The Cult of We

Summary

Slate Money — "The Cult of We" (August 28, 2021)

Episode Overview

In this episode of Slate Money, hosts Felix Salmon, Emily Peck, and Stacey Marie Ishmael are joined by journalist and author Elliot Brown, co-author of The Cult of We: WeWork, Adam Neumann, and the Great Startup Delusion. The group dives deep into the spectacular rise and fall of WeWork, focusing on its charismatic founder Adam Neumann, the culture and financial mania that allowed WeWork to soar and crash, and the broader lessons (or lack thereof) for venture capital, startup culture, and founder worship in Silicon Valley. They also explore persistent gender disparities in VC funding and the structural oddities that fueled WeWork’s collapse.

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Main Discussion Points

1. The Adam Neumann Phenomenon

• Portrait of a Founder: Adam Neumann is painted as “a figure you’d have to invent if he didn’t exist,” with an uncanny ability to blend boundless ambition, greed, and charismatic salesmanship. Brown describes Neumann’s relentless drive:

  “[Adam Neumann] takes the standard amount of self-enrichment desire and kind of smothers it in the sand.” (02:12)

• Public vs Private Persona: While Neumann publicly talked about “making the world a better place” and “putting we over me,” in practice he put his own interests first, demanding massive compensation packages even when leaving the company.

  “At the end of the day, he literally is putting ‘me’ over his company, WeWork.” (03:24)

2. Did WeWork Make the World Better?

• Office Space Innovation: Brown acknowledges that, despite its wasteful financials, WeWork’s flexible office spaces with month-to-month arrangements disrupted traditional 10-year leases. This brought real value to many businesses, particularly in a post-pandemic environment.

  “For the perspective of liquidity of office space, [Neumann] has really made the world a much better place.” (04:27)

• Pandemic Downturn and Outlook: Occupancy plunged during the pandemic, highlighting the vulnerability of shared spaces, but a potential rebound is possible as companies reconsider permanent office commitments. WeWork is now seen as “a weather vane” for the future of the office market. (05:27–06:34)

3. The Allure of “Blitzscaling” and Venture Mania

• Blitzscaling Defined: The panel discusses the Silicon Valley belief that the path to dominance requires out-raising and outspending competitors—essentially buying your monopoly (“blitzscaling”).

  “There was this meme in Silicon Valley that everything needed to be blitzscaling… The theory was every business can be a monopoly if you grow fast enough.” (12:09)

• Faulty Assumptions: Brown notes that blitzscaling only fits select businesses with true network effects, not physical operations like coworking or ice cream shops.
• Misapplication in Real Estate: Venture capital’s demand for 10x–100x returns clashed with real estate’s slow, debt-driven returns, leading to financial structures at WeWork that didn’t make sense for the underlying business. (15:37)

4. Financial Alchemy and “Community Adjusted EBITDA”

• Creative Accounting: WeWork famously invented “Community Adjusted EBITDA”—highlighting inflated profit margins by ignoring major costs (like the first year’s free rent in lease agreements).

  “[They] tried to highlight and misdirect with… community adjusted EBITDA. They’re like: look, we’re making tons of money.” (18:37)

• Bond Market Caution: While equity investors were sold a vision, bond investors were less impressed; after WeWork issued debt, its bond prices dropped, prompting Neumann to buy back debt in an effort to bolster perceived value. (20:02)

5. Why Did Investors Buy In?

• Cult of Charisma: Despite Neumann’s cartoonish background (including baby knee-pads and a spiritual advisor), investors were wowed by face-to-face salesmanship and the frenzied belief that “this time it’s different.”

  “If it wasn’t [Adam Neumann], there would have been some other maybe slightly less charismatic, slightly less tequila-drinking guy…” (11:23)

• Investor Rationalizations: Sophisticated investors suspended disbelief, seeing in WeWork the trappings of a high-growth software company, despite glaring differences in cost structure and scalability. (16:09–17:00)

6. The Problem of Founder Control

• Unfettered Power: Silicon Valley’s mythologizing of founder genius has led to dual-class shares and board structures giving unchecked power (and compensation) to founders regardless of outcomes—ironically, neither Jobs nor Bezos ever had this level of formal control.

  “What do you think is going to happen if you… give them literally billions of dollars? How can we expect there not to be more WeWorks if that’s the case?” (25:07)

• Recent IPOs: Even after WeWork’s implosion, tech IPOs like DoorDash, Airbnb, and Robinhood have adopted extreme founder-favoring structures and massive comp packages.
• Notable Quote:

  “Charismatic white men with good hair have always been able to get away with a lot.” —Stacey Marie Ishmael, quoting Alison Stewart, (26:29)

7. Persistent Gender Disparities in Startups

• Systemic Bias: The panel highlights how female founders face repeated VC rejections for successful companies—contrasted with the ease by which charismatic men secure funding, even for questionable ideas.

  “It took a hundred different groups of people being idiots and not able to see the potential market value… whereas dudes with good hair are like, I have an idea for an electric car. Please write a check to me.” (29:00–29:40)

• Incidental Discovery: VCs sometimes only invest in female-led companies when prompted by their wives or assistants’ usage of the product, underscoring how insular and biased the ecosystem can be.

