WeLose, IWin
October 24, 2019 6:46 AM   Subscribe

The saga of WeWork in the past few months has been a strange and infuriating one, even for financial markets. Starting from a crazy August IPO filing which contained ten pages detailing how then CEO Adam Neumann was a risk to the company, to the collapse of the company's value and cancelation of the IPO, leading to Neumann's ouster as CEO. But Neumann has had the last laugh, as his position with "superowner" stock options giving him oversized control of WeWork has allowed him to force investor SoftBank to buy him out with a golden parachute worth $1.7B, at a time when WeWork doesn't even have the funds to perform necessary layoffs.

Bloomberg financial pundit Matt Levine, who has been covering the WeWork fiasco, has an interesting column on this latest development:
Well obviously there will be a Harvard Business School case study about WeWork, but what will it say? What is the lesson? It’s a good lesson, right? A lot of kids starting at Harvard Business School next fall will be hanging up posters of Adam Neumann in their dorm rooms. Neumann, the founder of WeWork, will walk away from this corporate bonfire with a billion dollars and a bunch of fancy houses. His great-grandchildren will be prominent philanthropists with their names on museums and universities, the strange origin of their fortunes long forgotten. Neumann did a certain sort of capitalism—one with some cachet at HBS!—as well as anyone has ever done it. It is one thing to build a successful company that creates a lot of value and take some of that value for yourself; Neumann created a company that destroyed value at a blistering pace and nonetheless extracted a billion dollars for himself. He lit $10 billion of SoftBank’s money on fire and then went back to them and demanded a 10% commission. What an absolute legend.
posted by NoxAeternum (75 comments total) 33 users marked this as a favorite
 
I've been flinging my resumes at WeWork repeatedly for the past several months because a job as one of their community managers would be perfect for me.

This goes a long way to explaining why no one has called me back and gives me some pause.
posted by EmpressCallipygos at 6:48 AM on October 24 [14 favorites]


Happy 90th anniverssay of the great crash of 1929!
posted by The Whelk at 6:51 AM on October 24 [46 favorites]


The thing to remember with WeWork is that it was a real estate firm (with a number of competitors who, unlike WeWork, run a profit) that masqueraded as a tech company. The IPO filing made that abundantly clear, as well as making clear Neumann's double dealing with the company, such as buying the company's trademark and then licencing it back to the company. (No, I am not making this up. WeWork was that fucked up.)
posted by NoxAeternum at 6:55 AM on October 24 [26 favorites]


But Neumann has had the last laugh, as his position with "superowner" stock options giving him oversized control of WeWork has allowed him to force investor SoftBank to buy him out with a golden parachute worth $1.7B,

Capitalism: Not even once.
posted by Your Childhood Pet Rock at 7:00 AM on October 24 [20 favorites]


Last fall, I contracted for a startup in downtown Seattle (which was later acquired by Uber, but that is a different story). The company had a floor in a lovely older office building on First, a building which may have housed the inaugural offices of the local classical station, KING-FM.

As far as I could tell, the entirety of the rest of the building was being leased by WeWork. I occasionally ended up on a WeWork floor by accident, and I gotta tell you, those were some nice office and work areas, and they were full of earnest young people with laptops.

I wonder what it’s like there today.
posted by mwhybark at 7:01 AM on October 24


Paraphrasing from Twitter but WeWork was a device made to launder Saudi oil money into on tap Kombucha in downtown philly that also managed to raise rents everywhere and cash out the guy behind it to the a tune if a few billion.

It’s Pets.com but with the bulk of commercial real estate in several major cities here and abroad.

This is going to get so bad.
posted by The Whelk at 7:02 AM on October 24 [30 favorites]




WeWork bought Meetup last(?) year, I really hope this doesn't impact them, I am involved in several and they are important to me and others.
posted by ellieBOA at 7:05 AM on October 24 [5 favorites]


Also it’s become even more ALARMINGLY obviously that Netflix and Tesla are just lying about their numbers and finical situation and quite possibly other major players. I’m seeing friends in tech and media having projects abruptly cancelled and I don’t think people have put together how fragile the whole advertising duopoly is - the bursting media bubble will take social media with it.

No one wants to be the first one to blink cause they know once they do this whole house of cards collapses and if I was paranoid I’d say the people in charge and trying to game the timing of it like wasnt it not that long ago that GE was about to default on all its pensions? Or that the Fed was quietly slipping major banks huge ass loans for SOME reason?
posted by The Whelk at 7:07 AM on October 24 [22 favorites]


Meetup is in fact being impacted by the wework purchase. Meetup has floated the idea of charging $2 for each rsvp. If an organizer doesn’t want their members to bear that cost, the proposal is for the organizers to pay it. Note, that’s not $2 per attendee. It’s per rsvp. Some groups were ‘selected’ to be part of the ‘pilot.’

I’m sure you can imagine the response.
posted by bilabial at 7:08 AM on October 24 [15 favorites]


As far as I could tell, the entirety of the rest of the building was being leased by WeWork. I occasionally ended up on a WeWork floor by accident, and I gotta tell you, those were some nice office and work areas, and they were full of earnest young people with laptops.

I wonder what it’s like there today.


