The WeWork company was founded in 2010 and has since become a household name for co-working spaces across the globe. But, it seems that this is not enough for the company, as they have recently announced a new plan to disrupt their own business by going public.
The we work founder is a blog that documents the struggles of the co-founders who created WeWork.
Mr. Son brought up a picture of Yoda on his iPad as Adam Neumann and Masayoshi Son were discussing a potential $20 billion check.
It was summer 2018, and SoftBank Group Corp. 9984 -0.70 percent, Mr. Son’s tech giant, had already invested over $4 billion in WeWork, the shared office space company Mr. Neumann co-founded eight years before. Mr. Neumann was now attempting to persuade Mr. Son to purchase a controlling interest in WeWork. It would have been the most expensive startup purchase ever, as part of a three-pronged plan to control global real estate.
Mr. Son, a risk-taking investor who compares his gut-based approach of “using the force” to the bat-eared Star Wars Jedi, was clearly ecstatic that his new pupil was pushing for such a bold idea. Mr. Neumann, who is nearly a foot taller and more than 20 years younger than Mr. Son, mapped out massive growth forecasts in presentation after presentation over the summer. Mr. Son estimated on his iPad that WeWork would be worth $10 trillion in ten years, more than ten times the value of Apple, the world’s most valuable business at the time.
Mr. Son persisted in encouraging Mr. Neumann to dream larger.
WeWork had a small number of salespeople, real estate experts, and buildings. Mr. Son, on the other hand, advised Mr. Neumann that each category needed to expand—to 10,000 people. He recorded the dictation on his iPad.
“10k, 10k, 10k!” exclaimed the crowd. Mr. Son scribbled in yellow over Yoda, who was wielding a green lightsaber. “Masa,” he signed underneath.
Next to a Yoda picture, Mr. Son signed and left proof of his WeWork optimism.
WeWork had one of the most dramatic business meltdowns of the decade fourteen months later. It canceled an IPO, Mr. Neumann was fired as CEO, the company’s value plummeted by almost $40 billion, and Mr. Son’s tech-oracle image became fodder for ridicule since he never completed the $20 billion transaction. This story is based on interviews with a number of former and present WeWork and SoftBank employees, as well as Mr. Neumann’s acquaintances and WeWork investors. Mr. Neumann did not reply to a request for comment via a spokesperson, WeWork refused to speak, and a SoftBank representative for Mr. Son declined to comment.
A number of reasons contributed to the high-profile immolation of the country’s most valuable startup, including lax corporate governance, loose money, and a finance industry hungry for visionary and innovative entrepreneurs.
But the connection between the two founders, Mr. Son and Mr. Neumann, was a major factor in WeWork’s growth and collapse. When it came to making high-stakes choices involving billions of dollars, the duo often relied on unpredictable decision making—decisions that eventually led to WeWork’s demise.
According to former and current workers of WeWork and SoftBank, there was a combination of mentor and disciple, fierce rivalry, and some father-and-son relationships, culminating in a fight of one-upmanship that left both men embarrassed and angry with each other.
The business is still suffering from the effects of the hangover today. WeWork is on track to go public again, this time via a combination with a special-purpose acquisition company, and is now valued $8 billion, down from $47 billion. It paid off part of Mr. Neumann’s leases with SoftBank funds, but it still needs to absorb a huge amount of office space. Occupancy is at an all-time high of 53 percent.
It’s scorching outside.
Mr. Son and Mr. Neumann’s marriage was mainly the product of geopolitical serendipity, which brought together two uncompromising techno-optimists with tremendous ambition at precisely the right moment.
After trying to establish a baby-clothing company in New York, where he came from Israel in 2001, Mr. Neumann, a long-haired, hyperactive entrepreneur, founded WeWork. He was a natural fundraiser, presenting the office-space business first as a social network, then as a sharing economy offering, and raising $1.7 billion from a who’s who of global investors.
After trying to establish a baby clothing company in Israel, Mr. Neumann went to New York City in 2001 and founded WeWork. He was a natural fundraiser.