8. WeWork's Legacy, SPACs, and Looking Forward

• Have We Learned Anything? Brown says outright:

  “We’ve learned nothing.” (21:11)

• SPACs as "Loose Money": The capital market’s willingness to continue funding speculative ventures (now through SPACs) signals that the WeWork tale hasn’t curbed risky behavior. If Neumann had tried the same IPO in 2021 via a SPAC, he might very well have succeeded. (33:02–34:02, 41:56)
• The WeWork Number: Neumann and his controlled entities ultimately extracted $2.1 billion from the company despite its $11 billion in losses—a testament to the upside-down incentives at play. (35:08)

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Notable Quotes & Memorable Moments

• On Greed:

  “He takes the standard amount of self-enrichment desire and kind of smothers it in the sand.”
  — Elliot Brown (02:12)

• On Venture Funding:

  “There’s just this meme that there’s only one way to create a company now – by raising money from this crazy part of the world that…is looking for messianic founders.”
  — Elliot Brown (13:40)

• On Gender Bias:

  “It took a hundred different groups of people being idiots and not able to see the potential market value... whereas dudes with good hair are like, I have an idea for an electric car. Please write a check to me.”
  — Stacey Marie Ishmael (29:00)

• On Lessons Learned:

  “We’ve learned nothing.”
  — Elliot Brown (21:11)

• On WeWork’s Real Estate Model:

  “[Real estate] has always been a debt-based business... [WeWork] just funded everything with equity... how did Masa Son think that made sense?”
  — Felix Salmon (15:37)

• On “Community Adjusted EBITDA”:

  “That’s a really good trick.”
  — Elliot Brown (17:00)

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Timestamps for Key Segments

• Adam Neumann: Greed and Charisma (02:12–04:05)
• WeWork’s Unintended Innovations (04:05–06:34)
• The Economics of Density and the Pandemic (06:34–09:12)
• Why Did Investors Buy In? (09:12–11:23)
• Blitzscaling and Venture Mania (11:23–14:05)
• How Venture Capital Warped Real Estate (14:05–16:09)
• Accounting Tricks and Bonds (17:00–21:01)
• Have We Learned Anything? (21:07–23:06)
• Founder Control and Compensation (23:06–27:01)
• Gender Disparities in Venture Funding (28:51–31:46)
• SPACs and the Future (33:02–34:33)
• Neumann’s Windfall (35:08–36:16)
• Notable Numbers Segment — including “69% of WeWork members didn’t have friends at WeWork” (36:35–37:39), “$5.9 million trademark fee for ‘We’” (40:34–41:56)

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Conclusion

This lively and in-depth episode offers a penetrating look at the irrational exuberance, structural flaws, and ongoing problems in tech and venture capital—using WeWork as both symptom and cautionary tale. The panel’s blend of incredulity, sharp analysis, and firsthand reporting makes it a must-listen for anyone interested in Silicon Valley, finance, and the cult of the charismatic founder.

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For more bonus anecdotes (including wild stories about Rebecca Neumann), check out the Slate Plus segment as recommended by the hosts.

Transcript

[A]

Hello, welcome to the Cult of We episode of Slate Money, your guide to the business and finance news of the week. I'm Felix Salmon of Axios. I'm here with Emily Peck of Fundrise. Hello, I'm here with Stacey Marie Ishmael.

[B]

Hello.

[A]

And we are here with Elliot Brown. Elliot, welcome.

[C]

Thank you for having me. Happy to be here.

[A]

Elliot, who are you and what have you just written?

[C]

I am co author with my non existing colleague here at the moment, Maureen Farrell. And I am co author of the cult of WeWork, Adam Newman and the Great Startup Delusion.

[A]

And we are going to be talking to you this week about. I mean, delusion is a great word. It is a fantastic story. We're going to talk a bit about the story of Adam Neumann, the story of WeWork, the story of Massa Son, the whole idea of blitzscaling. We're going to talk about charismatic founders. We're going to talk about how hard it is for women to raise money in Silicon Valley. We have an amazing Slate plus segment which talks about some of the unbelievable crazy that didn't even make it into the book. If you are and a connoisseur of Rebecca Newman anecdotes, you're going to love that. Definitely worth subscribing to Slate plus for that one alone. It's a great episode. I can't wait for you all to hear it. It's all coming up on Slate Money, so let's get started. I think we should probably get started with Adam Newman. Who is this? If he didn't exist, you'd have to invent him kind of figure, but no one would believe you. He would be like one of those kind of like caricature capitalists and everyone would be like, no, no one's quite like that. Is it basically the message of your book that this guy is just incredibly motivated to an uncommon degree, even among billionaires, by the dream of becoming a multi billionaire?

[C]

That is certainly a main theme of it. You know, I mean, there's a few different things and like you said, it's not. I certainly wouldn't be able to come up with a better fictional character for literature. And it was just some of the stuff. Yeah, you'd really be shocked. But I guess with Adam, the thing that he would do, and he even did this pretty recently, you know, after we finished writing the book, he just would come back again and again and surprise me, at least with his greed. Before writing the book, I did not. I didn't really believe in the concept of greed. I sort of thought that there was just like, well, there's this base level where you're supposed to look out for yourself. And maybe some people are journalists and don't try to make that much money, but otherwise it's like you do what you do. But, like, he takes it to this, like, totally crazy new level and takes the standard amount of self enrichment desire and kind of smothers it in the sand.

[A]

And it's not just that he's greedy, but that he's incredibly open about being greedy. I cover hedge fund managers and financiers and people who everyone kind of understands are motivated by greed. But even then they will, like, if you tell them that they're motivated by greed, like, they will deny it and they will always come up with some great sort of rationalization for what they're doing. But it seems with Adam Neumann, he's just going around telling everyone, like, his dream is to become the world's first trip.

[C]

I think it is. It was slightly more nuanced in that he says lots of things to lots of people. And he actually was at many times more the opposite, where he would say everything was motivated by making the world a better place and just really lean into that Silicon Valley trope of, I mean, you just say it like, sort of in those quotes, I think. And then I guess one of the bigger ironies that was pretty novelistic is he would always say, you need to put we over me. And then at the end of the day, he literally is putting me over his company. WeWork. Like, he is threatening to hurt the company by pushing for a bigger compensation package or severance package when he leaves so he can get paid literally hundreds of millions of dollars to leave his. The company.