Embalmed, apparently.
posted by NoxAeternum at 7:09 AM on October 24


The people who should be learning a lesson from this are not those who want to emulate Neumann (because a large part of his windfall was luck), but investors who should avoid following SoftBank’s path of failure and stupidity. Does Neumann deserve that money? Hell no. But why on earth was SoftBank so free with it in the first place? Why do these types of investors have so much money that they can afford to set it on fire like this with poorly thought-out ventures? I wish coverage would focus more on this system and less on the individual case of Neumann.

(I’ve heard so many stories about people interviewing at WeWork over the years, it was always viewed as “should I go work for this start up with the weird boss?”)
posted by sallybrown at 7:10 AM on October 24 [12 favorites]


The thing to remember with WeWork is that it was a real estate firm (with a number of competitors who, unlike WeWork, run a profit) that masqueraded as a tech company.

“Tech”, when referring to business sectors, nowadays does not refer to making software/silicon*, but rather to a frothy mix of the-usual-rules-don't-apply hype infused with billions in venture capital funding, sucking oxygen out of the sector that rivals operate in. The end goal is to use this to wait out incumbents as they flounder and die, and then capitalise on one's lack of competition. They call this “tech” because the original businesses of this sort (think Uber) used the internet/apps as their shtick.

* of course, “tech” firms may well have these things for show, at least in Potemkin-village form. WeWork obviously had apps and such, and I wouldn't be surprised if they had some kind of blockchain for keeping track of their hotdesks or machine-learning algorithms for, I don't know, adjusting the office mood lighting to optimal levels, or some other woo.
posted by acb at 7:17 AM on October 24 [28 favorites]


I've been renting a desk from WeWork since mid 2014 and the core product has always been great. I recently toured other coworking locations in my area and they are all claustrophobic and unwelcoming. It really sucks. I feel terrible for all of the really nice and helpful people that have worked at the various locations I've used. Hopefully SoftBank can turn it around.
posted by grumpybear69 at 7:21 AM on October 24 [3 favorites]


Not sure if this has already been linked to on MeFi, but:

The Millennial Urban Lifestyle Is About to Get More Expensive

This especially caught my eye:

Let’s say you buy a subscription to a meal-kit company, which sends you fresh ingredients and recipes to cook at home. You pay $100 a month. The ingredients are tasty, so you renew for the second month. And the third. But by the fourth month, you’ve decided that you’ve learned enough basic tricks around the kitchen to handle roasted chicken or sautéed cod by yourself. You cancel the subscription.

Your lifetime value to this company is $400—or $100 for four months. Since you quit, the meal-kit company has to find the next “you” to keep growing. So they advertise on podcasts. Let’s say that, on average, this company can expect to add 100 new users if it spends $50,000 on podcast advertising—or $500 per new user.

If the company spends millions on podcast ads, its user base and revenue base will grow and grow. Outside analysts will gasp and marvel: This meal-kit thing is on fire! But look closer: If it costs $500 to add a new user, and the typical marginal user—like you—only spends $400 on meal kits, there is no path to profitability. The road leads to the red.


I guess I've known for a long time that the economics of these startups generally didn't work, but something about this and its timing made it sink in that they're largely never going to work. When does this house of cards finally collapse in some kind of definitive way?

And is it going to take a good chunk of podcasting with it?
posted by ryanshepard at 7:23 AM on October 24 [17 favorites]


The pace of innovation is moving so fast I barely even heard of WeWork before it exploded. I think my first encounter with the name was this late summer on an awkwardly renovated building in WQW.

Me: hey what do you kids do to make money these days?

Kids, looking up from pitchforknig hundred dollar bills into a bonfire boiling craft beer wort: DISRUPT

Me: cool, cool, what's your business plan?

Kids, growling: NO PLAN, JUST DISRUPT
posted by seanmpuckett at 7:25 AM on October 24 [35 favorites]


Why do these types of investors have so much money that they can afford to set it on fire like this with poorly thought-out ventures?

A large portion of the investment money came from the Saudi Public Investment Fund, who probably don't see $10B as a tragic loss. The reputation laundering they get from these kind of tech investments is money well spent even if the financial return doesn't pan out.
posted by parallellines at 7:34 AM on October 24 [6 favorites]


or some other woo.

Oh, that's another part of this mess. One of the other parts of WeWork was a pricy (up to $50k in tuition) private school run by Neumann's wife, Rebekah (who was also a cofounder of WeWork.) Whose maiden name was...Paltrow.

Yes, of those Paltrows - Gwyneth is her first cousin. And no, this particular apple did not fall far from this particular tree - reports were that she would fire new hires because she "didn't like their energy", among other things.

Yes, this story just gets weirder the more you dig into it.
posted by NoxAeternum at 7:36 AM on October 24 [19 favorites]


And is it going to take a good chunk of podcasting with it?

Not in the least. Like most art, podcasters start doing things for fun first, and are often surprised by actual interest. Those who get ad dollars may have been pleased by the rates, but know it's not sustainable. The fact that pretty much every podcast has the same dozen advertisers is sort of a running joke at this point.

