Once a shamed CEO, WeWork co-founder Adam Neumann has risen from the ashes to bag himself a whopping $350M to help kickstart his new property venture, ‘Flow’, which has already been valued at $1B, on day one!
Internet chatter and the press are going wild – how could this man who had presided over such a large-scale financial disaster possibly find investors happy to back him again? Has Silicon Valley giant, Marc Andreesen literally lost his mind? Or is Neumann’s latest creation set to be one of the biggest comebacks in business history?
Only time will tell if Flow will go on to become the success story that Neumann is hoping for, but there are some important lessons here about business, failure and investment philosophies.
But before we get into that, who is Adam Neumann?
Unless you have been living under a rock for the last 10 years you will have heard of We Work, the business he founded, but let’s learn a little about the man himself.
Neumann wasn’t always a high-flying businessman with millions in the bank. Born in 1979 in Telaviv, Isreal, his beginnings were far less glamorous. Highly dyslexic, Neumann had a tough time in school, only learning to read and write in the third grade. When he was seven, his parents divorced and he and his sister, Adi, moved to the US with their mother so she could pursue a medical residency. After four short years, they returned to Israel and settled in Kibbutz Nir. The community was close. Everyone knew everyone. His time in Kibbutz would later inspire his model for WeWork, turning a simple space into a community where like-minded people could work, collaborate and connect. Aged 17, he joined the Israeli navy and earned himself the title of Captain after 5 years. Eager to earn more money and leave his mark on the world of business, Neumann packed his bags and made his way to the Big Apple, securing a spot at the Zicklin School of Business College at Baruch College, just a year later.
The rise and fall of WeWork
In his early days, Neumann started two businesses consecutively, one in women’s footwear, and the other in baby clothes. Both failed. Undeterred, he dropped out of college to focus on business and co-founded Green Desk with friend Miguel McKelvey, an eco-friendly shared workspace for businesses, which was a great success. Young and hungry for more, Neumann sold his shares in 2009 and established WeWork with his wife and McKelvey, with dreams of revolutionising communal working spaces and of course, making his millions.
So in 2010, Neumann and McKelvey met Brooklyn real estate developer, Joel Schreiber, and convinced him to invest $15M into WeWork for a 33% stake. Not a bad valuation ($45m) for his start-up! So Neumann was elected CEO and the company began purchasing its first properties. By 2012, things had ramped up substantially with various sites in America and one in Tel Aviv. By 2014 WeWork could already list a world-class set of investors on its cap table, including J.P Morgan Chase & Co, T.Rowe Price, Benchmark, Goldman Sachs, Harvard Corporation and Mortimer Zuckerman.
“He is intensely ambitious and a masterful storyteller with a magnetic personality who can inspire and sell.” – The Financial Pandora
By 2015, WeWork was named as one of Fast Company’s 50 Most Innovative Companies and was valued at $15B and had 51 sites spanning across the USA, Israel and Europe. As growth continued to skyrocket, Neumann decided to hire former Chief Financial Officer of Time Warner Cable, Artie Minson as Company President and Chief Operating Officer, and signed his first acquisition with real estate construction company, CASE. And by March 2016, the irresistible scent of WeWork’s global success was too much to resist for Legend Holdings and Hony Capital, who invested $430M. The company was now valued at $16B, but the bad news was about to start.
In mid-2016 WeWork implemented the layoff of 7% of its staff and a temporary hiring freeze. To add fuel to the fire, employee Joanna Strange was fired for leaking information that showed WeWork was missing its financial goals. But Neumann wasn’t phased. By that point, he had raised $1.7B in private capital and announced plans to open up more locations across the USA, and launched a separate (but related) co-living company called WeLive, in various locations across the US.
In April, WeWork opened an online store offering services and software for members. By May, it launched a luxury health club at its Manhattan location and later, Bangalore, India. A few months later, Series G invested $760M in financing and SoftBank/Hony Capital, a further $500M to help expand into china. A few months into 2018, WeWork, alongside private equity firm, Rhone Group, raised over $400M for property purchases, and in May, they bought Naked Hub for $400M and a Gulfstream G65business jet for more than $60M. With an accumulation of failed spin-offs and extravagant purchases, WeWork posted losses of $2B in 2018.
Despite this, at the beginning of 2019 WeWork was valued at $47B. Neumann seemed to have it all. But like all Greek tragedies, the reality was very different. In less than a year, he would transition from celebrated businessman to ‘disgusting conman’, after losing the faith of WeWorks’ largest investor, SoftBank.