[A]

So he did succeed in becoming a billionaire. And one of the interesting things about sort of frenzies and bubbles is that they cause a lot of investment in various forms of infrastructure which do make the world a better place. Would you say that on some level he did make the world better, even if it cost an insane amount of money?

[C]

I mean, I think that WeWorks are, like, the actual spaces are pretty good office space. And, like, I think they did some cool things with design. And, yeah, what they've done sort of unintentionally is take 11 billion or so and turn it into an $8 billion company, which generally isn't, as I understand, how these things are supposed to work. But I only took one econ class, so he did that. That was a byproduct. And so now you have essentially all this subsidized office space out there, which for tenants, for users is actually quite good. Like you pay by the month or you pay by the year instead of having a 10 year lease that you're sort of committed to. So for the perspective of liquidity of office space, he has really made the world a much better place.

[D]

And that might come in handy now. It certainly didn't come in handy during the pandemic when everyone realized they had office space in their own homes and didn't need to go anywhere.

[A]

Come in handy. Right, because they managed to break their we work leases really easily, which was very handy during the pandemic.

[D]

Right. I guess I'm curious to if Elliot can give us an update on how the company is doing now and if those we work leases are coming back and people are into it again and what the plan is.

[C]

Yeah. So one of the many things Adam Neumann said, lots of things, one of the many things he always said was, oh, in a recession we're actually going to do better because the first location we ever opened was in a recession with like 70 desks. And that did pretty well. So then you had this thing where there was something a particularly bad effect for communal, densely packed office space. And that was a global pandemic. So their occupancy fell to like below 50, which is just a good way to light money on fire. And they were already quite good at lighting money on fire. And now fast forward, they're actually the sort of interesting weather vein for what's going to happen with the office market where, you know, like it could turn out that a good place to be right now in terms of a business is someone offering a space for companies that don't really know what's up with their office space. Like are people going to come into the office? Is it going to be two days a week? Do you open some satellite office in New Rochelle? For some reason that I don't really understand, but like WeWork is like pretty well positioned if that's what companies are doing.

[A]

It seems to me that the place where they were most inventive and the thing that people got excited about with regard to WeWork was a radical diminution of square feet per worker. They managed to create office spaces that people wanted to come into, the people liked coming into that had free beer and cool design and yet managed to pack people in in a way that like normal corporations were never able to thereunto. The big question I have is like, you know, given how obviously squeezing people into a lot of bodies in a small amount of space looks in the context of a pandemic like an unbelievably bad idea. Like, how long are we going to have that mindset of like I don't want to be squeezed in with people? And does that idea have legs?

[C]

Well, certainly on the economics, like that's 100%. What was one of the more appealing economic things about WeWork where yeah, like companies were generally fitting 150 square feet per person or employee and then giving them 200 square feet per person. WeWork did 60 square feet per person and sort of the magic there was just using glass for walls so it felt light and airy throughout the building and also just making people uncomfortable. I used to cover the office market. That was much of what I covered. I haven't stayed as close to that in the past few years because I've been covering venture capital and startups. But I feel like I've just been reading reports for five years or six years that the pendulum swinging the other way and we've gone too far with densely packed offices and now it's going to go back. So I don't really know. I mean there's certainly a lot of people saying it's going to, yeah, get stretched out more. One of the other interesting facets this is detailed, but Something interesting about WeWork is they always said we pack so many people in, but then when they lease a whole floor or building to Amazon or some large corporation, they would usually then be like eh, actually that 55 square feet per person that doesn't work for us. So they'd actually end up taking much sort of more normal amounts of space.

[A]

The big corporations, when they rented WeWorks, they didn't actually like the density of WeWork and so they asked for more square feet per worker. They're like, we're willing to pay more for being a little bit more comfortable and having a little bit more privacy.

[C]

Yes. And there was always this funny thing where WeWork wouldn't use Square footage. So they'd tell them desks and they're like, well, I guess we want 1.3 desks per person per desk. Adam liked to make math hard for those things. But yes, that's what would happen for a lot of these enterprise clients which were the big businesses that would just take a whole building or floor.

[B]

I think the thing I found most confusing about not the book as written, but just like the existence of this man is like why?

[C]

Why?

[D]

That is my first question on my list.

[B]

Why did so many people look at this dude, hear all of these Things about this dude, encounter this dude in person and then think, here is another chick.

[D]

He was so clearly a scam artist from the jump. I never read one single thing about him and thought, wow, genius.

[A]

He was a great salesperson, right? Was he?

[D]

Was he, was he, he invented what, those crawling baby pants? I mean, come on.

[C]

So, yes. So he invented crawlers with a K. With a K. You know how I.

[D]

Feel about that, listeners?

[C]

Knee padded baby clothes for that really big part of life where babies of two months or so where babies are crawling and not able to vocalize the pain that they're apparently having on their face.

[D]

Wait, Elliot, tell them what was the motto of the crawlers?

[C]

The motto, or at least what Adam said was, the motto was, yeah, just because they can't talk doesn't mean they aren't in pain or something like that doesn't mean they don't hurt.

[D]

Yes.

