failure of the justice system.
The numbers in a billionaire's net worth include no contextual information - nothing about the lives damaged, the jobs lost, the opportunities eliminated, the time wasted, the scamming, cheating, and manipulation, the ecological support structures destroyed.
Business and personal accounting systems deny, ignore, and suppress those contextual details. So does the "investment" industry. And that makes a mockery of "price discovery" because the nominal market price always excludes critical externalities.
It's possible to become extremely rich without negative externalities. It just happens to be incredibly difficult. The looser your ethics, and the less empathy you have for competitors and victims, the easier it gets. It's a feedback loop which rewards unethical behaviour.
Essentially, money itself is a form of morality-laundering. It's an integer when it should be a complete trace through a common contextual event map.
Indeed, and what makes it interesting is that the information can (and should) travel in both directions: just as I want to know what my dollar has done when I buy an apple (e.g. I paid starvation wages to farmers and justified clear-cutting of a piece of rain-forest, gave political contributions to some dictator, etc) and the vendor gets to know how I earned that money (e.g. an office job where I make software content that tricks users into giving up more personal info, ultimately to get a higher ad price).
You run into a technical issue in that you can trace a dollar indefinitely in both directions. But perhaps there's a solution, like some sort of decay.
I don't know if you've ever seen "The Good Place" but it's a driving plot point of a recent season that it's almost impossible to be "good" because every action you take has all these unintended consequences/ supports all these negative systems.
> More tactically, the wealthy are often polite, non-violent, and spend a lot of money in their near vicinity, and this serves to completely insulate them from the social/emotional effects of how they acquired the money. Nasty looks, shunning, or the threat of it, goes a long way toward enforcing social norms.
Neumann and his wife have been getting rejected from several condo boards in NYC since the scandal came out:
Did you mean to say “less valuable” in your question? Because if you didn’t, well we can study recent history to get an answer because we’ve already built that society.
What complicates the picture though is that these lying/cheating/bullshitting financiers work some of the most hours in society. It’s a weird new phenomenon where the very richest and the very poorest are all working very long work weeks.
The poorest are cleaners, care workers, and teachers though, and then there’s these rich people pulling off scams, losing money and contributing nothing of value, yet still getting paid a shitload.
I’m reading “Liar’s Poker” now, and man it is awful learning the anti-social attitudes of these workplaces and knowing that this book then became something that further promulgated those attitudes.
I meant more valuable in the sense that these people who are not doing their part in improving society seem more valuable (read, make more money) than people who do.
How do you raise your kid not to cheat or lie OR ELSE he will live a life of leisure.
How can these people not be stripped of their assets and left to rot in a vulgar jail ? Why are we rewarding these destructive behaviour ?
I've read a lot of these post mortem articles. They all feel like the author wished he was Neuman, wished he got away with the millions.
I am a software engineer, have been for 20 years, I always felt I was contributing to society. I've build things that make people's life easier (in exchange for teaching my kids, baking my bread or treating me when I'm sick).
These predatory people do not bring anything to the table but are regarded as gods.
>How do you raise your kid not to cheat or lie OR ELSE he will live a life of leisure?
An interesting problem. The answer is partly that there is more to life than money - and as another poster mentioned, there's really not much leisure involved. The cheaters legitimately work very hard!
Essentially, I think the Gervais principle [1] is largely true. And therefore it's fine, and from a spiritual perspective, strictly better, to be a loser. (And I don't think there's any harm in trying to find an exception to the principle - tilting at the windmill of an honestly made fortune!)
+1 for the Gervais principle. It's a short book that makes you depressed for a week, but also makes it very clear why our societies work this way. The book doesn't say anything new, but it explains with examples a few simple facts about us.
However, the Gervais principle book is a very shallow version of lamrim that aims at explaining how the real world works. It also puts people into 3 categories: the clueless majority driven by forces, the small minority that's trying to escape these forces and the those who've largely escaped them and are now free. The sociopaths from the gervais principle are on the right track in general, but they make a common mistake on this path that lamrim discussed at length and so they slide into the nihilism dead end.