I think a lot of podcasts are already onto the fundraising/patreon model that other independent artists (think webcomics) moved to.
posted by explosion at 7:37 AM on October 24 [6 favorites]


“Paltrovian woo” is the Pecksniffian cant of our age.
posted by acb at 7:41 AM on October 24 [16 favorites]


It’s Pets.com but with the bulk of commercial real estate in several major cities here and abroad.

Where oh where is fuckedcompany.com when you need it??
posted by Melismata at 7:41 AM on October 24 [15 favorites]


I also feel like at least a decent number of the companies advertising on All The Great Podcasts are ones with a sustainable business model. I know Squarespace is profitable, even though it's also still raising money, though Casper is still not profitable.
posted by SansPoint at 7:42 AM on October 24 [1 favorite]


There will be no bailout for landlords and VC firms when this all goes south. Banks and automakers get bailouts because they are critical pillars of our economy. This is more similar to 2001 than 2008. People who have invested their entire retirement portfolio in second wave tech unicorns are going to get thrashed. It is all in all a blessing that WeWork never went public - the blast radius of its implosion is much smaller than it would have otherwise been.
posted by grumpybear69 at 7:48 AM on October 24 [9 favorites]


But by the fourth month, you’ve decided that you’ve learned enough basic tricks around the kitchen to handle roasted chicken or sautéed cod by yourself. You cancel the subscription.

But, thanks to skyrocketing rents in your neighbourhood, your shared millennial apartment has now become so overcrowded that using the kitchen to actually cook in is beyond a realistic possibility...
posted by Cardinal Fang at 7:50 AM on October 24 [9 favorites]


Thankfully for you and other sharehousing millennials, a new startup is offering cocooking spaces, available in funky, gentrifying creative-class neighbourhoods, bookable by the half-hour by app with a monthly subscription.
posted by acb at 7:56 AM on October 24 [25 favorites]


When does this house of cards finally collapse in some kind of definitive way?

Soon. The same as it did for Web 1.0, and in the same way, and for the same reasons, and the scoreboard will read the same (winner: the guy not holding the funny paper).

The only difference is that last time they at least bothered to pretend that there was a viable business strategy in there somewhere.
posted by Cardinal Fang at 7:58 AM on October 24 [6 favorites]


acb: Not sure if you're joking, but the other day, I passed by a storefront occupied by a "Ghost Kitchen" startup called (ugh...) Zuul.
posted by SansPoint at 8:06 AM on October 24 [9 favorites]


WSJ: Adam Neumann gets a $185 M consulting fee / can sell up to $1 B of stock
meanwhile, more than 90% of WeWork employees are under water on their stock/options

posted by octothorpe at 8:09 AM on October 24 [2 favorites]


Not sure if you're joking, but the other day, I passed by a storefront occupied by a "Ghost Kitchen" startup called (ugh...) Zuul.

Was that a cocooking space for the kitchenless millennial precariat, or a dark kitchen startup, providing cooking facilities (and possibly staff) for the delivery-only arms of restaurants?

Perhaps they'll combine the two? Pay money to get to cook in modern, brightly-lit facilities, in much the way that gardenless office workers in Japan will pay to rake leaves. The recipes are gamified, and the resulting food is sold over the web and delivered by delivery courier (who may be you, though it'd be a coincidence). The operation makes the money, though runs at a loss.
posted by acb at 8:14 AM on October 24 [4 favorites]


I had never heard of Ghost Kitchens so I googled it. Here's the NY Post describing the new ... thing.
posted by bilabial at 8:15 AM on October 24 [4 favorites]


What, him worry?
posted by scruss at 8:35 AM on October 24 [3 favorites]


> a job as one of their community managers would be perfect for me

Well, maybe not perfect exactly...
posted by Naberius at 8:43 AM on October 24 [1 favorite]


Meetup is in fact being impacted by the wework purchase. Meetup has floated the idea of charging $2 for each rsvp.

Huh, maybe this explains all the recent ads for Facebook Groups that position it as basically what MeetUp was doing 15 years ago.
posted by stopgap at 8:46 AM on October 24 [1 favorite]


I found this video to be a good overview of the craziness of WeWork, for those who would prefer such.
posted by NoxAeternum at 9:00 AM on October 24 [3 favorites]


Melismata: "Where oh where is fuckedcompany.com when you need it??"

Matt Levine is a one-man FuckedCompany and his reporting is both incisive & funny, especially in re WeWork
posted by chavenet at 9:11 AM on October 24 [5 favorites]


Also it’s become even more ALARMINGLY obviously that Netflix and Tesla are just lying about their numbers and finical situation and quite possibly other major players.

THat's because this time around, nobody's doing IPOs. The companies stay private. Shares are bought and sold over Chinese food on the Camino Real the way they used to be bought and sold in Amsterdam coffee houses. So you don't get the quarterly reports or the daily trading activity so you can see the slump coming like in 2001.
posted by ocschwar at 9:46 AM on October 24 [1 favorite]


So here's a question.

The first wave of dotcoms failed spectacularly and lost a lot of venture capitalists some money (inert world's tiniest violin here).

But one succeeded beyond the wildest dreams of anyone (Amazon), and a couple of others (ebay, PayPal) survived and were profitable.