[C]

So he apparently was actually a, like at the Javits center in New York. He would like talk to people who were there with him. Like he'd be at this booth and there'd be like a crowd of people around him sort of as this traveling salesman talking about these baby clothes holding up. Like, look at this thing. Your children will need these, these unintended padded knee pads. So I think he's a really talented in person salesman. He unlike say like an Elon Musk. I don't think that charisma spills over through video or through quotes in a newspaper. And I think people often have the reaction of like, really? As you guys did the other thing? And maybe this is sort of like if there's one takeaway from the book, it's like Adam Newman wasn't special. Like Silicon Valley created Adam Newman and the financial system created him. And if it wasn't him, there would have been some other maybe slightly less charismatic, slightly less tequila drinking guy who instead of jets liked yachts and instead of tequila liked rum and sort of run dmc like, I don't know, some other little Nazi hip hop artist.

[A]

So that's a great segue to, I think the next part of this podcast, which is I wanted to ask you about, which is just this whole concept of blitzscaling. The idea that the way you become a success in the VC backed world of Silicon Valley and Softbank is by raising so much more money than anyone else that no one can compete with you and then you own the market and you basically have a monopoly and then you're a gazillionaire and hugely successful. This has been around For a while, wework seems to be like one of the more high profile counterexamples. But has that gone away? Do people not still kind of believe in that model?

[C]

I have many thoughts about blitzscaling. And yes, the first thing and sort of the thing that was really going on in the mid 2010s is there was this meme in Silicon Valley that everything needed to be blitzscaling. I think probably just because people saw the name of the book and thought, well, that must be true for everything. And so, yeah, like the theory was like, every business can be a monopoly if you grow fast enough. And it's like, how many monopolies are there out there and what are their characteristics? And there's arguably a few large tech platforms. But I guess the question is sort of like, yeah, why would a scooter company be something that needs to benefit from blitzscaling or a ice cream company or a coworking company? So the key question is, can you grab the entire market with all this money? And then can you, like, is there pricing power? Can you just like sort of hike up prices as much as you want? And as you see with something like Lift Uber, it turns out that when they both are doing this at the same time and they both raise billions of dollars, like in the end, then they have to compete on prices. And so neither of them has made a profit. And it's been like 10 years, 12 years. So this is a long way of saying today, I think there's, there's a little more caution, but not that much more in consumer businesses and sort of just assuming that the next, you know, wool shoes company needs to blitzscale to grab the monopoly on the wool shoes market. But I think it does exist in software for like, reasons where like, you have a network effect.

[D]

So we work kind of shows the limits of venture capital. Like not every company needs to be VC funded and to take all that money 100%. Like they don't need. A lot of. Most companies don't need billions of dollars to be companies, right?

[C]

Yeah, like, this was a really frustrating thing in sort of venture society and to a certain extent still is, or a large extent. There's just this meme that there's only one way to create a company now. And it's by raising money from this crazy part of the world that, you know, is looking for messianic found. So then suddenly it's like you have literal ice cream companies and coffee companies getting funded by venture capitalists. It's like you used to be able to have an ice cream shop and just open it on your own.

[B]

The roots of this are what used to be dismissively or the dismissive attitude to what was called like a lifestyle business, which was like the worst dis you could tell somebody like, oh, it's a lifestyle business, which just means you can live exceptionally comfortably and treat your employees well. Have you no bigger ambitions than this?

[A]

Okay.

[C]

Yeah. And so what wework did, like, I was just always baffled by this. It's like when I first Met Adam in 2013 as I was covering real estate and just wanted to meet this kind of fast growing tiny company in lower Manhattan. And I was just kind of confused. It's like, why does he need to expand so quickly? You know, as someone who hadn't been covering venture capital, it just didn't make sense to me. It's like, why don't you just grow at a sort of a normal rate? And it turned out that like the trade off there is when you're growing as absolute fast as you can, you tend to be losing money and not telling if what you're doing is going to be profitable.

[A]

And what in real estate as well, it just one of the other innovations that we work had is that they took an industry that has been around for centuries, real estate, which is where you, you know, buy buildings and rent them out like this is not a new idea, but then funded it with equity and funded it not only with equity, but with the highest cost equity you can possibly imagine, which is venture capital. And these people want like, you know, 10x or 100x returns on their investment. And that's not how real estate normally works. Real estate has always been a debt based business. You know, you borrow money at like 3% and then you make 5%, you get that little 2% interest margin which covers your costs and you can make a little bit of money and then slowly over time, the value of your property goes up and that's where you really make the money.

[B]

It's a long game.

[A]

Yeah. Involves a lot of time, a lot of patience and a lot of debt. And it seems that wework came along without any patience at all and with almost no debt. They just funded everything with equity. And it's like how that was also a real innovation. And that one, I feel like no one is going to be trying to sort of scale a real estate company with venture capital that just like, how did Masa son think that made sense once again? Billion.

[B]

That's a good question.

[D]

Here you go back to the why? Just why?

[C]

The short answer well, yeah, I can't do that. One answer is, Adam just taught these people to see something that wasn't there. Theranos was about a fraudster telling people one, you know, a blood testing company worked when it didn't. And she was doing that with unsophisticated investors. Adam did sort of the opposite. He took really sophisticated investors and some smart people and then convinced them to just with real numbers to see something that wasn't. So they look at a real estate company, and he's like, just look at this like a software company. And when you look at some of those numbers, like a software company meaning, like, revenue, you're like, wow, this thing's fast growing. And then somehow he made it. It was like a magician. Like, the misdirection was making it so you didn't look at costs, which is a really good trick.

[B]

Like when you say real numbers, like, the dude invented Community adjusted ebitda. Yes.

[C]

Okay, so. So two other things. Yeah. First of all, he did lie on occasion. He said they were profitable when they weren't a lot. But, you know, that was using real numbers in, like, a bond prospectus. And they just called it something funny and did a real. Like some real accounting tricks, but it was still real numbers that were sort of allowed. And you should have had smart bond analysts being like, well, that doesn't make any sense. I don't really know that they did.

