Same way I would describe Uber. SoftBank trying to muscle their way into ownership stakes by playing games with valuations and squeezing out the founder.
The greater fool theory seems to apply. Masayoshi knew all the numbers, he thought Neumann was a good hype man to unload WeWork unto less sophisticated investors -- when that didn't pan out he tried to make him the fall guy and ended up holding the hot potato.
Uber and WeWork are real companies, still around, providing actual services to actual customers. Both of their founders walked away billionaires, so what?
SoftBank might have to write down their imaginary valuations as the public markets didn't bite into their attempted flip.
The companies might survive long into the future as viable businesses with more realistic market caps.
Firstly, it's not just a totally neutral act to hatch a plan to juice the numbers to a ridiculous extent and try and dump it onto public markets before it explodes. That's literally an attempt to scam you out of your pension fund.
Secondly, you know that phrase "don't break the law while breaking the law", Adam wasn't just building this massive ponzi, he was self-dealing left and right, buying artificial surf beaches, selling his own trade mark back to himself, getting wework to rent offices that he owned, getting Softbanks other entities to rent huge amounts of Wework space to massively juice the numbers in Japan.
The only reason WeWork was kind of acceptable is because he was mainly burning Saudi billionaire money, but make no mistake, the entire plan was that he'd become a billionaire whilst everyone else's pensions would take the hit, and even having failed he walks away a billionaire.
I think it is really interesting that their is a strong consensus that WeWork is less admirable because it was burning capital for the founder's benefit, while Uber is OK because it burnt capital* for the benefit of the VCs that were able to sell it off to the public market. In the first case the VCs were burned, in the second case Joe Public (and his insurance fund/ his retirement fund) was burned.
* Uber is a valuable company, but I think it is safe to say it will never be profitable enough to justify an $82b valuation in 2019. Some day it will make FASBY profits purely from operations without having to sell a subsidiary that they built or invested in with the huge amount of capital they received.
The big difference is that WeWork spent a bunch of time arguing that you shouldn't value them based on the actual financials of their business. Whereas Uber pursued a risky but honest strategy of winning market share with the intention of recovering margins once they were the incumbent. The whole community EBITDA thing was just a transparent attempt to trick people into thinking there was financial value in the business when there wasn't. And to be clear, Neumann's new start up is trying exactly the same thing, waving his hands in the air about how fulfilling his tenants are going to be plunging their own toilets and how that will create financial value.
> Firstly, it's not just a totally neutral act to hatch a plan to juice the numbers to a ridiculous extent and try and dump it onto public markets before it explodes. That's literally an attempt to scam you out of your pension fund.
Sadly that is the entire premise of the Softbank Vision Fund and many others like it.
Masayoshi Son is now personally on the hook for about $5.1 billion on side deals he set up at SoftBank Group Corp.
..As SoftBank grew into a global investor, Son argued the company couldn’t keep talent unless executives were allowed to cut side deals that tied compensation to the company’s performance. That’s exposed him further to the current market downturn.
> the entire plan was that he'd become a billionaire whilst everyone else's pensions would take the hit, and even having failed he walks away a billionaire.
Is that so? When do you imagine Adam Neumann hatched this scheme? At the very conception of WeWork in 2010 when nobody would invest? Truly a supervillain.
Or perhaps four years later when WeWork was "the fastest-growing lessee of new office space in New York" and was on track to become "the fastest-growing lessee of new space in America." By which point everybody was calling him a genius visionary? I don't recall anybody complaining at that point that this company is doomed to fail or anything like that. It appeared to be on an upwards trajectory.
Perhaps he turned to the dark side when SoftBank showed up and demanded they grow the company even faster by throwing money at them? And what was Masayoshi's plan when he invested?
> and even having failed he walks away a billionaire.
What did he fail at specifically? Masayoshi tried to squeeze him out of his own company and Adam called his bluff. So Masayoshi got the press to drag him through the mud and trashed the valuation further in the process. Then covid happened. Had Masayoshi succeeded nothing would change except SoftBank owning a larger percentage. I don't see why you favor one party over the other.
My pension was never invested in any of this and neither was yours. This is as you noted, Saudis, Chinese, Koreans, and JPMorgan attempting to simply buy their way into what seemed at the time a very promising market with their overwhelming cash firepower.
