How WeWork sold a $47 billion fantasy

So back in September 2019, Adam Neumann, who had founded a company that at its last valuation was worth $47 billion, he was summoned to a board meeting. And despite taking the whole thing from zero to $47 billion in valuation, the board fired him. They told him he was done. And it wasn't because he was failing. The reason was they were going public. And there's something required to go public. You have to basically make all your financials public. And for years, despite WeWork telling everybody that it was revolutionizing the way people worked and creating new communities and all this kind of stuff, behind the scenes it was just a failing real estate company that was losing nearly $2 billion a year. And the crazy part of this story is, despite being fired summarily, Adam Neumann ended up landing on his feet. He walked away with $1.7 billion, and many of the same investors who bet on him the first time around are now backing his new startup. There's been a lot of news stories about WeWork, but it's interesting to step back now that we're a few years past it and ask, how the hell did this happen? Well, this video aims to do that. It is the rise and fall of WeWork.

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More on them later. On a rainy day here in San Antonio. And by the way, I turn each and every video into an expanded document that will tell you more of the story. And if you're hungry for that, you can download the one for this video on my website, girdley.com/youtube. If you want to understand how Adam Neumann ended up selling everybody on a $47 billion fantasy, You got to start from the beginning to understand how Adam got that way. Adam as a young man was somebody who was basically born to sell. He actually bounced between a bunch of different places as a kid, spending a lot of time on a kibbutz in Israel. I'm crossing the most dangerous intersection in San Antonio. So dangerous they have to put these barricades up so people like me don't get hit by cars that don't stop. Don't get me started, San Antonio. And a key part of Adam's childhood is he bounced between family members. You know, when you're this kind of person who basically is with a family but without a family, that basically imprints some behaviors on you. And it's a fascinating thing about human nature. You see somebody who's extreme or oddball as an adult, you can always go back to something happening in childhood. There's some weird thing that caused them to be who they were. And Adam was no different. After doing his compulsory military service for Israel in the Navy, He ended up in New York as an ambitious 20-something ready to change the world. That pause there was one of my high school friends stopped me, so that was him. Yeah, it's been some years. Pretty cool. Back to Adam in New York. His first venture was actually creating collapsible stiletto heels for women who were out partying and wanted to be able to walk home in comfort after the party was all over. That didn't work out, but he and his co-founder of WeWork, a guy named Miguel McKelvey, they noticed something interesting while they were working on this bad idea, which was the building that they were in had lots of empty space that wasn't being used by anybody. At the time, landlords were desperate for money to come in and get rent from any source. So the two of them started a thing called Greendesk, which was an eco-friendly coworking space. Basically split the place up, rent it to people month by month, per desk, per office, whatever. Is basic arbitrage. You rent a big space, you divide it up, and charge a premium to your customers. They would eventually sell GreenDesk and they moved across the river to someplace that suited their ambitions, Manhattan. 'Cause Adam, he wanted to build something bigger, something with a story. In 2010, they built WeWork and the very first of them went on the market. And the idea was, it wasn't just gonna be a coworking space, it was gonna be a community as well, full of freelancers, badasses, business people, all that kind of stuff. Community, you know. The timing was actually perfect. Post-Great Recession, startup culture was booming. Nobody wanted to sign 5-year leases. In fact, for many of them, their investors wouldn't let them do it. Gig economy workers were suddenly everywhere. YouTubers, you know. Within a few years, they had dozens of locations. They had raised money from VCs at a $5 billion valuation. And suddenly we hit on the real genius of Adam Neumann. The man could sell. But before I dig into how WeWork worked, there's actually a company that's been doing this forever. At the time it was called Regus. Today it's called IWG. Basically the same thing. It just was a lot more boring and lame. I'm actually right over that way, about 2 miles. There's one of their offices. I was going to record in front of it, but their parking lot's all wet, so we can't go in today. And Regus had been quietly profitable for decades and they were worth $3 billion on the public stock markets. But you hear an interesting thing. Despite being a fraction of the size, WeWork was valued at $5 billion. Why the confusion by investors? Well, turns out that story that Adam was spinning about community and broader vision and changing the face of work, VCs loved it. And in just a few years, Adam's ability to sell the vision and grow quickly and throw a lot of money around would basically make the VCs who are suddenly investing a ton of money in the space incredibly excited. And eventually the valuation of WeWork would balloon to $47 billion. Look, if you're gonna raise that much money, you gotta find somebody who's gonna give it to you. Buy into your vision. And in 2016, Adam got a meeting with a visionary guy who, uh, would be the perfect match. That guy was