WeWork, SoftBank and a real estate startup's delusional tech narrative

Yes, people are still talking about WeWork. And there are plenty of reasons for re-examining its heady rise and spectacular implosion after the company aborted its IPO nearly two years ago. Like 40 billion reasons.

An authoritative new book about the WeWork saga is making many people's summer reading lists, rekindling conversation about the whole sordid business while adding to our understanding of one of history's biggest corporate meltdowns.

Scenes of WeWork's go-go years are familiar. Stylish shared-office designs to attract millennials. Taps serving beer and kombucha. A breakneck pace of opening new locations. And of course, the singular utopian vision and flowing dark hair of its charismatic founder, Adam Neumann.

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In their book "The Cult of We: WeWork, Adam Neumann, and the Great Startup Delusion," authors Eliot Brown and Maureen Farrell detail Neumann's meticulous behind-the-scenes maneuvers. They show how he started piecing together a high-margin business in 2010 by subleasing a bunch of old New York office buildings that he fixed up to woo startup workers as tenants. The authors retrace the company's origins, its wildly prolific fundraising and its eventual downfall, building on the many WeWork stories they broke in The Wall Street Journal. (Disclosure: Brown and I worked together for a few years at the Journal covering Silicon Valley.)
   
Buzzing with new details and color about the charismatic Neumann's eccentric behavior, the book chronicles his many episodes of self-enrichment and conflicts of interest, underscoring WeWork's lack of any oversight for reining him in. Those failures alone make this book a must-read for founders, investors and business students for generations to come.

But what really stands out is the book's description of the sustained—and unabashed—scheme of Neumann and his investors that peddled WeWork's office-subleasing business model as a hot technology disruptor that would change the world.

Neumann & Co. were hardly the first VC-backed entrepreneurs to borrow tech marketing tactics to dress up a fairly mundane, legacy industry like office real estate.

Countless startups today—and surely others in the future—still play this disingenuous game in pursuit of tech-sized growth rates and valuations. What works for Silicon Valley must be good for others, right?

But Manhattan-based WeWork took this thinking to extraordinary lengths in a bid to layer a tech-centric vision on top of its office-sharing foundation. Inspired after some up-close observation of the work style of some of his startup tenants, Neumann early on wanted WeWork to emulate their tech culture as a growth driver, according to the authors.

And from there on, Neumann would stick forcefully to depicting WeWork as a tech-community startup. In an appearance on our "In Visible Capital" podcast, Brown shared a telling anecdote about his first interview with the energetic CEO in 2013, when he was on the office real estate beat. Neumann was puzzled why a real estate reporter was on the story, and wondered if the Journal had someone covering "community companies or changing entrepreneurship in urban areas."



The trouble was there wasn't much tech that actually made money at WeWork. Neumann excitedly told Brown of a company app that tenants could use to order lunch. But people came for the office space and stayed for the office space.

As the company expanded and raised funds at loftier valuations, WeWork and its investors began using tech industry titans as a benchmark for its growth ambitions. When the company was preparing for a 2015 funding round, Goldman Sachs gave Neumann the advice he wanted to hear, using superfast-growth giants like Netflix and Amazon as comparables, Brown and Farrell write.

Neumann got such a high from the validation and prestige of raising mega-rounds, according to their book, that he grew "addicted" to fundraising. That made the company's ongoing tech narrative all the more important as WeWork focused on adding more desk spaces to ramp up revenue while profits were elusive.

In this sense, joining forces with SoftBank's Masayoshi Son proved an especially crucial and decisive turn of events. According to "The Cult of We," Son was so determined to put SoftBank's $100 billion Vision Fund to work that he offered in one fell swoop to invest $4 billion in WeWork, which by then had raised $1.7 billion to date. SoftBank later would go on to fund two more rounds totaling $6.5 billion, including $1.5 billion after the failed IPO.

"It was this confluence of two really combustible figures that should not have met," Brown told me. "Both of them were obsessed with wealth, obsessed with valuation and obsessed with irrational hyper-growth without thinking hard about it."

Hard thinking and actual scrutiny didn't hit home until September 2019. That's when WeWork finally moved forward on its long-standing plan to go public. But its prospectus portrayed a free-spending company that was far from profitable. It also sparked widespread criticism of the company's poor corporate governance and lack of discipline. Neumann lost the support of his board and was forced out. Some $40 billion in value had vanished by the time the company received bailout funding.

After the IPO was called off, a humbled Neumann addressed WeWork staff via a webcast to discuss next steps and take measure of the company's journey to that point. WeWork, he said, had "played the private market game to perfection."

But his company also had become a poster child for the reality check that many venture-backed founders ultimately face when they make the journey to Wall Street.

Readers and reviewers often label deeply reported narratives like "The Cult of We" as a "cautionary tale," and that's fair for this book. But leaving it at that would be an understatement. Brown and Farrell have issued a damning indictment of a venture capital ecosystem hell-bent on fueling a founder's grandiose business dreams. And they make the case that those dreams amounted to little more than a mirage.

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