If you'd bought Amazon stock back in 1997 when it first went IPO you'd be rich now. If you bought pets.com stock back in 1998 when it went IPO you'd have lost that money.

So... which of the second wave dotcoms will survive and which, if any, will grow beyond all imagining like Amazon did?

Presumably the answer is essentially unknowable until we get through this and then like the survival of Amazon in hindsight the reasons will seem obvious.

But anyone taking any bets?

I'm betting **SOME** company that involves moving people around, whether a rideshare or a scooter company or something, will survive. People move around, owning a car is expensive and getting moreso, clearly there's a market in there somewhere and traditional taxi companies suck at filling it so hard that people will try just about anything to avoid a taxi. But sheesh, none of the current batch of people moving companies look like they have much future. Maybe Uber if it can survive on venture capitalist money long enough for self driving cars to become viable.

Any thoughts on which, if any, of the second wave dotcoms will survive and become profitable?
posted by sotonohito at 9:56 AM on October 24 [4 favorites]


ocschwar Except both Tesla and Netflix are publicly traded. Netflix had an IPO in 2002 and Tesla in 2010.
posted by sotonohito at 9:58 AM on October 24 [4 favorites]


Also it’s become even more ALARMINGLY obviously that Netflix and Tesla are just lying about their numbers and finical situation and quite possibly other major players.

Netflix and Tesla are public companies and as such responsible for required financial reporting. I don't know what 'lying about their numbers' means in this context, but Tesla and Musk specifically have had issues with SEC and they (employees of the SEC) take their jobs quite seriously for official documents.


Also the poster child of 2001, Pets.com, had a child named Chewey.com that was a very successful seller of pet food online and later acquired by brick and mortar pet food seller Petsmart, who had enough money lying around to stomp out online competitors.
posted by The_Vegetables at 10:00 AM on October 24 [5 favorites]


Any thoughts on which, if any, of the second wave dotcoms will survive and become profitable?

The best clues are when established companies jump on whatever the startup is doing and the startup stays in the game, both because it means the idea is profitable to more conservative planners and because the startup shows it can jump the hurdle of tough competition. Like Slack (now with Microsoft and some other big players emulating). Probably some more complicated software startups that I don’t know much about, as opposed to food or mattress delivery.
posted by sallybrown at 10:03 AM on October 24 [2 favorites]


Meetup is in fact being impacted by the wework purchase. Meetup has floated the idea of charging $2 for each rsvp.

Fuck, I run a group with 3500 members 😢
posted by ellieBOA at 10:26 AM on October 24 [2 favorites]


Neumann created a company that destroyed value at a blistering pace and nonetheless extracted a billion dollars for himself. He lit $10 billion of SoftBank’s money on fire and then went back to them and demanded a 10% commission. What an absolute legend.

Well, The Donald is looking for a new Secretary of Commerce.
posted by cenoxo at 10:34 AM on October 24 [1 favorite]


Leaked transcript: Read what WeWork’s new chairman told anxious employees at an all-hands meeting:
So nobody’s paying Adam a billion dollars or 1.7 billion dollars. That’s one. Two, Adam for whatever reason, borrow money from J.P. Morgan. And as part of this, you read in the news, you know the different packages that were being offered to the company. So we made the decision to lend Adam a certain amount of money for him to pay his loan. But in exchange as he sells those shares, he needs to pay us right back. So think about it we’re giving him a loan so we can...so those shares were pledged, so those shares can move back to Adam and then we can basically get repaid. And then thirdly, is we’re paying him a consulting fee.

It’s a loan, it gets paid back, so it’s not 1.7 billion dollars. And we pay him a four year consulting in exchange for getting a lot of his rights, getting some of his brains and to be fair, to be signing a noncompete that I still don’t understand how a company would not make him have sign a noncompete in the past. To be as transparent as it is, I’d like to put the Adam story behind us, the payout.
The last part reads to me like he doesn't want to have to answer uncomfortable questions more than once. Mostly it will be interesting to see if what they're categorizing as a loan ever gets paid back, or if it just gets written off as a bad debt down the road.
posted by fedward at 11:00 AM on October 24 [3 favorites]


I think The Whelk was trying to paraphrase Chris Anderson's tweet
But if you think of WeWork as a massive transfer of wealth from Saudi Arabia to an Israeli entrepreneur via an ethnic-Korean Japanese visionary it's really a heart-warming story of cross-cultural trade worthy of the Model UN
The folks I'm most curious about in this massive debacle are JPMorgan Chase, the clowns who chose to try to manage WeWork's IPO. I get how Softbank and the Saudi sovereign fund and all that got fleeced; they were private investors just desperate to get into this thing, believed Neumann's messianic bullshit, and let him walk all over them with investment terms and magic beans.

But JPMorgan tried to bring this company public. They saw all the books and took on the task of making those books available to the public, to convince the public to invest in WeWork after everything came out. To their credit they didn't commit outright fraud, they seem to have disclosed a lot of the problematic stuff about WeWork. Enough that the IPO was laughed out of Wall Street and the company's nominal valuation went from $50B to.. what, $5B? Something like that. JPMorgan was in the middle of all that. I'm sure they feel no shame, but do their peers at least look at them and be like "what the fuck bro?"
posted by Nelson at 11:31 AM on October 24 [5 favorites]


The answer to “what the fuck, bro?” is “Well, that’s business!”
posted by Jon_Evil at 12:03 PM on October 24 [1 favorite]


Nelson: "I'm sure they feel no shame, but do their peers at least look at them and be like "what the fuck bro?""