the head of an investment firm called SoftBank. His name was Masayoshi-san, or Masa for short. He was a Japanese entrepreneur who'd done some crazy stuff in his career. Masa had just raised a thing called the SoftBank Vision Fund. Whereas a typical VC fund might be a couple billion dollars, if that, many are just a couple hundred million dollars, he'd gone all in. And he raised over $100 billion from everybody from the Saudis to big pension funds and everybody in between, and some of his own money too. He was a billionaire. And I talk a lot on this channel about the principal-agent problem, which is the idea that sometimes the agent who is working on your behalf doesn't have the best interest of you, the principal, in mind. And here was a situation where Masa had raised $100 billion from all these folks, and they wanted him to go make them more money by investing it. So that means he was highly motivated to deploy a lot of capital really fast. So Masa had this issue and he flew to WeWork's headquarters. He was supposed to hear a pitch for an hour and the meeting lasted 12 minutes. Masa reportedly told Adam after touring the space and looking at a few offices and cursory looking at the numbers that, uh, "In a fight, being crazy is good." That's such a good quote, man. I gotta use that. Masa pulled out an iPad and started to sketch his own personal vision, which would be even bigger than Adam Neumann's, making the argument that WeWork shouldn't be worth $5 billion. It should be worth $10 trillion. At the end of that meeting, Masa would commit $4.4 billion. No due diligence, no quality of earnings, no interviews with former employees, nothing. Just vibes. Masa's M.O. for investing actually had worked really well numerous times. He'd go find an emerging category that he believed in with all of his heart that was growing incredibly quickly, and he'd throw a ton of money at it. He'd done it with Alibaba and he'd done it with Uber. But there was a fundamental misunderstanding about the real estate market. It isn't a winner-take-all market like Uber is or Alibaba is. If somebody has a Regus right over there, well, what's the big deal? Somebody else can open a different competitor that's just a similar kind of office space, coworking space right down the road. And interestingly enough, people who've reported on the story said this amount of money and this meeting with Masa actually changed Adam Neumann. Before that meeting and all that money, he was actually just a scrappy operator who was doing a real estate arbitrage play. Basically Regus for hipsters. And reporters have said that after that, Adam started to believe his own mythology. Rule breaking and thinking bigger, no matter how outlandish the idea, became the total M.O. to run WeWork. The money from Masa told them, go think unboundedly. So they started doing all kinds of stuff. They bought a coding school. They ended up buying Meetup.com, I believe. Heck, they even bought a wave pool manufacturer. Yeah, wave pools. In 2019, co-founder McKelvey pushed back on all the excess and, well, he left. So a lot of times you'll see that happen if a co-founder isn't on board with what everybody else in the room wants them to do. Well, a lot of times they are shown the door. You're either part of the team or you're not in some of these high-growth startups. But look, for venture capital, losing money is often part of the game. They are participating ideally in winner-take-all markets where one player, whether it's in tech or biotech or any of this stuff, is going to be the total dominant player. Think Uber or eBay or Amazon. If you're in that deal, great. You burn money for years and then eventually you have a hugely dominant money printing machine. Newman understood exactly how these VCs operated. They wanted to be paying up to be in the winner in a defining huge category. So he basically weaponized that, that viewpoint against them. So in other words, WeWork actually had to lose money in order to fit the narratives for the VCs. If it had been printing cash and highly profitable, that wouldn't have worked. In business, we talk about a thing called economies of scale, and basically the idea is as businesses get bigger, some things should get a lot easier for you, and you should be able to operate more efficiently and therefore have a better competitive advantage. Think of Walmart. If you or I go to China to try to buy stuff, Walmart's so huge they have almost infinite buying power. But WeWork, well, that was a different story. There were what are called diseconomies of scale. As you get bigger, some things get a lot harder or just stay hard. They'd open up space after space in disparate towns, and adding a new one didn't necessarily make the job easier for WeWork. There weren't a lot of economies of scale. Maybe there were a few around buying furniture and stuff like that and designs, but by and large it didn't decrease much. And as long as WeWork WeWork could take in a lot of capital, deploy it quickly, and keep the top line growing. Everybody who was around the table got their needs met. The VCs got to show growth and ideally the next, you know, valuation uptick when somebody else would come in and put money. Adam Neumann got to have his fiefdom and build it out. The executives at WeWork got to spend more money and build bigger empires underneath them. Everybody was winning. And while people look back and they're like, man, Adam Neumann, what a crazy person, turns out he was crazy like a fox. He knew precisely the politics of everybody inside the room and on the cap table owning portions of the business and what they wanted. And he ran a play that made sure everybody got paid and got what they were looking for. Evaluation starts running up. VCs will often let you do some stuff that's definitely in a gray area.