[D]

But, Elliot, do you think you can explain that a little more what Stacy was talking about?

[C]

Oh, man. Really trying to keep listeners with Community.

[A]

Well, no, but I think this is. This is important, right? Because the. The whole idea here is that, like, we've had entire episodes on this on the subject of Massason, who's The founder of SoftBank, who loves messianic founders and loves blitzscaling, and has had genuine success and just, you know, earlier this year, made a gazillion dollars on coupang. You know, this kind of approach can sometimes work, and he's okay with the times when it fails. But at the same time, you know, apropos my point about equity, like, at some point we work needed to issue debt, and in order to issue debt, they needed to issue a bond prospectus. And bond investors are not Masassan. They get no upside from growth. Right. The only thing they worry about is downside. They're like, am I protected? So do tell us a little bit more about this whole way in which we work. At a certain point, started to be able not just to raise equity, but started to be able to raise Debt, even though it was losing money.

[C]

I guess an answer to this is that Adam, one of the things he did, the misdirection, the thing he had people focus on was the margins of the locations. So it's like our office, this office down here, below this building, is generating 30% profit margin. And if you exclude the capital costs of what it took to build it up. And so the way that. That they came to that 30% was really tricky. Essentially what they did is if you're signing an office lease, much like if you're signing an apartment lease and they give you the first month free, you usually get the first year free. And so you're not paying your biggest expense in that location, which is rent, and yet you are taking in revenue from people who come in. So that makes the profit margin really high. Now, normally in accounting, some accountants have thought about this, and they're like, oh, well, you need to, you know, adjust for that year of free rent so it doesn't look like you're not spending anything in that first year. Otherwise, you might be able to confuse people about having a profitable business when you don't. But then wework adjusted their EBITDA and added a word, community, before it, and then were able to show essentially that their business was highly profitable when. And had, like, a 25% or 30% profit margin when it was, like, literally losing 100% of revenue. So they were spending twice as much as they took in. But they had this one metric that they tried to highlight and misdirect with, which was called community adjusted ebitda. They're like, look, we're making tons of money.

[A]

But my question is, like, did the bond investors buy that?

[C]

Yeah. I mean, I don't think the debt was a huge. Well, it was going to be in the IPO. So, yeah, they raised some debt. It was $700 million of debt. It wasn't terribly cheap. And then almost immediately after it was issued, the price fell to the point where Adam actually became totally obsessed with the price of the bond. Your bonds are supposed to stay around 100 right after they go out. And then he would just constantly be yelling, why are. Why are we at 95? You know, that type of thing. And he directed the company to. He was so insecure about this, he directed the company to then buy back some of the debt that it had just issued. So they go through all this rigmarole of selling $700 million of debt with a number sort of picked out of his head in a hot tub. 702 million I think. And then they go and buy. I think it was 30 million plus or maybe even 50 million right after they do it because they're so upset that the price is low. And that was the least crazy part about WeWork.

[D]

Elliot, I was reading an interview you did with the Verge where they asked you, what lessons have we Learned from the WeWork debacle?

[B]

Haven't learned any lessons, you said.

[D]

None.

[C]

We've learned nothing.

[D]

That can't be right, really.

[C]

There was this brief period of introspection right after we were collapsed when. And it wasn't terribly brief, it was months long and like, to the point where we mapped out how the book was going to be. And like, the end and the lesson of the book was like, this is the punctuation on the era of insanity and, you know, over capitalization and venture capital. Because suddenly VCs were getting really introspective about the forces that created this kind of implosion, which was like founders having unfettered control, even though they own 10% of the company and pushing for these, like, messianic type founders and then giving them the keys to the car. So VCs started to get more introspective and being like, maybe you need to show a path to profitability. Which also, by the way, is sort of like, isn't that what a business does? Like, is that a new idea? I thought you were supposed to make a profit or show a path. Anyway, the coronavirus comes and everyone thought that, well, all these softbank companies are going to go under and WeWork's going to go even more under. And then the world went crazy and things went the other way. And so, you know, fast forward to like the end of 2020 and you have the CEO of Airbnb is literally speechless on TV when he's told the stock price because he just didn't think it was possible. And you have many things like that something's going awry.

[D]

Now we're in possibly a more insane chapter than before.

[C]

Maybe if you look at things like founder control and sort of stock prices. Well, yeah, there's two elements here. There's like these electric vehicle companies that I've now been writing about have no revenue at all. And one of them is going public within days. That is twice the value of Nissan and hasn't sold a car. And that's one of the most sort of real electric vehicle companies. I mean, you've got a lot. They're essentially just like PowerPoints with the aspirations to become an electric vehicle company. And they're worth billions of dollars. And they go talk on Robinhood favorited YouTube channels about their business. It's like, wow, you're really appealing to your investors.

[A]

Yeah, the founder control thing is super interesting, right? Because the S and P indices came out about a year ago and said this is getting out of control. Any company that goes public from here on out, if they have a dual class share structure, they will permanently be ineligible to join the S&P 500. And everyone wants to be part of the S&P 500. Therefore this is going to be a strong incentive for companies not to do that. And then all the companies took one look at this rule and said meh. And still implemented founder control. Basically every single major IPO that you can think of, including Robinhood, has these founder control provisions. And then you know, if you look at again at Robinhood, you have like the founder of the company who already has a monster stake in the company, getting 22 million new shares as part of an employment agreement for nothing. Because he's obviously going to hang out and be the CEO anyway. And the greed and the founder control and all of that kind of thing. You're absolutely right. Seems to have got even worse. We've learned nothing.