Why you should feel sorry for them is beyond my comprehension.
It's wild that you seem to be giving Neumann a free pass here. He was the founder and CEO of a company that lost 10s of billions of dollars and was eventually forced out for non-performance (and borderline fraudulent activity) so the adults could step in and salvage what was left of the company.
I don't feel sorry for his investors either. You are needlessly painting this situation as one side "good" one side "bad" when "all sides bad" is much more honest.
> By which point everybody was calling him a genius visionary? I don't recall anybody complaining at that point that this company is doomed to fail or anything like that. It appeared to be on an upwards trajectory.
I recall quite a bit of skepticism at the value add of a middleman leasing and then subletting commercial office space, something with zero network benefits and no barrier to entry. Especially on HN, I would even go so far as to say it was widely expected to fail.
> Or perhaps four years later when WeWork was "the fastest-growing lessee of new office space in New York" and was on track to become "the fastest-growing lessee of new space in America."
Any company can grow very quickly if they give away dollars for fifty cents and have a shitload of dollars.
At running the god damn company. Honestly, are we going insane here? He took tens of billions of dollars and created a company that was worth maybe $5Bn. Yes! It grew incredibly quickly, it's amazing how many customers you can acquire and deals you can sign when you're overpaying for leases and renting out space at a loss. He created a terrible business that was burning through cash, desperately hoped he could dump it on unsuspecting pension funds and when he couldn't the whole thing blew up in his face. But not before lining his own pockets every step of the way. Even, once the company was going bankrupt, he insisted on a generous payout to walk away from the company he mismanaged into failure. He wasn't rewarded for success, he was paid out because he had controlling shares, and once again, he had those shares because he was running the business more as a scam than an ongoing concern.
Exactly. Listening to Marc's discussion about this reminds me of him wanting to jump into the space and see this calculation playing out in his head where cheap-money >> Adam's self-dealing. No surprise this deal happened right at the time when the high-interest environment was starting to kick in.
I don't agree with your analysis about the relative culpability of Masayoshi and Neumann, although I agree that both are culpable, but you are missing the point.
I am not talking about WeWork going from a large valuation to a small one, where you might argue, not that value was destroyed (by WeWork management or whoever), but simply that the large valuation was erroneous, and the later, smaller valuation reflected the true value all along, and so no value was destroyed.
Rather, the actual money paid into the company by investors in cash, was much larger than the later valuation of the whole company.
If investors, including Son, paid WeWork large amounts of money, for good or bad reasons, it was always 100% within the CEO's control what that money was spent on. Neumann could have hoarded that money as a war chest, or could have spent it buying something valuable or building something which could be sold profitably. Instead it was wasted (much of it before Softbank's involvement). There is literally no way of blaming investors for this.
> it was always 100% within the CEO's control what that money was spent on. Neumann could have hoarded that money as a war chest, or could have spent it buying something valuable or building something which could be sold profitably. Instead it was wasted (much of it before Softbank's involvement). There is literally no way of blaming investors for this.
I can see how you might think that if it was some normal functioning tech company. As a matter of fact here it is simply not true. This was a real estate play and everybody involved who invested knew exactly what he is going to do with the money -- which is to expand further and faster -- in fact they demanded this and conditioned their investments on it.
No "war chest" was possible here, ha. All of these people though the same as with Uber: grow as quickly as possible even if it means bleeding money, corner the market, IPO as the winner, hope retail investors prop it up long enough for the company to start eeking out profits and pay down the accumulated debts.
From the founders perspective it was like taking money from a loan shark essentially. The only surprising thing about it all is that he made a deal with the devil knowing he was getting played and managed to end up with anything.
The greater fool theory seems to apply. Masayoshi knew all the numbers, he thought Neumann was a good hype man to unload WeWork unto less sophisticated investors -- when that didn't pan out he tried to make him the fall guy and ended up holding the hot potato.
Uber and WeWork are real companies, still around, providing actual services to actual customers. Both of their founders walked away billionaires, so what?
SoftBank might have to write down their imaginary valuations as the public markets didn't bite into their attempted flip.
The companies might survive long into the future as viable businesses with more realistic market caps.