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Newman's case, he started to buy buildings and then he turned around and he leased them to WeWork. In other words, he was on both sides of the transaction, one of which was just paying him more than the other one. Then he also trademarked the word "we," then turned around and licensed that back to WeWork. For $5.9 million. Self-dealing, any? And if you're one of these really high-flying deals, investors will be so desperate to get in that they will often buy stock from you that you own personally, even before the company goes public or it sells. And in Adam Neumann's case, between all this self-dealing and selling some of his shares to VCs, but before he even exited in 2019, he had cashed out over $700 million. And to be fair to Adam, A lot of times when VCs are desperate to get into these hot deals— remember, there's hundreds of VCs, but only so many spots around the table. When VCs are hungry to get into a deal, they'll do almost anything to get a seat at that table, including, you know, letting founders do sketchy stuff. SoftBank and everybody around the table was happy to see the valuation of WeWork grow to the stratosphere. $10 billion, $20 billion, $47 billion. Each one of those upticks made them look better to their own investors. And everybody was winning, especially Adam. Smart investors like Benchmark, which is a renowned venture capital firm out in Silicon Valley, they had invested early. And then as the valuation started to reach the stratosphere, they quietly started to sell off stock. The whole game was one that these early VCs get in and then sometimes get out, like Benchmark did. And then the next group of investors come in, the late-stage growth capitalists and folks like Masa. And then eventually the whole idea is that you take the thing public and you foster it on folks like you and me who buy the stock at retail. Eventually, as you do this private company game, the private markets start to run out of money and patience, and eventually you have to take the whole thing public. And that's where we ended up as this video started back in 2019, where WeWork was going to be filing to go public. Believe it or not, in the stuff that they put out as their prospectus called an S-1 and some other documents, they mentioned that their mission for WeWork was to elevate the world's consciousness. Yep, that's what it said. And it's important to remember that this era of the 2010s was a magical one in United States history. We had coalescing kind of functions of baby boomers who had massive amount of wealth that at the time they were still very much interested in deploying, looking for returns. We had booming stock markets, we had capital being pumped into the system, and all of it was juiced by incredibly low interest rates. If you wanted to make money investing, you weren't gonna find it in the stock market or loans. You had to go out and find stuff like WeWork. And Adam would play this game where valuations would increase, the interest of the VCs would be basically met, and nobody played it better than him in terms of getting valuations up until, well, it couldn't work anymore. And that's where in August 2019, WeWork filed to go public with an expected valuation of $47 billion. It's official. You filed. Yes, we filed. We're going public. But here suddenly all of the dirty laundry behind the story, the real numbers that weren't elevating the world's consciousness or whatever. I mean, give me a break. Suddenly all of those things were exposed for everybody to read. There were 3 problems. The first was that WeWork was hemorrhaging money. This is a real estate business that was supposed to be making money. They were expecting in 2019 to lose nearly $2 billion. In order to make themselves look better, they created a new metric called community-adjusted EBITDA. This is a fancy way of saying we're going to take a relatively common measurement of profitability of businesses like EBITDA, then we're going to turn around and adjust it to suit our circumstances. In other words, it's just kind of nonsense. Second was governance. Adam Neumann had a 20-to-1 voting power. Basically, that meant that he could basically dictate everything for the company ad infinitum. And if something happened to him, his wife Rebecca would take over. And fun fact for you, she's Gwyneth Paltrow's cousin. Yep, that's it. And remember how I told you Regus had been around for a long time and was valued at $3 billion? By this time it was still valued at $3 billion despite being an order of magnitude bigger. And here was WeWork, basically the same business, trying to get $47 billion. A headline from The Wall Street Journal basically said that the WeWork prospectus is a total nightmare. Turns out those reporters could read. When a company goes public, they go do a thing called a roadshow where basically the bankers who are going to basically put together the syndicate to put initial money into the company and give special deals to that syndicate, by the way. They go take it around to a bunch of investors and try to get them pitched to invest. With the bad press and then looking at the numbers, suddenly the momentum had totally stopped. That momentum that Aden Newman had cultivated had hit a brick wall and the valuation started declining rapidly. $47 billion, then $20 billion, then $15 billion. Then they pulled the whole IPO entirely. That's when Maslow stepped in and with SoftBank, they started to make some changes in the company. And the first one was going to be that they were going to have to push Adam Neumann out. Adam had not been stupid this whole way up. When he had had the leverage, he had made sure that the documents of the company reflected that. So he was in a great position to negotiate an exit package. And that exit package would be worth $1.7 billion. He got them to basically do a bunch of stuff— $185 million worth of consulting fees, a $500 million personal loan. Yeah, he did pretty good. Meanwhile, WeWork laid off 2,400 employees. All those folks had been working at the front