Jamie Dimon — billionaire banker, adviser to presidents, leonine master of the financial universe — had FOMO.
Masayoshi Son, whose early bet on Alibaba had made him one of the world’s wealthiest investors and a startup kingmaker, still had a Rodney Dangerfield complex.
And Mohammed bin Salman, the brash upstart who had come out on top in a ruthless Game of Thobes at the House of Saud, was eager to announce his primacy on the world stage.
Their outsized insecurities and ambitions helped create an environment that became rocket fuel for a young, hyper-charismatic founder who felt that he should have the world at his fingertips, with all the attendant riches, status and sycophants. And for a time, he did.
Adam Neumann was only too happy to play the part of messiah, to position his WeWork as the solution to the modern metropolis’ housing and work culture problems and, ultimately, as a way to “elevate the world’s consciousness.”
But in isolation, his megalomania and greed could never have led to the most spectacular startup collapse in a generation, Wall Street Journal reporters Eliot Brown and Maureen Farrell write in “The Cult of We,” a new — and perhaps the definitive — account of the WeWork saga.
Rather, they argue, WeWork’s implosion — its $40 billion valuation drop, thousands of layoffs and humbling of some of the world’s most renowned investors — happened because “a man characterized by charisma, unbridled optimism and astute salesmanship met an entire financial system primed to fall under his spell.”
Dumping on Neumann in the wake of WeWork’s shelved IPO became a contact sport in 2019.
Outlets that scrambled for access to the scrawny, raspy-voiced founder, giving him the rock star treatment on magazine covers and chronicling every company announcement with maximum enthusiasm and minimal skepticism, promptly turned on him with the same fervor. And, to be fair, Neumann did make it easy.
There was the overpriced investment in a wave pool company. The “do as I say, not as I do,” attitude in everything from his ice bath–equipped executive bathroom to his luxury real estate spending spree. The company dealmaking rife with personal conflicts of interest. The G6 stashed with weed.
While Brown and Farrell do not give him a pass on his chutzpah — they describe Neumann declaring that henceforth he would deal with “no more mayors, only senators” — they focus on the broader universe in which his worst instincts were emboldened. What happens to the system when the adults in the room wet the bed?
The reporters devote significant ink to the frenetic pre-SoftBank period between early 2014, when WeWork became a unicorn on the back of an investment from JPMorgan and Boston Properties’ founder Mort Zuckerman, and late 2015, when it became a decacorn.
They illustrate how mutual fund managers, tired of watching others reap huge rewards on startup bets, jumped headfirst into the private markets, forsaking the extensive financial disclosures that public markets provide. Absent those guardrails, fund managers had to rely on gut feel and momentum. Neumann was a master at gaming those emotions.
“The energy is so different than the first time,” he told Gavin Baker, then a star manager at Fidelity. “The energy with you is so good.”
Hypnotized by Neumann and anxious to get in early with a sexy company, Baker and his posse shot down very legitimate objections from colleagues — for example, that real estate is a physical-space business with limited revenue upside, and thus should not be valued like a software company. Fidelity pumped over $200 million into the company at a $10 billion valuation, just six months after rival T. Rowe Price had invested at a $5 billion valuation.
Then came SoftBank, and Son, and things just got crazier — Son was a big fan of crazy, the only person who ever told Neumann he wasn’t crazy enough. Brown and Farrell recount an episode in which Son told Neumann that to really make things interesting, WeWork should have 10,000 salespeople, 10,000 real estate employees and 10,000 buildings. Son pulled out his iPad and showed Neumann a picture of Yoda, scribbling “Chicken first!” on the image.
Neumann not only extracted $1.5 billion in SoftBank investment for WeWork, he cannily negotiated a supersized compensation package for himself as well as other perks; SoftBank could only remove him from his leadership position without penalty if he committed a violent felony. (Later, when trying to persuade Neumann to call off WeWork’s IPO, Son summoned him to Tokyo and presented him with Greensill Capital founder Lex Greensill as a rescue-financing option.)
Though Silicon Valley’s growth-at-all-costs mentality and Wall Street’s coddling of it are the main pillars of this book, there is plenty of fodder for real estate insiders. Farrell and Brown reveal that Neumann was interested in acquiring Cushman & Wakefield as part of his quest to provide WeWork with three $1 trillion arms: office space, real estate investing and services.
Neumann also met with Mark Dixon, the CEO of Regus’ parent company, IWG, to discuss a possible takeover. (To his credit, Dixon kept the grave-dancing to a minimum after WeWork’s collapse, unlike Knotel’s Amol Sarva, who soon went under himself.)
“A man characterized by charisma, unbridled optimism and astute salesmanship met an entire financial system primed to fall under his spell.”
And at one point, Neumann could not resist taunting Robert Reffkin, CEO of another SoftBank portfolio company, Compass, about the residential brokerage’s far more modest valuation. The reason WeWork was worth multiples of Reffkin’s firm, Neumann informed him, was that “my story” was more compelling. The reporters also shed new light on WeWork’s much-mocked “community-adjusted EBITDA” metric, breaking down how it was able to avoid “straightlining” first-year rent breaks and thus tell investors that many of its money-losing spaces were profitable.
“The average bond investor likely isn’t steeped in the intricacies of real estate leases,” Brown and Farrell write. “But the effect was extraordinary. By normal measures, WeWork’s revenue doubled to $866 million in 2017, and its losses more than doubled to $933 million that year. But using [president Artie Minson’s] new definition, WeWork had actually generated $233 million in profits.”
“The Cult of We” plays out on a global stage, bouncing from Tel Aviv to Tokyo to Hawaii to New York to Riyadh. So it’s fitting that the story comes with a juicy dose of geopolitics. The WeWork-SoftBank deal was nearly scuttled by SoftBank’s request that Neumann pledge not to give any of the Vision Fund’s money — which came from the Saudi treasury — to the Israeli military.
“We’re taking toxic money,” an incensed Neumann reportedly told his team. But he ultimately relented. Later, he characteristically spun the relationship into a legacy-building opportunity.
You, me and Jared Kushner, he told Saudi crown prince MBS, are going to remake the Middle East.
Write to Hiten at [email protected] or @hitsamty on Twitter. You can order “The Cult of We: WeWork, Adam Neumann, and the Great Startup Delusion” here.