BY MATTHEW ZEITLIN ILLUSTRATION BY ANDRÉ CARRILHO
It’s so easy to focus on Adam Neumann, the tall, long-haired, barefoot, meat-banning, weed-smoking, tequila-drinking, Kabbalah-studying, experimental school-opening Paltrow-cousin-in-law and founder and now-deposed chief executive officer of the We Company, the real estate company that dropped “Work” from its name after it bought the copyright for the word “We” from Neumann himself.
Neumann’s ambitions were as ludicrous as his persona. “Rather than just renting desks,” Fast Company reported in January, “the company aims to encompass all aspects of people’s lives, in both physical and digital worlds.” This included expanding the WeWork model to residential housing and education. Before Neumann had even started the company, he had envisioned “WeSleep to WeSail to WeBank”. While none of these will ever be realized, perhaps he was right to think beyond office space subleasing. The company as he had built it is in crisis.
Everything went wrong for WeWork soon after it publicly filed documents for an initial public offering of shares, on 14 August. Six weeks later, Neumann had voted to remove himself from the CEO job and given up his majority control of WeWork’s stock. The company’s proposed valuation had fallen by more than half, and the IPO had been called off entirely. The failed IPO and the company’s subsequent takeover by SoftBank, its largest investor, were both facilitated by the public exposure of long-known information: WeWork was losing a ton of money; its projections of the size of the market for shared office space (up to $3tn) were wildly optimistic (it counted anyone who worked at a desk in an American city where there was a WeWork as a potential “member”; in non-US cities with WeWorks, the estimate applied to anyone with an office job); and its corporate culture and strategy were completely in hock to Neumann and his family’s bizarre ideas and whims.
The company’s business model had been known to be expensive and have little path to profitability since at least 2015, when BuzzFeed first published documents WeWork had used to solicit investors. Neumann’s weird behavior, meanwhile, had been part of the sales pitch from the very beginning. What seemed to make this year’s WeWork stories different, and more damaging, was the addition of alleged self-dealing and self-enrichment by Neumann to the core model of leasing office buildings, transforming them into “shared” workspaces, providing free beer to tenants, and then counting on a rotating cast of freelancers, venture-funded startups and some larger corporations to pay rents that could be as short as a month at a time. But Neumann’s propensity to sell stock and lease buildings he partially owned back to WeWork wasn’t news either – it was exposed by the Wall Street Journal earlier this year, before the trouble started.
The more skeptical sections of the financial press have always had WeWork’s number, even when the company’s footprint and valuation were soaring. In 2017, the Wall Street Journal’s indefatigable Neumann correspondent Eliot Brown described “A $20 Billion Startup Fueled by Silicon Valley Pixie Dust”. It was all there: his casual transubstantiation of office space subleasing into something more like software (he had told investors they were buying into a “physical social network”), as well as the doubts from anyone who knew about his actual business – real estate – that the company was worth $20bn, let alone the $47bn it was valued at in its last round of private fundraising, let alone the more than $100bn Morgan Stanley reportedly told the company it could be worth.
What happened since August wasn’t the consequence of the kind of investigative journalism that felled Theranos, or the long-foreshadowed public tumble of an Uber. It was more akin to the kind of frenzied group condemnations that emanate from Twitter every so often. Widely known facts were re-aired in a new climate. What was once amusing or somewhat confusing was now, in a new light, merely horrifying. But this time, instead of hopped-up teenagers hurling moralistic condemnation at mediocre TV shows, it was middle-aged men condemning a 220-page financial statement on Twitter, in real-time.
Like a film-maker caught in an unanticipated critical maelstrom, WeWork and Neumann tried hard to swim against the current. There was the eventual partial compromise to stem the tide of ill will, when Neumann finally returned to WeWork the $6m or so he got for the name “We”. But that didn’t help the valuation. Nothing did. Bankers proposed cutting the company’s value by more than 50% until the capitulation became final. By 24 September, Neumann was out of his job and the WeWork show was pulled off air. There would be no debut, no whirring of computers at Nasdaq’s New Jersey servers. Now the company is majority owned by SoftBank at a valuation of $8bn, well short of the $13bn that’s been put into it.
Past exposés of WeWork’s kooky business practices and sunny projections had relied on documents distributed to potential venture investors. When WeWork turned to the bond market last year to borrow hundreds of millions, it had to deliver some more revelations. What the investor documents showed, amid all the fantastical profit projections, was that in 2017 WeWork had lost $883m, despite having some $886m in revenue.