desk. A lot of them woke up one day and didn't have a job anymore. WeWork had also been buying other businesses. I talked about Meetup.com and a coding school and all this kind of stuff. The wave pool thing. Oh my God. Many of them had sold to WeWork in exchange for stock, and suddenly they watched their entire, like, payout and life's work go down to zero immediately. So fast forward at this time in 2019, WeWork is stuck, can't go public. It's in a downward spiral. They needed to do something. And it turns out it had another card to play. After the IPO imploded, the whole company went into survival mode. They started to close unprofitable locations. They brought in a new CEO, started to try to turn the thing around, make it into a good business. And then as 2020 happened, they got an increasingly bad piece of luck. And that thing was COVID. In March 2020, basically all of North America Many of the markets where WeWork was prominent— Mexico City, Monterrey, all that kind of stuff, and many others— well, they all went into full lockdown mode. And suddenly the idea of working from a shared office space, that wasn't happening. WeWork had been fundamentally signing long-term leases, in other words, creating a long-term liability and expecting to get paid for it by short-term assets, which were leases that they did with subleases. So suddenly these people who are month to month didn't need a lease anymore, didn't need an office anymore. They called up and canceled. But that didn't stop the fact that WeWork still needed to make monthly payments for the space they had leased. And over 2020 and into 2021 and 2022, basically WeWork became worthless. Downward spiral, closing up locations, giving them back to landlords. And SoftBank, remember Masa? He wrote down the entire investment down to zero. But it turned out they then got really lucky because in 2020 and into 2021, The government of the United States and other countries, desperate to stop the economies of all these countries from grinding to a halt, injected a ton of money into the money supply. And you know where that money went? Well, a lot of it went to the stock market. And one of those vehicles was the thing called a SPAC, which is a Special Purpose Acquisitions Corporation. Basically, the idea would be a bunch of rich people would get together, they go raise a pool of money, and then they take that public, and then they go look to find a company to take public. It turned out there weren't that many companies worth taking public. So they started to dig the bottom of the barrel. And at the bottom of the barrel was a company called WeWork. Remember, it was still operating. They'd gotten to size. All that money had gone somewhere. And they did manage to go public in 2021 at a valuation of $9 billion. Not $47 billion, but $9 billion. A lot higher than zero. But it would turn out that didn't fix the fundamental problem with the WeWork business model, which is they were offering a commoditized service Remember I told you there's like a bunch of coworking spaces all around here in San Antonio. I'm not even in New York, right? Same kind of deal. And at the same end of the spectrum, WeWork was fundamentally setting themselves up to be the first thing that would go down when things started to go down in the economy. We saw it there during COVID And those people didn't need offices anymore. They terminated immediately and left WeWork handling the bill. By November 2023, fresh out of money, with a model that wasn't creating cash or profitable at all, WeWork filed Chapter 11 bankruptcy. WeWork at its peak had employed over 12,000 people and was worth $47 billion. Many of those 12,000 people had gotten stock options at that valuation. So when the company filed for bankruptcy, that stock was suddenly worthless. But don't worry, Adam Neumann still got his $1.7 billion. In 2024, there was a report that Adam Neumann, came in and tried to buy the whole company back at a steep discount. He got outbid, but that will ultimately tell you how this game works. Sometimes the rich people rig it for themselves. Today, WeWork is a shell of its former self, smaller and trying to just be the real estate play that it always was, not a community-adjusted whatever. And ironically, a few years after all that, Adam Neumann raised $350 million from a prominent Silicon Valley VC for a startup called Flow. And you will be unsurprised to know that it basically is WeWork but for apartments. Yep. And this venture capital firm is called Andreessen Horowitz, who is one of the more successful ones in the Valley and really knows what they're doing. You may ask yourself, why would they put money with this guy again? Well, it turns out, like, they're doing exactly what the people who've invested money with them want them to do, which is occasionally pick some winners that will turn out to be world changers along the way. You may just lose some money because in these VC funds, if one deal hits and you have the next Airbnb, well, that's a generational investment that will return your fund many times over, no matter what happens with the 20 other investments you make out of it. And Adam is back again, understanding how the game is played more deeply than anybody else does and making sure he gets paid by being a really good player at it. One thing to take away from all this is the concept of leverage. Really wealthy people and successful people, they understand when they have it and they understand when they don't. If they don't have it, they really try to get it. And here, Adam Neumann knew exactly when he had leverage to be able to lock himself in some big paydays. And, uh, yeah, I'll give it to him, uh, he's been pretty successful at it. And each of our businesses, it's important to understand and ask ourselves, like, do I have leverage in this situation or am I just in trouble? Sometimes you do Sometimes you don't. Alright, this is one of my most requested videos on this channel. If you liked it, do me a favor and tell me you liked it in the comments below. Encourage me to make more. Catch you next time.