By July, Neumann had liquidated $700M of his WeWork stocks, and lost the company billions in failed business ventures, sales and expensive leases, driving its value down to just $10B by the end of the year. He was booted out of the door (with nearly 500M in cash and stocks), and his plane was sold. By the end of 2019, SoftBank reported $9.2B in write-downs on its WeWork investments and 20% of its employees globally were let go. At the time of writing, WeWork is valued at less than $4B.
And what is his latest venture all about?
By 2023, Neumann hopes to create a memorable brand of living spaces, incorporating much of the same core values as WeWork, and targeting the same demographic. During covid, he quietly purchased 4,000 apartments worth over $1B in Nashville, Atlanta, Fort Lauderdale and Miami, and has plans to create community-style living spaces, though exactly what will be in them is still shrouded in mystery.
Business owners, investors and the media across the world haven’t reacted positively – many branding him as a ‘disgrace’ and ‘undeserving’ of such backing. How can the man who helped SoftBank (and other investors) lose billions of dollars be on the receiving end of a 9 figure investment once again?
For me, the answer to this question is really what this blog is all about. Understanding that entrepreneurs are risk takers and that with risk comes failure. But without risk, there is no reward. No progress. No creation. I don’t see the story of Adam Neumann and WeWork as one about a man who manipulated his way to the top and then lost his crown. To me, this is a story about a man who set out to reinvent the world’s perception of commercial office space – and in that he succeeded. But whilst the current ending of life at WeWork looks quite bleak, let’s look at some of the things Newmann has achieved along the way:
Raised almost $13bn from investors, of which those who invested in the earlier stages of the business made A LOT of money!
I don’t know exactly, but this has to rank as one of the largest amounts of money raised by an individual for a private company. As a business owner who has spent the last 20 years raising funds for my own companies and for my clients, I can tell you that raising equity funding for your business is the single most difficult activity a business owner ever has to do. I think I am pretty good at finding investors, pitching them and closing them – I have raised over £200m. But that has taken me nearly 20 years and doesn’t even count as a speck on Neumann’s number!
Employed 12,500 members of staff
There may have been layoffs along the way, there may have been alleged misconduct complaints. But let’s look at the positives here. Neumann provided jobs for the providers in 12,500 families. That is a serious amount of tax revenues created, of money generated in the communities these workers lived in. WeWork and its founder were a serious provider to many. And that doesn’t even take account of the indirect revenues and profits generated by all the businesses that supplied WeWork – contractors, landlords, agents, and obviously the brewers who supplied their famous workplace beer!
Had over 600,000 members in 750 locations in 38 countries
In WeWork language, a member is a customer or a tenant in one of their buildings. Show me a business owner out there that wouldn’t be considered successful if they had acquired 600k customers located all around the world!
Had a market capitalization of $47 billion
Yes, that BILLION with a B! I would hazard a guess that 99.9% of the people trash-talking Neumann as a failure haven’t and could even create a business worth £47k! But $47 billion?! There is only a handful of people in the world who achieve this kind of scale. Success? In my book YES!
So before journalists, small business owners and hedge fund managers continue to sharpen their pitchforks, remember this. During his time as CEO, Neumann evolved a simple concept into a world-famous brand with a cult-like following, that revolutionised the way people work, forever. He did all of this whilst raising five children and supporting his wife.
Many of his critics can’t think in these terms, but all great entrepreneurs and venture capitalists know that taking huge risks is the only way to achieve greatness and legacy. Everything around you, including the clothes you’re wearing, the technology you’re using, the gluten, dairy, fat-free protein shake you’re drinking, at one point was a pipe dream or a simple passing thought. Ideas don’t build themselves – people do, and Adam Neumann did what others didn’t dare.
“Failure is just a resting place. It is an opportunity to begin again more intelligently.” – Henry Ford
As most of you may know, I’ve been there too (on a much lesser scale, might I add), but his story is all too familiar. As a money-hungry man in his 20’s, I enjoyed my success (maybe a little too much) and made some stupid decisions. When the financial crash hit in 2008, I had accumulated a fair amount of debt and within a few months, my companies were made insolvent, I declared bankruptcy and was given a 12-year ban from serving as a company director- brutal. I was only 27.
Much like Adam Neumann, I wasn’t willing to bury my dreams and say a prayer, I was going to learn from my failures and do better- and that’s exactly what I did. Understandably, people have their opinions and reservations about Adam Neumann, he fucked up, BIG STYLE. But does one mistake eliminate the fact he created a company which, at its peak, was worth $47B? No- and what’s more, let’s not forget how many famous names, such as Richard Branson, Steve Jobs, Travis Kalanick and Parker Conrad have suffered a catastrophic failure and then became some of the most successful businessmen in the world.
Time will tell on Adam Neumann, perhaps his latest venture will be THE venture, but let’s always remember, failure doesn’t define a person, repeating the same mistakes does.
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