> However, the Gervais principle book is a very shallow version of lamrim that aims at explaining how the real world works. It also puts people into 3 categories: the clueless majority driven by forces, the small minority that's trying to escape these forces and the those who've largely escaped them and are now free. The sociopaths from the gervais principle are on the right track in general, but they make a common mistake on this path that lamrim discussed at length and so they slide into the nihilism dead end.
Bingo. That's also the best explanation of the concept I've seen.
It's a good read, in an entertainment sense, and there are some lesson to be gleaned -- but the same is true with the Bible, the Koran, or the Rig Vedas.
There is more to life than money for people who already have enough money. For the billion others, no.
And let's be clear, these millions did not get created out of thin air. They are the product of the real work of real people.
And no, bullshitting your way for a mere 5 (?) years of your working life cannot be compared to the 40+ years of work of anyone else.
And no, putting a name on a principle does not make it common sense.
But yes, making a small fortune from your hard work and genius is totally acceptable. Fair and square
I'm a bit confused, and a little saddened, by your tone. Not to mention content (creating out of thin air? working for only 5 years? Gervais principle is common sense?). It's like you're responding to a different comment!
But they are created of thin air. Govs print more money to keep up with population and productivity growth. How these new money are distributed is a different question. The only thing that makes these money worth anything is a general consensus to accept them for some real work. And that consensus is driven by the desire to own things which is fueled up by the media. If everybody chooses to become a monk, these billions won't be worth anything. Overall, riding this wave of human greed isn't a bad thing: all these things around us, built by capitalism, allow us to have at least a few hours of free time per day. Before that people had to work 5am - 11pm to grow and hunt food.
Because plausible deniability. It is obviously difficult to create a legal system that could prosecute any of the executives. It’s obvious that all of the well seasoned executives were hoping to pawn this off into a bigger fool, but can you prove it in court? And should that even be illegal?
All that happened was a bunch of rich people paid for a guy to live like a king. They certainly suffered financial losses, even though they may still be rich.
A bunch of rich people lost money gambling on a guy. Laws requiring transparency before access to public markets brought it to down to earth. It seems to me like the system worked well.
> It’s obvious that all of the well seasoned executives were hoping to pawn this off into a bigger fool, but can you prove it in court?
The 'wealthy people' involved could sue in civil court and win based on a "clear and convincing" evidence standard and a proven pattern of bad behavior. You'd imagine it'd be worth a try. It would also be a reputational matter for the institutional investors who put money in the venture - sue so that people are unambiguously deterred from trying stuff like that in the future.
This would make sense if it was a closed circuit. But these millions only exist because of the real work of others who created the added value. They did not come out of thin air
I'm pretty sure all of them worked pretty hard their entire lives. The possible exception being Neumann, who is just a lucky guy really. But yeah programming ain't glamorous. Get into some other profession if you have what it takes. it could be worse. You could be baking bread in one of those cold baker facilities, getting up at midnight for half the money you make now.
Either HN bans paywalled links, or it bans downvoting people asking for a back channel to the linked content. Seeing this same pattern every time is getting really boring.
I get it. I agree. Content isn’t free. But I can’t sign up for everything, and this site is meant to be an aggregator. There’s no point aggregating content that we can’t see.
If there's a workaround, it's ok. Users usually post workarounds in the thread. This is in the FAQ at https://news.ycombinator.com/newsfaq.html and there's more explanation here:
Note this bit: It's ok to ask how to read an article or to help other users by sharing a workaround. But please do this without going on about paywalls. Focus on the content.
I mean a CEO that skipped board meetings entirely? An entire board that basically sat quietly as valuations grew ever further out of touch with reality and that the first time they brought it up as an issue was already after the failed IPO had been halted, really is something straight out of an episode of Silicon Valley on HBO.