Mark Lennihan/Associated Press photo
Mr. Son was renowned for writing large checks, therefore he needed a lot more money to keep up with his fast development and achieve his lofty goals for the business. During the dot-com boom, the Tokyo-based investor built up a portfolio of computer and media companies, briefly becoming the world’s wealthiest man, before losing almost everything, he has claimed. He was ready to take huge swings after rebuilding his business in the decade and a half since.
Mr. Neumann and Mr. Son had previously tried and failed to form a partnership. SoftBank considered investing in WeWork as early as 2014, but Mr. Son’s deputies decided it was an overpriced real-estate firm and swiftly rejected the idea.
By late 2016, Mr. Son had secured pledges totaling more than $60 billion to help finance the SoftBank Vision Fund, the world’s biggest private investment fund. Mohammed bin Salman, Saudi Arabia’s then-deputy crown prince, who had suddenly come to power in the Al Saud dynasty and sought to shift the country’s riches away from oil and into the IT industry, was the primary supporter. At the perfect time, Mr. Son was out fundraising for a fund 30 times the size of the next biggest venture capital fund.
Mr. Son began looking for big fish—startups that could absorb billions of dollars and convert them into tens of billions—armed with the Saudi promises. After mutual friend Mark Schwartz, a former Goldman Sachs banker, recommended him, he met with Mr. Neumann—almost a caricature of the confident, visionary computer company entrepreneur. After a 12-minute tour of WeWork in late 2016—a short pit stop on his way to visit the president-elect at Trump Tower—Mr. Son swiftly agreed to spend over $4 billion.
WeWork’s rapid growth engine was blazing hot by 2018, thanks to SoftBank’s investment. WeWork was valued at $20 billion after the investment, making it one of the most valuable companies in the nation, with a global reach. The serif-font logo of WeWork may be seen on buildings in 73 locations across 22 nations. The business that had only one Manhattan office in 2010 had grown into a worldwide brand that leased over 200,000 workstations and was on pace to make almost $2 billion in yearly sales.
According to aides, Mr. Neumann’s feeling of self-importance increased as WeWork expanded.
The ebullient salesperson had always talked a great game about expansion; even when WeWork had just a few sites, he assured workers that one day company will be worth billions. But, after SoftBank’s investment in 2017, his ambitions skyrocketed.
WeWork paid $63 million for a Gulfstream G650ER, which is seen here at Shanghai’s Hongqiao International Airport.
Photo courtesy of REUTERS/Aly Song
He told aides and pals more about WeWork’s rising value—and how the company might be worth billions of dollars. His way of living became increasingly opulent. His property portfolio now includes seven houses, including a $21 million mansion in the San Francisco Bay Area with a racquetball court and a guitar-shaped room. He started telling people that he want to live indefinitely, and he invested in Life Biosciences, a company that studies aging-related illnesses.
He told his workers that he envisioned WeWork as a three-hundred-year-old business. Alternatively, a millennium.
He put SoftBank money into a WeWork primary school, which he and his wife established after becoming dissatisfied with the lack of appropriate alternatives for their children, according to WeWork employees. When a WeWork board member questioned why the business needed to spend $63 million on a top-of-the-line private jet—the Gulfstream G650ER—Mr. Neumann replied that Mr. Son already owned one and that he supported the decision. He purchased Meetup.com, an event organizing website, in a haphazard manner. Mr. Neumann ordered WeWork to purchase a 42 percent interest in a business that manufactures surfing pools in 2016.
He gathered his employees around him after dinner with Walter Isaacson, Steve Jobs’ biography, to read a favorable email from the author. Mr. Isaacson was to write a biography on him, he informed his staff.
He turned to his staff after meeting with US Senator Chuck Schumer in the Capitol. “There will be no more mayors,” he said. “From now on, just senators.”
Mr. Neumann told his team after meeting Chuck Schumer that he only wanted to speak with senators.
Al Drago/Bloomberg News photo
He mentioned a connection between world issues and WeWork’s size to one startup entrepreneur. He warned the founder that a large value wasn’t enough for WeWork. It has to have the highest monetary value. That way, if nations began firing at each other, he’d be the one they’d have to contact to settle their issues, he said.
The triangle is made up of three parts.
