Adam Neumann, the founder of WeWork, was able to convince investors that his business was much bigger than it actually was. Photo / Getty Images
The most remarkable fact about WeWork isn’t that an exaggerated take on a business as old as office leasing ended up imploding; is that Adam Neumann, his messianic co-founder, convinced so many people to
so long that his unoriginal, loss-making start-up could change the world – and the laws of business valuation.
Before the near collapse that cost the Israeli entrepreneur his job, turned his motivational t-shirts into Halloween costumes and brought his business weeks after running out of cash, Neumann had managed to raise more than 10 billion US dollars with valuations peaking at 47 US dollars. billion.
To believers, he was the model of a visionary founder: a hyperactive and pushy immigrant disrupting one of the world’s largest asset classes, convincing his followers that they were rethinking the job itself by paying more for it. for tiny workspaces.
A WeWork building – with its meditation rooms, pool tables, vegan food stalls, and sparse coffee aroma – could make insecure freelancers feel like they’re on a Google campus. Neumann had captured a time when the gig economy looked like freedom, Silicon Valley looked cooler than scary, and thousands of people laid off during the financial crisis were starting again.
Benchmark Capital, the venture capital veteran who funded eBay and Instagram, bought what Neumann was selling, as did the Harvard, Fidelity and Jack Ma endowment from Alibaba. More importantly, of course, there was Masayoshi Son, the boss of Saudi-funded SoftBank who liked to throw more money at the founders than they asked for and then berate them for not thinking big enough. .
“These investors were considered smart money,” Eliot Brown and Maureen Farrell of The Wall Street Journal remind us in The Cult of We. It’s a retelling of a story Reeves Wiedeman told last year in Billion Dollar Loser, which brought out Neumann’s ability to flatter such audiences and tell them what he wanted to hear.
Brown and Farrell’s most memorable contribution to the oars of WeWork’s previous cover was their September 2019 report that during Neumann’s attempt to go public that year, he hid a cereal box full of marijuana on it. a cross-border private jet flight, and had smoked so much. that the oxygen masks fell off. If investors still needed an excuse to skip the initial public offering, this reminder of Neumann’s thoughtless excesses provided one.
With investors telling him he’s a visionary, it’s almost understandable that he keeps a barber on staff and snowboards to work.
Having added to the stack of WeWork stories myself, I witnessed Neumann’s flattery. As a colleague and I pushed him on his business model in his serene New York office in May 2019, his answers were preceded by “great question … great question … you hit all the points. “.
When we pointed out the conflicts of interest associated with his ownership of some of the buildings WeWork leased, he suggested that the FT should task companies with asking its reporters to prepare CEOs for the tough questions they would face when doing so. an IPO tour. (He did not seem to see that this in itself could create a conflict of interest.)
I wondered if another book might shed new light on one of the most scrutinized CEOs of recent years. Yet Brown and Farrell have unearthed dozens of new stories, adding color to a portrait whose outlines are already well known.
At an impromptu office party, they report, Neumann and his colleagues lobbed the expensive tequila bottles they had been drinking from, deliberately smashing the windows separating his private office from the offices outside. In another tequila-fueled event, Neumann allegedly sprayed a fire extinguisher on John Zhao of Hony Capital, one of his investors. And in Hong Kong, the writers capture Neumann stumbling into a smelly private club, blasting Jay-Z on a Bluetooth speaker and shouting, “We’re conquering the world!”
More concretely, they show how a decade of low interest rates and plentiful private capital enabled booming startups like Uber, Airbnb and WeWork to avoid public market disciplines while private investors bore their losses. for years.
When a founder has billionaire investors and fee-hungry advisers telling him he’s a visionary and calling his creation a mythical unicorn, it’s almost understandable that he keeps a barber on staff, snowboards to work behind. a colleague’s Jeep in winter or with his Jet Ski surf coach allows him to go on the best waves. (“I don’t have time to paddle,” Neumann reportedly explained.)
The line between those chasing a world-changing dream and those scrambling to sell a story has always been very thin.
Brown and Farrell do not insist on this point, but such nonsense seems even cruder when paired with Neumann’s claim to “raise the consciousness of the world.” When he tells a staff meeting that WeWork needs to lay off 70 people, then turns to a performance by a Run DMC hip-hop veteran, the reader wonders how that raised someone’s consciousness. Ditto with the millions of dollars in stocks he was selling telling investors to buy.
How did Neumann fare? The short answer is the capital and coverage provided by SoftBank’s Son. The Cult of We provides a useful reminder of how the billions that Saudi Arabia’s Crown Prince Mohammed bin Salman pledged to the SoftBank Vision Fund dug a hole in Son’s pocket when he decided to donate $ 4 billion. dollars in a company that had previously only raised $ 1.7 billion.
More than 18 months after Son reduced SoftBank’s valuation of WeWork to $ 2.9 billion, it’s clear no one has done more to inflate the WeWork bubble than the inventor-turned-telecommunications mogul who nearly lost. his first fortune in the dotcom bust two decades ago.
Son has already predicted that Neumann’s company could be worth $ 10 billion by 2028 (making the $ 96 billion valuation of Goldman Sachs’ pre-IPO pitch deck seem almost modest). But many other investors were just as willing to indulge in what Brown and Farrell call “an extended adolescence” for the spendthrift founders they backed. When Neumann bought a company that made wave pools for surfers, for example, no one blinked.
The WeWork bubble has been inflated not only by an overabundance of capital, argue Brown and Farrell, but by fear of missing out. Such a “fomo” once haunted cautious mutual fund managers like T Rowe Price and Fidelity and seasoned bankers like JPMorgan’s Jamie Dimon, who needed the bragging rights that come with advice to hot tech companies (or budding technology).
Those who participate in such bubbles “are often intelligent – even aware of the madness,” they observe. For a corporate cult to be successful, in other words, its early adopters must believe that the cult leader can recruit enough true believers for them to profit.
The failed IPO proved that Neumann couldn’t. His early enablers may have dismissed his craziest habits as a visionary privilege, but public markets saw how quickly his excesses burned through the billions he had raised.
The pride and excess that The Cult of We presents as a parable of the 21st century economy may already look like relics of a pre-pandemic world. Yet, as we watch investors pump up memes stocks and special-purpose acquisition companies (including one through which WeWork now plans to go public at a $ 9 billion valuation), perhaps the lesson is that the line between those who chase a world-changing dream and those who scramble to sell a great story has always been extremely thin.
Once the marijuana haze dissipates, it becomes clear that WeWork’s story is timeless, even if this version involves a lot more weed and tequila.
– Financial Times
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This notice was published: 2021-07-19 01:44:45