2% of $5 billion is, while not as much as 2% of $50 billion, still a lot of cabbage.

JP Morgan could give two rats' asses about what actually happens to the We Company; they get their commissions coming and going.
posted by chavenet at 12:15 PM on October 24 [6 favorites]


But JPMorgan tried to bring this company public. They saw all the books and took on the task of making those books available to the public, to convince the public to invest in WeWork after everything came out. To their credit they didn't commit outright fraud, they seem to have disclosed a lot of the problematic stuff about WeWork. Enough that the IPO was laughed out of Wall Street and the company's nominal valuation went from $50B to.. what, $5B? Something like that. JPMorgan was in the middle of all that. I'm sure they feel no shame, but do their peers at least look at them and be like "what the fuck bro?"

Matt Levine has the answer (the whole column is brilliant):
Obviously the next step is hard: If WeWork hires you to do an IPO at a $65 billion valuation, you would like, ideally, to get investors to buy WeWork stock in the IPO at a $65 billion valuation. Or $75 billion even, no one will complain about that. In a pinch, $55 billion will do. Twenty billion will be a problem! Still, in the grand scheme of investment banking, it’s a nice problem to have. First you get the mandate, then you worry about executing it. If you say “$20 billion” in the pitch meeting, you are definitely not getting the mandate. If WeWork then goes public at $20 billion, you have the quiet satisfaction of knowing that you were right, but your competitor who said “$65 billion” has millions of dollars of IPO fees. They get paid even if it goes poorly.
posted by Homeboy Trouble at 12:17 PM on October 24 [8 favorites]


That Levine column really is shocking: you can dip into it at literally any paragraph and read something that confirms your worst fears of "capitalism run amok"/goddamn MBAs/"soulless VCs"/whatever. Heck, it will exceed them, and make you even more skeptical than you were before.

I was raised by a small business owner, and I respect hard work and the notion of profiting from a good idea. This is none of those, this is just....revolting.
posted by wenestvedt at 12:29 PM on October 24 [8 favorites]


WeWork has recently acquired basically all of the new office space in the Atlanta area, including an announcement over the summer that they would lease the entirety of a new building in our neighborhood, a building that's still not finished. That's a lot of (largely hideous) office space that could suddenly be on the market, but I assume that WeWork was paying too much for it, and none of the landlords will be willing to make only small profits off of real estate that they were expecting to make buckets of profits off of last month.
posted by hydropsyche at 12:35 PM on October 24 [1 favorite]


WeWork has recently acquired basically all of the new office space in the Atlanta area, including an announcement over the summer that they would lease the entirety of a new building in our neighborhood, a building that's still not finished. That's a lot of (largely hideous) office space that could suddenly be on the market, but I assume that WeWork was paying too much for it, and none of the landlords will be willing to make only small profits off of real estate that they were expecting to make buckets of profits off of last month.

I believe WeWork is already the largest holder of commercial real estate in both New York and DC, so I expect this situation will re-play across pretty much every city in the US. That said, the part where they rent office pace was among the less scammy parts of the operation and it's something people still want and are willing to pay for, so it doesn't have to be a complete disaster, and it really just depends on the landlords not being jackasses. Sadly, landlords don't have a great record in that regard.
posted by Copronymus at 12:55 PM on October 24 [2 favorites]


But why on earth was SoftBank so free with it in the first place?

Low interest rates, lots of capital and cheap debt sloshing around atm, banks desperate to find something paying out a decent profit.
posted by smoke at 1:02 PM on October 24 [4 favorites]



But why on earth was SoftBank so free with it in the first place?

The amount of money sloshing around has become basically unimaginable.

It's approximately the 2nd biggest company in Japan after Toyota. $10b is 1 year of net income for them. Comparatively, most families make a riskier investment by buying a luxury used car or in the US, or by having a child and paying for childcare.
posted by The_Vegetables at 1:14 PM on October 24 [5 favorites]


I find just the idea of WeWork incredibly depressing.
posted by aspersioncast at 2:06 PM on October 24 [4 favorites]


Also the poster child of 2001, Pets.com, had a child named Chewey.com that was a very successful seller of pet food online and later acquired by brick and mortar pet food seller Petsmart, who had enough money lying around to stomp out online competitors.

Chewy was successful in getting bought out, but has never actually shown a profit. It's super easy to become a top retailer if your plan is to subsidize price cuts with investment capital I guess. Although hey, they were only losing $29.6 million in the quarter ending this past May...

The marketing hype around these 'successful' companies absolutely befuddles me. Shopify's another one that is churning out article after article about how it's so successful, it's going to take on Amazon, meanwhile, quarter after quarter, they're showing a net loss of millions and millions of dollars in their public earnings reports.