[C]

There's this extreme correlation. Who's to say if there's causation between these founders that control their companies and suddenly these giant new compensation packages. And so if you look at some three of the biggest ones that went in, you know, public in the past six, eight months, it's like Doordash, Airbnb, Palantir, all have these really extraordinary new enhanced founder control for people who already controlled the company. And then all three of those have these kind of unprecedented or now it's becoming precedented new compensation packages for the CEOs and founders. And then Didi, the Chinese ride hail company that just went public, the founders got something like do have control. Something like $3 billion worth of new stock comp. And there certainly seems to be a correlation. Like in the past you would just sort of. If Jeff Bezos owned 40% of the company, first of all, he didn't control the company. He just owned 40% of normal stock. And then he would get richer because the stock would go up. Not just because he decided to give himself a new comp package.

[D]

Why do people give these guys so much money?

[C]

What is it?

[D]

And they are all guys like, what is the appeal?

[A]

The compensation is granted to the CEO by the board, but the CEO controls the board by dint of the founder control. So really the board becomes a rubber stamp, allowing the CEO to just give himself as much money as he wants.

[C]

The broader issue is the, I think it's largely Steve Jobs, just in sort of the mythology of Steve Jobs, which is kind of crazy because Steve Jobs didn't have founder control and neither did Bezos. Right. So, so two of the biggest, sort of like the idea is like, oh, well, founders are these mythical beings. And you know, if you find these actual visionaries out there and you let them run with it, they're actually going to make better decisions than a cautious board of directors. Because look at the small sample size of highly effective outcomes, which is like Steve Jobs, Jeff Bezos, Larry Page and Mark Zuckerberg. And which is true, those are like very founder led and very successful companies. But first of all, two of them didn't have founder control. And second, like, what do you think is going to happen if you apply that rule broadly and you like, look for kind of crazy people who have no prior experience except maybe running a baby clothes business and you give them literally billions of dollars. Like, how can we expect there not to be more weworks if that's the case?

[B]

Alison Stewart, in her review of your book in the Washington Post had a fantastic line which is like she says, Newman isn't enigmatic. He's in a way that is unfailingly interesting but never surprising. Charismatic white men with good hair have always been able to get away with a lot. And I feel like she sort of summed up this mythology that you're describing, which was also memorably parodied in Silicon Valley, the television series, which is that if you are, it doesn't matter if you have no idea what you're talking about. If you're wearing like the right vest at the right time, someone will give you bunches of money.

[D]

The right vest at the right time.

[A]

Yeah. Like Twitter being a prime example of that. And interestingly, I would, I would push back a little bit on Larry Page. Like, I think, I think that in, in a weird way, Sergey Brin and Larry Page, like the counterexamples of this, they're really un. Enigmatic. They didn't really, you know, they do have founder control, but they don't really use it very much. They more or less handed over their company to Eric Schmidt for many years and then, and now, you know, Thunder seems to be incredibly good at running the company with them having almost no input. So, you know, like, but yet they have held onto their founder control. So in theory they can do what they like with the thing yeah, Founder.

[D]

Control has not been a good thing. I mean, maybe except for Steve Jobs, who famously comes back to the company and quote unquote, and has one share.

[A]

Because he sells all of his Apple stock when he gets kicked out of the company. So when he gets. When they buy next and he comes back and takes over Apple, he owns one share of Apple at that point, and he still manages to be this transformative CEO. You don't need control and you don't need equity.

[C]

I think that's one of the sort of silly myths that we've seen in Silicon Valley is that there is this connection between founder control and the importance structure.

[D]

Yeah.

[C]

One of them is actually just like the investors giving these people, like sort of bribing their way into an investment round, right? They're saying, like, well, I want to be in this round and I'm already paying this really high valuation. And they're like, yeah, but a lot of people are trying to get in. How about you give me this control? And that's essentially. I mean, that's actually exactly what Adam did. And he would sort of surprise it on the investors and turn it on at the last minute. And he's. These other investors already agreed to it. So you got to say yes, just sign on this dotted line here. And then like one of the investors told him his earliest venture capitalist was like, absolute power corrupts absolutely. Adam. And Adam brushed him off and then secured control for forever and ever.

[D]

It's very frustrating when you think of all the women out there who are not getting funding because, you know, VCs are like, I don't understand how makeup works or whatever, you know.

[B]

Okay, well, forget makeup. Let's talk about Canva. Right? What is it? $100 billion, the last time I checked. It's a way to kind of go online and make great slides and it's all over Instagram. It helps people put presentations and marketing materials together. And there was a story that was going around the other day which is like, the woman who founded this was rejected a hundred times by VCs. And the lesson was, you too can persevere. And I was like, fucking hundred times. Like, it took a hundred different groups of people being idiots and not able to see the potential market value of put marketing in the hands of anyone. And that's something we're supposed to celebrate. Whereas dudes with good hair are like, I have an idea for an electric car. Please write a check to me.

[C]

So the point of this sort of like phenotype, like, Adam just had this way of it was cartoonish. Like, he just sort of. He didn't go to Stanford. He like checked every other stereotypical box of what these founders or these venture capitalists are looking for. And there were literally things that were in the show Silicon Valley. Like he had a spiritual advisor that trailed him around. And, you know, he had like eight homes. Constantly talking about making the world a better place. And he had to the point of hair. He had a hairdresser in his entourage that would sort of fly around the world with him.

[A]

He did have a lot of hair.

[C]

He did have a lot of hair.

[B]

If I were a Messiah founder, I would have a hairdresser. That's his job.

[D]

I mean, a CEO needs to. To look good. So I get it. It's hard to make appointments. Fine. Spiritual advisor. No, questionable. Don't give you that.

[B]

Canva was not $100 billion. It was $15 billion. I fact checked myself and carry on.