Mr. Neumann’s increasing aspirations were aided by Mr. Son, who was always pushing Mr. Neumann to dream larger.
Mr. Son told Mr. Neumann over a dinner in Tokyo with Cheng Wei, the CEO of Chinese ride-hailing firm Didi Global Inc., that the Didi CEO knocked out Uber Technologies Inc. in China not because he was wiser than Uber CEO Travis Kalanick. Mr. Cheng was much weirder, according to Mr. Son.
According to individuals familiar with the discussion, Mr. Son asked Mr. Neumann who would win a battle between a clever person and a crazy guy on the same Tokyo trip. He informed Mr. Neumann that being insane is how you win, and that Mr. Neumann, according to these individuals, was not wild enough.
Mr. Son saw a promotional film for SoftBank-backed Oyo Hotels & Homes, headed by the then-24-year-old Ritesh Agarwal, during another meeting in Tokyo about a year later. Mr. Neumann was chastised by Mr. Son for falling behind his SoftBank-backed rival, whom Mr. Son compared to a brother, since Oyo was expanding much faster than WeWork.
According to individuals acquainted with the discussion, Mr. Son warned Mr. Neumann, “Your little brother is going to beat you.” “He’s taking more risks than you.”
Mr. Neumann often pushed for larger ideas after talks like these, according to aides. One was a proposal to go right into building ownership, as opposed to WeWork’s current business model of leasing from other landlords. Mr. Neumann aimed to create the world’s biggest real-estate fund overnight—$100 billion by the end of the year—to do this. He named it ARK, after Noah’s Ark, and sought for a personal interest in the fund until attorneys persuaded him that having WeWork essentially lease so many properties from its CEO would be too complicated a conflict. He intended to use the money to co-develop the last office skyscraper on the World Trade Center site, as well as other big projects.
Mr. Neumann convened a meeting with a few top executives in late April of 2018. He grabbed a piece of paper and a pen from his pocket. He drew three lines that formed a basic triangle. He assured them that this was WeWork’s future.
In a 2018 presentation to SoftBank, Mr. Neumann outlined his triangle approach.
WeWork’s primary office business was represented by one of the triangle’s corners. The real estate ownership arm, ARK, was another. Then there were services, which included a wide range of companies such as brokerages and cleaners that keep the real estate industry humming.
Attendees gathered around each corner as he scribbled “$1 trillion.” He said that each of WeWork’s divisions would be a $1 trillion company on its own.
Mr. Neumann informed the audience that he had just experienced an epiphany. What if the whole system was owned by one person? What if WeWork integrated everything vertically? WeWork would be the owner of buildings, the builder of buildings, and the lessee of buildings. Apartments would be rented. WeWork would provide advice on office space to businesses, eventually becoming the only option. WeWork would create buildings for businesses that wanted to remain in them, then lease them desks, operate their coffee machines, and sell them software. WeWork IDs may be used to gain access to security gates operated by WeWork. WeWork would locate renters space and get a broker’s fee if they chose to lease with someone else. It has the potential to be massive.
Unlike his previous haphazard acquisition approach, officials around him claimed they saw genuine potential in this ambition to disrupt the whole real estate industry.
The triangle approach would cost a lot of money, but if it succeeded, it could completely change the world.
‘Chicken first!!’ says the narrator.
Mr. Neumann and a few deputies went to Tokyo in late April 2018 for another meeting with Mr. Son. Mr. Neumann was first uncertain whether or not to reveal his major idea since he felt Mr. Son was in a good mood, according to aides.
It was time to let go of the grander scheme. He sketched out his triangular strategy. He made it obvious that they could create something worth billions of dollars, by far the biggest corporation on the planet, if they worked together.
It was exactly the kind of big-picture thinking Mr. Son was searching for. He was taken aback. He wanted to learn more and consider how to make a transaction.
The Tokyo presentation set off a series of meetings with top employees from both businesses over the summer, who sped into high gear to put together a massive plan code-named Project Fortitude. Mr. Neumann, Mr. Son, and their separate teams met many times in June and July in Tokyo, New York, and San Francisco to work out the details of the concept and how much money WeWork would need.
