WeWork's Titanic Tumble: More Distressed Than a Hipster's Jeans

Oh, WeWork, how the mighty have fallen

 Remember when We Work Was the shining star of the startup world, the glittering emblem of the new era of work?

For four years, this real estate play-pretend tried to rebrand from a rowdy, beer-guzzling co-working space into a serious, money-making business. I

It even swapped out its charismatic but slightly crazed co-founder Adam Neumann with a real estate rescue ranger.

And what did it get them?

 A company bleeding cash faster than a broken ATM, that's what.

The story was grand, wasn't it? Expand like there's no tomorrow, fueled by the ever-flowing river of venture capital.

Goldman Sachs’ valuation of WeWork at close to $100 billion now sounds like a punchline to a bad joke.

What's profitability when you've got growth? But the party has finally ended, and someone has to pay the tab.

A company teetering on the brink, its bonds more distressed than a hipster's jeans, and a future with a "substantial doubt" tag.

WeWork's future looks grim, and all the strategy adjustments and leadership changes seem like rearranging deck chairs on the Titanic.

Here's to the fall of a giant, a stunning tumble that feels like a cautionary tale they'll teach in business schools, right between the chapters on "how not to run a company" and "don't count your unicorns before they IPO."

There’s been only one winner in the WeWork Saga: Charlatan CEO Adam Neumann.

Here’s my take on the WeWork saga from an earlier edition of The Global Guru this year:

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The Mind-Boggling Chutzpah of WeWork’s Adam Neumann

I walk past a WeWork Office several times a week on my way to my son's Martial Arts Academy.

He always checks for the latest bizarre artistic bauble that dominates the office's entryway.

I never fail to remind myself (and then promptly forget) to look into whatever happened to WeWork founder Adam Neumann.

Last week, this random tweet came to my rescue.

After over a decade of scamming investors and driving WeWork into the ground, Adam Neumann is now worth more than the company he founded.

Adam Neumann may not be in the same league of P.T. Barnum showmanship as Elon Musk…

But he’s playing the same game.

And it’s a game that behooves all investors to understand.

The WeWork Saga

WeWork founder Adam Neumann’s long, flowing hair, insouciant self-confidence, and commitment to “elevate the world’s consciousness” convinced investors to overlook his company's conventionally mediocre business model.

Instead, WeWork was a “tech company” that shifted the paradigm and redefined how we all work.

Neumann’s salesmanship convinced SoftBank to invest in the company at a valuation of $47 billion.

That’s quite a feat for a company that generated $1.9 billion in losses on revenues of $1.8 billion in 2018.

Later, Goldman Sachs valued WeWork as high as $96 billion.

That was an astonishing 25 times the market value of IWG (LON: IWG), a rival with bigger sales – and a profit to boot.

Then, the bubble popped.

In 2019, WeWork pulled its first go at an initial public offering (IPO). It was unable to secure even a $10 billion valuation.

That was already less than the $12.8 billion it had raised from investors since 2010.

Soon, many of Neumann’s shenanigans came to light.

My favorite story?

Neumann registered a trademark on the commercial use of the word "We.” He then charged the company $5.9 million for the word when it was used in the “We Company” branding.

After the failed IPO in 2019, WeWork teetered on the edge of bankruptcy.

In October 2019, WeWork’s biggest investor, Softbank, stepped in and agreed to throw good money after bad.

Softbank even gave Neumann a $1.7 billion golden parachute to step down from his position as board chairman at WeWork.

It was worth paying billions to make Adam Neumann away.

Silicon Valley Investor Psychology Explained

I have a confession to make. I find “charismatic” leaders like Neumann irksome.

Call me old-fashioned. But smoking pot on your private plane is not cool when you’re running what you think is a $47 billion company.

Still, the world is chock full of charlatans foisting their wares on their unsuspecting marks.

So, the blame for Neumann's rise, fall, and remarkable rebound rests firmly on the shoulders of Silicon Valley’s ostensibly sophisticated venture capitalists.

Now, the VCs on Sand Hill Road aren’t stupid.

They just think about investing differently from the rest of us.

The VC crowd is always on the look out for the next Google or Facebook.

Specifically, VCs want to put money behind companies and individuals bent on disrupting existing industries.

They want to be wowed by a bold vision rather than be persuaded by a sustainable business model.

Profits can come later.

Traditional investors want to understand a company’s eventual path to profitability.

But VCs care about cornering massive addressable markets.

And in the case of WeWork, the results of the VC’s approach have been catastrophic.

Abundant venture capital allowed WeWork to stay private for over a decade.

That’s almost three times longer than the average tech startup.

No wonder WeWork remained an immature company run by self-absorbed founders, unprepared for the mature public markets.

WeWork never had to grow up.

This is How it Ends, My Friend.

Mark Twain was said to observe, “History does not repeat, but it does rhyme.”

To me, WeWork’s downfall followed an all-too-familiar pattern:

Investors fall in love with a charismatic founder who promises to change the world.

The “this time it’s different” logic (the internet in the 1990s or “disruptive” business models in the 2010s) supports the founder’s case.

Valuations soar to absurd levels as investors compete to invest in the “anointed one’s” company.

Then the music stops. The charismatic leader stumbles. Investors fall out of love. Disruption morphs into meltdown.

Consider the case of two iconic, charismatic leaders – and companies – of the internet boom and bust: Steve Case of AOL and Jerry Yang of Yahoo.

At its peak in 1999, AOL had a market cap of $220 billion. Yahoo hit $125 billion in that same year.

Fast-forward about 15 years.

In 2015, Verizon acquired AOL for $4.4 billion. A year later, it acquired what remained of Yahoo for a mere $4.83 billion.

This is how $345 billion of market value shrivels to just over $9.2 billion.

The fate of the largest unicorns has been no different.

Uber (Nasdaq:UBER) was listed at $45 a share in May 2019. Today, it trades at around $33. Lyft (Nasdaq: LYFT) opened at $72 a share in March of the same year. Today it’s trading below $10.

To tie a bow on the WeWork saga…

We Work eventually did go public in October 2021 (through a SPAC, of course), raising $1.3 billion at a valuation of about $9 billion and a share price of approximately $11.78.

Since then, the stock price quickly collapsed by over 90% to just over $1.00.

And today, WeWork is one of the most shorted names on Wall Street.

So, has Adam Neumann been declared persona non grata after taking investors to the cleaners?

Of course not.

In August 2022, Neumann launched Flow, a new venture that will “disrupt the residential rental real estate market.”

His lead investor?

Prominent Sand Hill Road venture capital firm Andreessen Horowitz and one of the early investors in Facebook and Airbnb.

It boggles the mind… even as Adam Neumann's BS never stops flowing.