Jeff Hirsh Read: May 2023
Inspiration: Saw many articles about the fall of WeWork (including the TV series) and wanted to learn about the original story
Summary
Written with the help of ChatGPT, below is a brief summary to understand what is covered in the book.
“Billion Dollar Loser”, published in 2021 by author and journalist Reeves Wiedeman, is a gripping investigative account of the rise and fall of WeWork and its charismatic co-founder, Adam Neumann. The book traces the journey of WeWork from a promising startup to a company marred by controversy and financial turmoil. Wiedeman explores Neumann’s audacious vision, his magnetic personality, and the cult-like culture he cultivated within the company. The book delves into the questionable practices, lavish spending, and mismanagement that ultimately led to WeWork’s staggering valuation collapse. Wiedeman’s narrative provides valuable insights into the world of high-stakes entrepreneurship, corporate governance, and the consequences of unchecked ambition. “Billion Dollar Loser” is a cautionary tale that exposes the excesses and vulnerabilities of the modern tech industry and serves as a compelling case study for entrepreneurs and investors alike.
Unedited Notes
Direct from my original book log, below are my unedited notes (abbreviations and misspellings included) to show how I take notes as I read.
Adam Neumann grew up mostly in Israel, spent 2 years on kibbutz which inspired his vision for WeWork as “a capitalist kibbutz”—about community but also eat what you kill, moved to NYC after 9/11–boosted by model sister Adi who let him live well, went to Baruch College, first biz idea was heels that turn to flats, then baby knee pads, inspired by classes in entrepreneurship, big talker/socializer (on back of sister at start), dropped out of college for baby clothes business—got money for Rothschild fam who was dating sister Adi, 2008 hurt the biz—had office in Dumbo which he rent part out to another company as struggle, Miguel McKelvey was co-founder—similarly eccentric as young adult, basketball player at Oregon, fixated on architecture in school, met Adam as worked in same building in Brooklyn (Miguel was doing language startup), ask their landlord to let them divvy up office space he was renovating and eventually gave them space at a diff building, called it Green Desk—month to month, community, joint space, was a hit in 2008, Adam and Miguel and other partner Haklay sold stake a year later to landlord Gruttman for quick 500k profit, Adam and Miguel then started WeWork with Manhattan building—got $15mm investment at $45mm valuation before had anything more than an idea from real estate guy Joel Schreiber in 2009, open Feb 2010 on Canal Street with 17 tenants (not cheapest option but well designed for startup types), Adam married to cousin of Gywneth Paltrow who was mild celeb which boosted Adam’s standing, Adam very religious—Kabbalah, form of judaism that shaped how he saw the world, cult-ish, Adam carried Kabbalah dyanmics to WeWork, Miguel was more sane operator type, Adam was focused on adding more spaces and tenants whatever the cost—grow and then figure out how to make money despite already low margin arbitrage nature of business, Adam was great persuader and could collect capital from others behind him to back expansion at any cost (e.g., top 30 floors of NYC Woolworth building for $68mm in 2012), Adam wanted to be “too big too fail” (profit no concern), Benchmark invested in WeWork later in 2012 which was big validation moment as at $100mm valuation (Benchmark was hesitant but had strong feeling when visited locations that profit would come), Benchmark is iconic tech VC but selective, pushed WeWork to be more tech but hard to pull off as WeWork not sure what true tech angle was despite Adam claims as Physical Social Network, 2013 Neumann turned down GS round at 220mm then get DAG at 440mm, then 2014 JPM invest at 1.5bn (Dimon/JPM eager to gain ground in tech) and WeWork now a unicorn in 4 years basically, 2014 got $5bn valuation, doled out stock options as standard but grinding people in jobs not in title, June 2015 got 10bn valuation from Gladebrook and Fidelity, other coworking player was IWG with more revenue, same margins but traded way below WeWork just due to Adam’s charisma/projections, always said can hit any revenue figure so long as funded, 2015 real estate prices ramping up so costs growing fast, Michael Eisenberg was one of key investors (worked at Benchmark) who kept reupping (viewed as FB-like opportunity), Adam continue to issue stock and dilute employees (also sell own shares to buy luxury property), Adam kept trying to grow and launch WeLive, WeWork Studios, etc as outlined in pitch deck, studio fail with 1 film, discuss private club, end of 2015 begin IPO planning but need $ so turn to China—got $600mm at 16bn value from investor John Zhao, expand into China was vision (but also US investors dwindling as had already raised 1bn), 2015 more outsiders come in at Board’s insistence (execs from Time Warner, AOL, DirecTV) and try to reign in Adam but always a challenge, rumors of layoffs spread and Adam cut immaterial costs while still lavish personal spending, Masa Son grew up in Japan, went to US at 16 then Berkeley where always writing biz/invention