It was a substantial amount of work. According to a copy of Mr. Neumann’s presentation, he informed Mr. Son at a meeting in New York at the beginning of July that he needed $70 billion to achieve his goals. It was a massive figure. The Vision Fund had a total value of $100 billion. Uber, which had raised more money than any other company in history, had raised a total of $12 billion throughout its lifetime.
Mr. Neumann and his team lavished Mr. Son with predictions of WeWork’s explosive growth if a deal could be struck. He drew a diagram showing how, by 2023, WeWork will have 14 million people working in its offices, more than Belgium’s whole population, up from 420,000 in 2018. It would need more than a billion square feet of real estate, more than double the size of Manhattan’s total office market.
According to statistics in a presentation he gave Mr. Son, the WeWork business that leased space to big companies was booming. If its biggest subtenant, Amazon.com Inc., keeps growing at its current pace, WeWork will have 200,000 workstations by 2023, which is a huge number for any business.
Mr. Neumann emphasized in his presentation that all of this would be profitable. By 2023, WeWork’s core business would generate $101 billion in sales, up from $2.3 billion in 2018.
The estimates projected for a staggering $358 billion in revenue in 2023 when combined with ARK and WeWork’s services divisions. (Apple, on the other hand, made $266 billion in 2018.)
WeWork is expected to generate $358 billion in sales by 2023, according to a projection provided to Mr. Son.
courtesy of Getty Images/Drew Angerer
Mr. Son seemed unfazed by the huge numbers—the demands for unheard-of amounts.
Mr. Son informed Mr. Neumann that it was frequently essential to invest in expansion before the demand was apparent. Attendees claimed that during the discussions, before he created the Yoda image, he made an analogy for the WeWork team about the chicken and the egg. WeWork needed to construct first, demonstrating a completed product to the world, and then demand would follow. The completed chicken arrived first, followed by the egg.
This admonition, like the “10k” rule, was immortalized on the Yoda image: “Chicken First!!”
As Mr. Son pressed Mr. Neumann for more, and the two plotted their course for the future, their ambitions pushed the world’s financial system to its limits. One slide from an ARK presentation, for example, highlighted how the company’s expansion ambitions relied on $593 billion from investors and lenders—a sum that would account for a significant portion of the US commercial real estate financing sector.
The reward would be a once-in-a-lifetime increase in value that the world had never seen before. Mr. Son, who was working beside Mr. Neumann in a room at WeWork’s headquarters, brought up a graphic on his iPad that showed WeWork’s primary business growing at a hockey-stick-like rate. WeWork’s primary business will have 100 million members and $500 billion in sales by 2028, he said. Then he gave it a value, combining his projections for ARK and services.
“$10 T,” he wrote in yellow ink and underlined twice. The total market capitalization of the United States was about $30 trillion. Mr. Son, on the other hand, had huge plans: by 2028, WeWork would be worth $10 trillion.
Mr. Son scribbled in yellow the words ‘$10T,’ alluding to a forecast that WeWork will be valued $10 trillion by 2028.
Mr. Son agreed to a deal because he was confident enough in WeWork’s future. It wouldn’t be as large as Mr. Neumann’s proposed $70 billion, but it would be massive nevertheless.
After months of negotiations, they came to an agreement: Mr. Son would buy out all of Mr. Neumann’s current investors for roughly $10 billion and put another $10 billion into WeWork, giving SoftBank control of the majority of the business and leaving Mr. Neumann as the only other major shareholder.
SoftBank agreed to provide WeWork $3 billion up front as a nonrefundable deposit to set the transaction in motion.
a surprise on Christmas Eve
The talks continued until the autumn of 2018. Mr. Neumann was sure that the transaction would go through, according to WeWork officials, so he started speeding WeWork’s preparations before SoftBank’s cheque came. The business started to devote significant resources to developing the triangle’s third point—services. The number of employees increased dramatically, particularly in departments that assisted businesses in managing their own office space. Mr. Neumann pushed his employees to make additional purchases and considered purchasing competitor real-estate firms.