[D]

But yeah, this stereotype will perpetuate. And men who present as eccentric and geniuses will get the money. And women who found companies will continue to have these uphill battles because they don't look like how you're supposed to look in order to get a lot of money from investors.

[B]

Unless you channel Steve Jobs and tell everyone that you've solved.

[D]

Unless you straight up lie.

[C]

Yeah, like dress in black turtlenecks. There is a note on this Elizabeth Holmes reference here that I would like to say. Two of the larger startup frauds in the past few years have both been people who wear black turtlenecks all the time. So causation, correlation, red flag on the point of women. One of the sort of. My favorite stories about this is Stitch Fix. This is the clothing company run by Katrina Lake. And she says, like, oh, I went through like 50 VCs and didn't get any and laid off people and was trying to cut costs to, you know, just make the company profitable and stop raising capital. And then she was sort of lifted from out of the gutter by Benchmark and Bill Gurley at Benchmark and which is the same very good venture capitalist that backed WeWork and Uber. But the reason that Bill Gurley found out about Katrina Lake was his executive assistant was using Stitch Fix and so his female executive assistant. So it's just kind of this backwards as opposed to the standard process of like, I bet you.

[B]

Well, I think about the skim. At the height of the skim, one of the lines you would hear a lot from like VCs who liked it is, oh, my wife reads this email or My daughter says, I really need to read this email. Just like, are you cutting them in on the deal? Because, like, if that's how you're finding female founders, like, are they getting a commission? Are they getting a commission?

[D]

I interviewed Jennifer Hyman, who founded Rent the Runway a few years ago, and she was saying that when she went around talking to VCs and looking for money, a lot of them were like, I can't possibly understand the business. The business is renting dresses, renting clothes. I can't understand this business, but I will ask my wife about it. And she was like, These men, the VCs they invest in, like Elliot was saying, electric vehicle companies, which I promise you, most of them don't understand, or biotech, which is really hard to understand, or pharmaceutical companies that are based on very sophisticated technology. But then they. They say, like, well, I can't possibly understand a model in which you rent dresses. It's like a purposeful sexism that prevents some of this funding too, I think. Like, oh, I. I have to wait till my executive assistant flags this company to me. It's like, I can't. I can't possibly. I don't know how the dishes. Well, it's like the same. It's like, it's so sad to me and not believable.

[A]

So, Elliot, the final chapter of WeWork seems to be that it's going to SPAC. Is that still happening?

[C]

Yeah. So WeWork had this particularly under Adam, had this incredible ability to just find the loosest money out there every single year. It was like, what is this? The year of. The year of, like the mutual fund and like, you know, they get money from Tiero Price and like the year of the other mutual fund, and they get money five months later from Fidelity at twice the valuation. And then they go to China and then they get SoftBank money. And so there was a little bit of a lull after weworked where there wasn't a loose source of capital. And now it's SPACs. Now, compared to a bunch of these other, like, there's a few different categories of companies that go public through spac, and some of them have no revenue and just put up charts that show like this hockey stick incredible growth. And it's just like, yeah, sure, we're going to do that. Give us hundreds of millions of dollars. I think we work is actually in the more reasonable category or bucket because they. Wild sentence revenue.

[B]

Wild sentence when describing.

[C]

A lot's changed. I mean, this isn't the most interesting way to frame it. But, like, the interesting part about WeWork is valuation. Like, we never would have cared about it if. If they'd been a $3 billion company or a $300 million company. But what was wild was they were the country's most valuable startup, and now they're. They went from 47 billion down to 8 billion. And they have a lot more office space than they used to because they'd started so much under construction under Adam. That's a real business. Like, you know, are paying rent to somebody and then you sublease it for higher rent.

[A]

And meanwhile, like, the most valuable startup is, you know, what is it? Stripe. Someone like that is worth $100 billion or. I've actually heard rumors that Stripe shares are being offered in various secondary marketplaces for $175 to $200 billion valuations. So maybe, maybe that's the next, like, bubble to burst. I have no idea. But it seems to have revenues and probably even profits. No one's even sure about that.

[C]

We'll find out at some point.

[B]

What a cliffhanger.

[A]

Elliot, did you bring a number?

[C]

I have a number.

[A]

What is your number?

[C]

2.1 billion. Do I explain the number or do we.

[B]

Yes, absolutely. No, we're just going to leave that hanging.

[C]

Seven. So that is the amount that Adam Newman and Adam Neumann, controlled entities, took out of WeWork and have left in WeWork stock. So the company has burned through collectively like 11 billion doll dollars in cumulative losses is worth 40 billion less than it used to. And Adam is. Entities he controls took out 2 billion.

[A]

So is that how much he's worth? Like, his net worth right now is like, on the order of 2 billion.

[C]

Some give, you know, 1 to 2. Like, it depends sort of how much he spent on surf coaches, because he took out, like, hundreds of millions while he was at the company and then was spending a lot on lots of things.

[A]

Surf coaches are expensive, man.

[C]

Well, so he would. With the surf coach. It's not just the surf coach. He would fly the surf coach to his house from Hawaii. But then his whole family had to come, and then they had to have the nanny to give them the apartment. And then when they go to another place, they had to bring school teachers from the WeWork funded school to teach the surf coach's family in addition to their own family. So you can see, like, it's not very easy being rent.

[B]

It takes a village, surely.

[C]

Yeah, absolutely.

[A]

I mean, talking of Larry Page's private island in Fiji, apparently he has an entourage of 30 people just to keep him in. I don't know, coconut water or whatever it is.

[B]

I just don't like people that much. I feel like if I were a mega billionaire, I'd be like, I have five friends.

[C]

Goodbye, Stacy.

[A]

Do you have a number?