It all seems very dot-com bubble to me, although I'm having trouble remembering anything anywhere close to the scale of absurdity of the WeWork situation.
posted by Leviathant at 2:17 PM on October 24 [1 favorite]


WeWork may be the largest commercial tenant in New York but they are not the largest commercial real estate holders. That title could arguably go to Brookfield with SL Green and Vornado coming up in the top holders list as well. It is of course the City of New York itself that owns the most property here - just perhaps not the most commercial property.

The linked Citylab article does a nice job of talking about the realistic effect that WeWork's demise would have on New York real estate and the conclusion is - not much.
posted by rdnnyc at 2:28 PM on October 24 [1 favorite]


My instinct has always been that a proper business should be able to start making a profit year 2 at the latest, and that any business based on selling PII or largely based on targeted ad revenue isn’t a real company. Obviously that’s not how our world works today, but I’m not going to shed any tears when I read that businesses falling into those categories have bitten the dust. Speculation and profiting off abstract meta shit like unethically harvested user data, and focusing on next quarter’s profits ... all of that is pure woo.
posted by freecellwizard at 3:59 PM on October 24 [2 favorites]


But why on earth was SoftBank so free with it in the first place? Why do these types of investors have so much money that they can afford to set it on fire like this with poorly thought-out ventures? I wish coverage would focus more on this system and less on the individual case of Neumann.

People have already answered this, but I'd like to add that the reason there's so much money for the super-rich to throw around that they're treating billion-dollar investments like lottery tickets is that so many governments have given up on taxing the ultra-wealthy at anything approaching (recent) historical rates. 50 years ago, this money would have been available for infrastructure, social support, and any number of public goods that build long-term wealth for a society. Instead, billionaires are hoarding it for themselves and trying to turn every single startup into Amazon because that's the only use for their money that really moves the needle for them.
posted by Copronymus at 4:25 PM on October 24 [13 favorites]


50 years ago when companies like AT&T had a billion dollars in profit, they had a choice. They could give half of it to the government in taxes at a 50% rate or they could keep all of it if they spent it on research like Bell Labs.

Now days, with low taxes, companies don't face that choice. They just get to keep the whole billion dollars regardless. They don't spend it on research. They just buy lottery tickets.
posted by JackFlash at 4:33 PM on October 24 [12 favorites]


I wouldn't be surprised if they had some kind of blockchain for keeping track of their hotdesks or machine-learning algorithms for, I don't know, adjusting the office mood lighting to optimal levels, or some other woo.

More than once I was contacted by a WeWork recruiter about machine learning positions. Given that they had no obvious non-rubbish need for machine learning, I never responded, so I don't know what they were doing. (Also, Squarespace contacts me a lot, but at least some of those are analytics positions, which I'd be a terrible fit for, but can imagine they actually need.)
posted by hoyland at 4:33 PM on October 24 [1 favorite]


But JPMorgan tried to bring this company public. They saw all the books and took on the task of making those books available to the public, to convince the public to invest in WeWork after everything came out. To their credit they didn't commit outright fraud, they seem to have disclosed a lot of the problematic stuff about WeWork. Enough that the IPO was laughed out of Wall Street and the company's nominal valuation went from $50B to.. what, $5B? Something like that. JPMorgan was in the middle of all that. I'm sure they feel no shame, but do their peers at least look at them and be like "what the fuck bro?"

No, because their peers all suggested valuations in a somewhat similar range when pitching to We. I mean, some of them probably are talking smack, because finance people do, but mostly they're going, okay, losing that mandate, not as bad as we thought.

Something that people (understandably) struggle with understanding is that the "correct" price of an IPO is: whatever clears. There are infinite refinements possible--the most basic is that the underwriter wants to go in a little low so that their clients enjoy that first-day pop on their allocated shares, whereas of course the company wants the highest possible price--but JPM didn't go in and do a Sober, Serious Measurement of Underlying Value On Penalty of Perjury. They may have modelled the way other people would do so, but their goal is to get a market price, and that's...what the market will pay.

Levine is both smart and funny as hell, but I always want to caution people that he's an industry apologist at heart (if there is a vaguely non-shady reason for industry conduct that could possibly exist, he will propose it), and if you're not familiar with the material, you can mistake his humor for his more serious analysis.
posted by praemunire at 5:29 PM on October 24


My company leases office space in a wework for one of our satellite offices. It was much nicer then our headquarters office and always wondered how it worked out on a per-person basis. Sadly the last time I visited the kombucha tap was broken
posted by CostcoCultist at 5:36 PM on October 24 [1 favorite]


If you'd bought Amazon stock back in 1997 when it first went IPO you'd be rich now. If you bought pets.com stock back in 1998 when it went IPO you'd have lost that money.

So... which of the second wave dotcoms will survive and which, if any, will grow beyond all imagining like Amazon did?
It’s very hard to pick phenomenal successes but I’d start with the fundamentals: in 1997, Amazon was turning a profit on their most established business units (books & music) and the numbers clearly showed that if they needed to close the gap they could just halt expansion. Pets.com, in contrast, lost money on every sale and if they started charging what they needed to change that they wouldn’t have an advantage over traditional retailers — there was no way that the market of people with mobility issues or other reasons not to go to the pet store was large enough to justify their valuation. We were in on some calls with them when our client was considering some kind of partnership and it was eye-opening: they’d have half a dozen developers on the phone, most of whom could barely spell HTML, plus business people and they were all basically openly counting down the days until the IPO would make them rich, with only token efforts to build a plausible business.