He stressed income growth as a major priority with his assistants. Almost anything might be considered. Mr. Neumann has been in negotiations to purchase Sweetgreen. According to individuals familiar with the matter, he told aides he wanted to acquire ride-hailing startup Lyft Inc. and started negotiating an investment in the company. Mr. Son, an Uber supporter, discovered out and expressed his displeasure to WeWork officials. WeWork’s losses, which were already astronomical, proceeded to rise.
The transaction was almost done by Thanksgiving, but it took longer than expected because Mr. Neumann and his attorneys kept renegotiating his half of the bargain—his pay and contract.
According to individuals familiar with the discussions, Mr. Neumann wanted the opportunity to hold an extra 9% of the business if he met specific goals—an sum that might amount to tens of billions of dollars depending on the benchmarks they were negotiating.
He sought guarantees that he would retain control over the project, despite the fact that Mr. Son was footing the bill.
SoftBank CFO Yoshimitsu Goto, shown far right in 2018, told Mr. Son, far left, that if a WeWork acquisition went through, shareholders would revolt even more.
Photo courtesy of Bloomberg News/Kiyoshi Ota
SoftBank, on the other hand, sought provisions that would allow it to fire him in certain situations. Mr. Neumann bargained to the point where SoftBank would be unable to remove him from the company without incurring a significant penalty if he was arrested for any crime, for example. People involved with the discussions said his attorneys pushed for a clause requiring him to commit a serious crime before SoftBank could remove him without punishment.
As the year came to a close, and Mr. Neumann’s personal talks came to a close, everything seemed to be on track.
The financial markets then started to tremble.
SoftBank’s own stockholders were already on edge. The WeWork acquisition was not attractive to SoftBank’s largest investors, Saudi Arabian and Abu Dhabi sovereign wealth funds. People familiar with the transaction said they saw WeWork as overpriced and out of sync with the Vision Fund’s tech-focused approach, among other things. SoftBank would have to put up the $20 billion themselves, which would be a huge check even for SoftBank.
A global sell-off in tech equities, as well as a poorly-timed spinout of SoftBank’s Japanese telecom business, which had one of the worst-ever stock-market performances shortly after its IPO in Japan, added to worries.
SoftBank’s stock started to plummet, and it continued to plummet.
According to individuals familiar with the discussions, SoftBank’s top financial officer, Yoshimitsu Goto, told Mr. Son that if the WeWork acquisition went through, shareholders would rebel even more. It has the potential to drive SoftBank’s shares into the drain. He informed him that the WeWork buyout was just unsustainable. The agreement had to be canceled.
Mr. Neumann was surfing in Hawaii on Christmas Eve, getting ready for the transaction to close—for his new chapter as a private business.
His phone began to ring. Mr. Son was the caller.
Mr. Son informed him that the transaction was dead, which Mr. Neumann subsequently communicated to employees. SoftBank was unable to make it happen.
Mr. Neumann made an attempt to save the patient. Mr. Son, on the other hand, was unwilling—the opportunity had gone. Instead, he offered him a token of his appreciation: a $1 billion investment at a $47 billion value.
Multiple aides said they understood the unstated truth when talking on the phone with Mr. Neumann’s subordinates shortly after: One billion dollars wouldn’t go very far.
WeWork would need to find a new method to raise billions without SoftBank’s ongoing support. SoftBank was the largest fish in the private markets because no one else had billions to throw at them.
There was only one obvious place to go for that kind of money: the open markets. As a result, employees started preparing the foundation for a public offering. The planned IPO would roil the financial world nine months later, when investors balked at WeWork. It was the beginning of the $47 billion startup’s demise.
Adapted from Wall Street Journal writers Eliot Brown and Maureen Farrell’s book “The Cult of We: WeWork, Adam Neumann, and the Great Startup Delusion,” which will be released on July 20, 2021 by Crown, an imprint of Random House, a part of Penguin Random House LLC. Eliot Brown and MMF Creative Inc. Copyright 2021
Dow Jones & Company, Inc. All Rights Reserved. Copyright 2021 Dow Jones & Company, Inc. 87990cbe856818d5eddac44c7b1cdeb8
The We That Didn’t Work at WeWork is a story about the people who didn’t work at WeWork. They are all successful and have great stories to tell. Reference: wework story.
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