• Patrick Hickey

A Second Shot for the Billion Dollar Loser, But Does he Deserve It?

Disgraced WeWork founder and CEO Adam Neumann is back with a new business venture, but this time with financial backing from one of the world’s biggest venture capitalists.

When Hitler invaded Russia in 1941, he failed to learn from Napoleon’s mistake in 1812 – never invade Russia during the winter. The past often helps us with decision-making today, and one look at Adam Neumann’s business history should have turned all venture capitalists (VSs) away from funding his new venture. However, Andreessen Horowitz – one of the world’s biggest VCs – has decided to choose Neumann’s company ‘Flow’ to make their largest single investment in history, amounting to $350 million.

Neumann’s previous company, WeWork, was something of a disaster for practically everyone involved (except Neumann himself, who emerged incredibly wealthy). The business model was as follows: the firm would take out huge leases on large properties in major hubs, and then let out smaller subsections of these offices to different firms. The objective was to foster a collaborative workplace culture and to allow firms to interact and network with one another. The idea attracted a total investment of $16.9bn (including debt) from Masatoshi Son’s SoftBank and their $100bn Vision Fund, $45bn of which was provided by the government of Saudi Arabia.

What appeared to be a terrific company, with a terrific CEO and terrific potential for profitability, turned out to be anything but. Financial metrics were rarely disclosed, but things began to unravel when WeWork turned to the bond market for further investment and was forced to provide key financial information. A report by the Financial Times exposed the firm as having made losses of $1.9bn in 2018, despite revenues of $1.8bn. It became clear that Neumann was running the company poorly, but the extent of his self-enriching and narcissistic management techniques was yet to emerge.

Neumann regularly skipped board meetings, including several in the run-up to the company’s planned IPO, and decided to send deputies instead. He also developed a rather ill-timed obsession for surfing, and after moving back to New York in 2019 having spent much of the winter in his California home, he relocated his Hawaii-based surf instructor there too, paying for his apartment in Manhattan. Neumann made regular surf trips to the Maldives and Costa Rica throughout the year, and WeWork’s company plane made two trips between Costa Rica and New York. This lack of dedication, coupled with his drinking habits and his wife’s reputation for firing employees for their ‘bad vibes’, began to spell trouble for WeWork. The question mark over Neumann’s methods was thrust into the spotlight when it emerged that he had smoked marijuana with friends on a private jet to Israel as he illegally took the drug across international borders.

While Neumann’s management methods were, at the very least, dubious, his self-enriching actions were a level above this. When it emerged that he had created an investment company and acquired the trademark ‘We’, which he had then sold to WeWork (the company he founded and operated) for $6 million, he eventually agreed to return the money. Moreover, as part of an investment round in which T. Rowe Price partook, Neumann restructured WeWork’s stock so that each of his shares had ten times the voting rights of a normal one. In that same deal an entity controlled by Neumann sold $40 million worth of WeWork stock, before selling a further $80 million the following year. The founder also likely made upwards of $12 million in clear conflicts of interest. He would personally acquire an ownership stake in multiple properties, before leasing them out to WeWork. Even when Neumann was ousted as CEO and agreed to give up control over the company to SoftBank, they bought $1bn of stock from him, along with a $185 million consulting fee and $500 million to pay off a JP Morgan loan. They also agreed to cover the $1.75 million he owed WeWork for his use of the company’s private jet for vacations. As his company crashed and burned, Neumann exited a very, very wealthy man.

In the end, the company once valued at $47bn was now worth $8bn. The venture, costing billions, was facilitated by people with financial backing who failed to exercise due diligence before investing. It appears that Andreessen Horowitz are no different, and that they have either somehow looked at Neumann’s woeful record with approval, or - more likely – they don’t really care. Either way, it seems that Voltaire was quite right when he said ‘History never repeats itself. Man always does.’ Sometimes – like Hitler in 1941 – we choose not to learn from the past, and this is what leads to the same errors being made.