[B]

I do. It's from the book. This is. The number is 69%. And it's the context of WeWork. In 2017, commissioned a study because they were like, we want to know if people are friends at work. Which horrifying. Like, as a value to be like, it's one of our things is we want people to be friends at work. And it turns out 69% of WeWork members didn't have any friends at WeWork, which I was like reassured by. I was like, okay, normalcy reigns. Because I would have been completely freaked out and even more convinced this was a cult like environment if it was something like 69% of people say all of their friends are at WeWork.

[A]

This is like WeWork 1.0. I remember this vividly. It was selling itself not only as office space, but also as a networking opportunity where all the different small businesses in the we work would start providing services to each other and it would be like this community. And yeah, it sounded both horrifying and extremely implausible that you would like meet someone over the free beer and next thing you know you've worked out a mutually beneficial business relationship.

[C]

Yeah, it was definitely part of this era where I mean, it just like Adam had this way of. And this was sort of the culty part of it, this way of seeing that everything that he thought was fun and cool should be what, like literally the whole world should think. And so it's I like tequila. And then tequila is like the drink that everyone, they pass out trays of tequila to the entire staff in early WeWorks. And yes, he thought that because I don't see a boundary between work and fun, then the whole world needs to live like me.

[A]

Gallup, the survey organization, has this like management consulting arm. And one of their big things is they've done a bunch of surveys of successful companies and unsuccessful companies and they are absolutely convinced. Convinced that if you ask everyone in a company, do you have a best friend at work, then the higher the number of people who answer yes to that question, the more successful the company is. Do not ask me how this makes any sense, but they have convinced themselves of this.

[D]

I don't not believe that that seems fine. What's wrong with having a friend at work?

[A]

I'm not saying there's anything wrong with it. I'm Just saying. I'm not sure it has a huge amount of predictive value.

[B]

The good culture, it correlates with success.

[C]

But in newspaper industries generally, I think that people tend to have lots of friends at work and the newspaper industry is not.

[B]

Yeah, because we have no lives outside of work. It's a serious indictment of our industry.

[D]

That's a really good counterpoint. Okay, forget it.

[A]

My number is not quite as on point, but still vaguely related. It's 19% which is the percentage of companies in the NASDAQ composite, which is like the broadest measure of listed companies that we could find that have no stock analyst ridge at all, that have like zero analysts covering the stock. There are massive like corporations, Carl Icahn company, Icahn Enterprises or Lowe's, the insurance company that also owns Lowe's Hotels, have no analysts covering the stock. And we were talking a bit earlier about how do you manage to persuade bond investors that something like this is good. But even stock investors are often investing in stocks where like there is no sell side coverage these days.

[C]

Can I obnoxiously push back with a SPAC example? So if you look at one of my obsessions has been these projections of these electric vehicle companies. You actually looked at a lot of them like Fisker, and there were five of them that all said that they were going to go from zero to $10 billion in revenue faster than the fastest companies ever on earth have done that. And it's like, wow, these electric car companies are really going to be better than Google, all of them. And so, but then you look at, so Fisker, its first analyst that initiated coverage I believe, which was also the underwriter on the spac, Cowan. They just took the exact projections or their projections precisely matched Fisker's projections that it put in its back deck.

[A]

So, so may maybe these analysts don't offer a huge amount of value after all. Which is something we discuss in another episode. Emily, what's your number? Huh?

[D]

I'm going to go with the number from Elliot's book, which is 5.9 million, which is Adam Newman and his, I don't know, his founding partner Miguel. They registered a trademark on the commercial use of the word, the two letter word we. The word we. A trademark for that. Then they charged the company $5.9 million to use their word, which again is W e we. And this I think is the, a really good example of just how greedy this guy was and how terrible. Right? I mean using trademark to enrich yourself while you're, I mean, oh, I can't it's too much.

[C]

So the craziest thing we learned about that was that it seems Adam didn't even realize it was there. Like, I believe that. But he had created this. First of all, he created his own personal lawyers in a structure to negotiate for things like that where they thought that was reasonable. And then he created a company where as they're gearing up to ipo people didn't on staff didn't even think this was remarkable because they had a 15 or 20 page list of things that were crazy and you know, potentially concerning in the IPO thing that might get bad press. And this is like number 100 on there. I mean, because it is true. Like he literally was getting a lot more money from renting properties he owns to the company that he runs. And they were like, what's 5.9 million for the word we? Yes.

[D]

My question was, I mean a lot of we work troubles started when they filed for the IPO and everyone got to see under the hood. If this had all gone on in 2021, if Adam Newman had made it through and then instead of doing an ipo, he just did a SPAC which requires less paperwork. Does it end the story end the same way? Or does. Does it. Does it go through? Or is Adam Neumann still running we work.

[C]

I've wondered this a lot. I mean, part of the problem was he we were did this magical thing where every year they managed to double their losses. So if you're going to make that hypothetical work, you would have had to give them like 4 or 8 billion dollars or so to get to this point. But let's say they got there. I actually bet it would be where the same we work in 2019 was trying to go public through SPAC today. I imagine like the market's frothing in a different way, but I imagine it would have been a lot easier. Like we in the press sort of. We get a lot of these SPAC filings a week and there's a. Oh, wow. Another like flying car company is going public and literally. And like we don't even look at it.

[A]

Okay. On which note, Elliot, thank you so much for coming on the show this week. This has been absolutely awesome. We will all be rushing out and buying your book, which is in bookstores right now. Many thanks too to Jessamine Molly for producing this show and many thanks to all of you guys for listening. Keep on sending us emails. We do love them. It's sleepmoneyleep.com Other than that, we will be back next week. With even more sleep. Honey. Sam.