ideas, eventually land of software distribution “SoftBank” as way forward, founded in 80s and by mid-90s 800 employees and 1bn revenue, throughout the 90s invested 3bn in 800 startups incl Yahoo, ETrade, 2000 Softbank raised 1.2bn fund and Masa pass Gates as worlds richest then bubble burst and Masa lost 70bn as stock tank, Masa best known for Alibaba investment in Jack Ma which returned billions on small multimillion investment, saw similar vision in Adam/WeWork in 2016, Masa pledged $50bn in US investment with Trump election, Oct 2016 Masa announce $100bn Vision Fund (4x larger than prior largest fund), bulk of money from saudi gvt—45bn which Masa said took him 45 mins to negotiate with MBS, Masa offer $4bn to WeWork after touring WW for 12 mins and brief car ride as, Softbank did super thorough diligence—saw weren’t delivering on promises and thought just real estate leasing company but Masa persist on trillion dollar vision, Masa even said to Adam that Adam was not crazy enough, announced Aug 2017 $4.4bn investment at $20bn valuation, Benchmarked cashed out for 8x return on 2012 deal, Adam cashed out $361mm, Adam said valued on energy and spirituality more than revenue multiple, Industrious was competitor in second tier cities and Knotel in larger—Adam threatened to offer tenants 1,2,3 years free rent to switch and did go to cities and poach aggressively through 2017, played drums outside blackstone backed coworking company, essentially used Masa money to give discounts (common across Uber, Doordash, etc to acquire customers), Adam said he was fine with grinding execs and if left in 9 months was fine, expansion at any cost, “blitzscaling” coined by LinkedIn’s Reid Hoffman—intentionally doing things that don’t make traditional biz sense in order to grow, one big mistake was when Benchmark gave Adam supervoting shares to always have 60% of vote, IWG in 2017 had 5x spaces but $3bn value vs WW $20bn—unclear why, 2017 begin building WeGrow education/school system and suddenly Rebekah Paltrow described as 3rd founder of WeWork with Miguel despite not true, Adam also secretely own properties and collect WeWork rent so paid self—2018 want to raise $100bn fund to buy building though used to say never would own since was a tech company, WeWork also known for unfair treatment towards women and ignoring issues in culture, employees averaged around 18 month lifecycle before disillusioned, 2018 on track to lose $2bn despite having said in 2015 no more need for capital, raise debt but had to file financials and infamously show 900mm quarterly EBITDA loss but then make up “community adjusted EBITDA” at $200mm profit, Masa had big shareholder buyout idea for $20bn to value WW at $40bn and leave just a few SHs, Adam looked at buying Sweetgreen, Cushman and Wakefield, looked to middle east expansion, Adam think could mentor MBS even, Adam want to keep WW private but dual track IPO process in 2018 in case Masa try to strongarm (people inside SB were increasingly skeptical), Masa deal collapse late 2018 and was turning point (tried to spin but needed money and also needed to stay private really), early 2019 begin IPO prep with launch target by July 18, aimed to raise $3bn and trying for $50bn valution which banks compete to lead IPO, GS offer debt package to Adam to stay private and get $10bn—collapse then JPM offer $6bn debt after IPO (Adam not love going public but needed to), employees eager to cash out, late July news of debt leak and hold analyst day with big crowd, Adam had meetings with Apple and Alphabet to try to partner but never made any sense, miss July timing and aim for Sept, feverishly work on S-1 but Rebekah come in and get involved for “branding”—spent hundreds of thousands on pictures/art in S-1 which really was a distraction, Jamie Dimon tell Adam he needed to reduce his governance control or would depress value but Adam push back, Aug 14 2019 S-1 released, mocked/critized relentlessly, confirmed notion that WW hadn’t hacked real estate profitability at all just at huge scale losing money, didn’t help understand what the business did either, zero excitement, all meetings raised skepticism, nothing new in the business—just talk, Masa in bad shape as Uber IPO tanked and now WW failing as also try to launch Vision Fund 2, Masa told Adam to delay IPO, rumors in press continue of issues and Adam try to damage control, GS/JPM suggest valuation of 20bn, press say even 10bn, SEC question S-1 metrics and called misleading, Adam and Rebekah criticized for too much control, by Sept agree on 12-15bn valuation at IPO (still lucrative for Adam and insiders) but then issues of Adam’s character continue to leak and JPM suggest he give up voting shares and even control entirely, then postpone to Halloween for IPO, Masa/SB think need to remove Adam from company as stories continue in press, Adam then step down late Sept and new co-CEOs delay IPO indefinitely, discover to run out of cash by thanksgiving, firesale and damage control continue into early ’20, Adam agree to $1bn buyout from Masa but Masa hold back and Adam sued, Adam had no proponents within company at any levels unlike when Kalanick out at Uber, Adam to Tel Aviv after ousting, SoftBank posted enormous loss (marked down WW 94%), adults in the room never spoke up