That kind of problem was always obvious with Uber, WeWork, etc.: it’s easy to be popular giving things away below cost but they never convincingly demonstrated a path to great profitability which they’d need to repay investors and such lavish compensation. Google or Facebook have businesses where the costs don’t scale linearly with the number of customers and there are steep barriers to entry for competitors; Uber, Lyft, WeWork do not and should have been targeting much lower margins.
posted by adamsc at 6:33 PM on October 24 [4 favorites]


Yeah, there was a golden period in, I want to say, late 1999-early 2000 where you could literally get piles and piles of full-size free shit in the mail just for signing up and creating an account on one of the many new dotcoms advertising their services. Like, one site gave away $25 in Philosophy (skin care) products just for creating an account. There were dozens of companies that did this.

As a veteran/victim of the dot-com crash, one thing I want to point out is that when those companies crashed, it wasn’t just basically VC capital being lost, but it also created a ripple effect in the economy, where suddenly suppliers weren’t going to get paid for their orders, and landlords weren’t going to collect rent, and contractors weren’t going to go forward with those projects after all, etc. etc. and it resulted in millions of people out of work and an overall instability in technology as an industry. Companies tried to recover their lost capital by playing with the idea they didn’t need local technology workers at all, which was not a fun time to be a tech worker. And of course, it was made 10x worse when 9/11 happened.

I sort of came to the article with a cynical mindset, like “Start-up implodes in spectacular fashion, one person gets rich after screwing everyone else, news at 11.” No shit the stock options are worthless. Everything about the WeWork saga is such a perfect cliche of start-ups that it truly should be a textbook example. I and so many people I know went through that exact experience, except on a smaller scale.

But where at first I thought to myself, “This is exactly how it went 20 years ago, you still haven’t figured it out?” to realizing we shouldn’t have to “figure out” that this business model is ridiculously exploitative and ruinous, and avoid working at such places on an individual level. It just shouldn’t be allowed to happen.

And the worst thing about it is that their business model wasn’t terrible, the terrible part was that they wanted so much to be SEEN to make a huge pile of fast money that they went crazy with over-leveraging and then couldn’t pay the bills. It was like a scale model of the mortgage crisis on fast-forward, with exactly the same fucking result. It shouldn’t be allowed to happen! Companies should have to prove their value before they’re allowed to IPO, at the very least, but I don’t have an answer for the business model of “Buy up all the local resources and then just fuck it when it doesn’t work out”.
posted by Autumnheart at 7:05 PM on October 24 [13 favorites]


make you even more skeptical than you were before.

"No matter how cynical you become, it's never enough to keep up." -- Lily Tomlin/Jane Wagner
posted by Greg_Ace at 7:20 PM on October 24 [1 favorite]


I find just the idea of WeWork incredibly depressing.

There's also the depressing realisation that this is what's left of hipster culture after it has merged into bro culture and been subsumed by rentier capitalism. Not living cheaply in a warehouse, making bad art and competing on the cultural capital of obscurity (from vintage clothes found in remote thrift shops to Bands You Wouldn't Have Heard Of which may or may not be objectively noteworthy). The descendant of the 1990s Williamsburg hipster lives in a tiny space, and instead of playing bass in a math-rock band or making sculptures out of trashed VCRs or whatever, spends all their time in a "funky" coworking space with their MacBook, working on their life's opus, which is not the Great American Novel or the next Neutral Milk Hotel but rather an app for just-in-time delivery of dog-poop bags or something.

(The old creative-slacker culture isn't completely gone, but it is more a fetish of the conspicuously wealthy; the proto-boomers who have a Harley and a collection of sweet guitars a room full of vinyl records with a Eurorack modular synth setup in the middle.)
posted by acb at 1:26 AM on October 25 [14 favorites]


There's another Matt who has written astutely about this: Matt Stoller, who writes about monopoly. This article is equally depressing from an "every paragraph is a horror show" perspective: WeWork and Counterfeit Capitalism.
posted by rednikki at 1:56 AM on October 25 [4 favorites]


For those looking for an alternative to Meetup. The Switching Software (was Switching Social preciously) site keeps track of ethical alternatives to various sites.
posted by terrapin at 6:08 AM on October 25 [1 favorite]


The Atlantic lays it out bluntly - WeWork’s Adam Neumann Is the Most Talented Grifter of Our Time:
WeWork’s answer to the work-life-capitalism conundrum is a breezy: Why not all of it? Live through work, work through life, we're all in this together, but first get filthy rich yourself. Neumann secured billions of dollars from Softbank with a plan for global domination. But he burnished his company’s reputation by telling employees and members that, by doing normal jobs in a place that set its ambitions at the level of human consciousness, they could be participants in a grand fusion of profit and purpose. A capitalist kibbutz.

Half a century, ago, Scientology’s founder, L. Ron Hubbard—grappling with the failure of his self-help system Dianetics—told his wife that the best way to make real money in America wasn’t to start to start a business but rather “to have a religion.” That is not only a lesson of Adam Neumann’s ludicrously profitable shtick; it is equally the moral of this strange moment where so many U.S. businesses are looking for a New Age facelift to hide the old bones of their traditional commercial interests. By harnessing the language of uplift and spirituality, American capitalism isn’t reforming itself. It’s just claimed another commodity to be possessed, marketed, and sold.
posted by NoxAeternum at 12:46 PM on October 25 [2 favorites]


The SEC could stop this kind of grift. One of the reasons Neumann was able to walk away with 1.7 billion dollars is because of extortion. Even though he did not own a majority of the shares, he had a class of super-shares that gave him majority control of the company. In order to get him to go away, SoftBank has to pay him an exorbitant amount of money to give up his control.

This sort of non-democratic system, in which certain shareholders are given super voting rights should be illegal. If you want to trade a corporation in the public markets, then you should have democratic share rights. The SEC could require this as a condition of taking your corporation public.
posted by JackFlash at 1:00 PM on October 25 [3 favorites]


The SEC could stop this kind of grift.

But all of this grift happened prior to entering the public market. You could make it a condition of being publicly traded not to have multiple classes of shares (not the worst idea), but otherwise permissible corporate structure is largely a matter of state law, which the SEC doesn't have authority over, and while changing DE law would have a very wide reach, it seems like bringing a sledgehammer to kill a fly.

Neumann got a bigger payment from SoftBank to walk away than he would have otherwise. It's not clear to me that that money would have gone to anything more useful in the absence of that particular hold-up, as opposed to continuing to slosh tax-avoidantly in SB's coffers.

Ultimately, this grift isn't good for society or for capitalism, but that's because of the "counterfeit capitalism" aspect. The people who are victims of the failed IPO are (a) SoftBank (b) any other big private doofus who bought in at the inflated pre-IPO valuations and (c) employees with stock options. (a) and (b)'s welfare are way down the list for me, and (c) is largely well-off professionals who chose to engage in a big gamble. The people who are victims of We (and Uber, etc.)'s business model would be victims regardless of whether Neumann got a trillion dollars or zero to walk away. Those are the people I'm worried about.
posted by praemunire at 2:25 PM on October 25


SoftBank’s WeWork Bailout Draws Investor Concern (WSJ, massive paywall).
Investors and credit-rating firms are growing concerned about rising risks and weak controls at SoftBank Group Corp after the Japanese conglomerate’s nearly $10 billion bailout of WeWork. ...

But if SoftBank bails out other portfolio companies or increases its support for WeWork, ratings companies might have to reconsider how they view the conglomerate, said Hiroyuki Nishikawa, an analyst at S&P. “We didn’t expect such support [for Vision Fund companies], especially not from SoftBank itself,” Mr. Nishikawa said.
posted by Nelson at 8:17 AM on October 26 [2 favorites]


SoftBank appears to be to Saudi Arabia what Deutsche Bank were to the Russian mafiya; a vehicle for legitimising large flows of otherwise questionable funds.
posted by acb at 2:22 AM on October 28 [3 favorites]


What's questionable about Saudi Arabia's income? I mean the whole repressive kingdom / oil extraction thing is gross, but it's in no way financially questionable. Some individual Saudis seem to be corrupt, see the Riyadh Ritz-Carlton hostage situation for examples. But I believe most of Softbank's funding is direct from the country's sovereign wealth fund.

The creepy thing about Saudi money is how some of the princes spend their money financing terrorism. But I don't think anyone blames Deutsche Bank with SoftBank, are they?
posted by Nelson at 10:56 AM on October 28


Questionable in the sense of being tainted by Saudi Arabia's atrocious human rights record and/or support for extremists. A Saudi royal buying a controlling stake in your new social-media platform would taint it by association; a Japanese tech conglomerate, not so much, even if it's the same money.
posted by acb at 7:24 AM on October 29 [1 favorite]


Turns out that besides being a grifter par excellance, Neumann was also a misogynistic asshole:
Neumann’s former chief of staff is suing The We Company for allegedly sustaining a substantial gender pay gap, smoking marijuana in front of her and discriminating against her and other women for becoming pregnant and taking maternity leave, among other allegations.

The complaint, which was filed Thursday, alleges that former WeWork employee Medina Bardhi received significantly lower pay than her male peers.

According to the lawsuit, a new male hire for the chief of staff position with the “same job scope and role” as Bardhi’s “was offered an annual salary of $400,000 with a $175,000 signing bonus payable in January 2017, far more than double the annual salary of $150,000 that Ms. Bardhi was being paid in the same job.”

Neumann also allegedly asked Bardhi about her plans to get married and become pregnant during her October 2013 interview, according to the lawsuit, and later referred to her maternity leave as a “vacation” on multiple occasions.

The complaint also alleges Bardhi was “forced” to tell her boss about her pregnancy “because she knew she had to explain why she could no longer accompany Mr. Neumann on business travel, particularly due to his penchant for bringing marijuana on chartered flights and smoking it throughout the flight while in the enclosed cabin.” The suit alleges that Neuman smoked marijuana on a private flight in front of Bardhi a week before she told him she was pregnant.
What an asshole. And now everyone else will get to clean up his mess.
posted by NoxAeternum at 4:56 PM on October 31


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