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WeWork Needed a Bailout, But Adam Neumann Still Leaves a Billionaire
- karpodiem 7y agoElizabeth Holmes should have doubled down!
- zzzcarrot 7y agoTell me again how modern capitalism is a good thing.....?
- birdyrooster 7y agoI wonder how capitalism could compare with something like market socialism in cases like this. It seems like it would be easier for employees of companies (and stakeholders outside the company) to have more control over the direction of a business since they would also be shareholders. Adam Neumann types probably wouldn't be able to exist since they are so destructive to corporation and the people depending on the corporation.
- marcinzm 7y agoWould market socialism have the possibility for massive financial gain by making the company IPO with as high a valuation as possible? In the end, it's that goal which caused all this. Employees had stock options probably and bought into that goal as much as anyone else. Remove the massive potential payout and everything calms down irrespective of economic system.
- tsomctl 7y agoCapitalism isn't necessarily a good thing, it's just better than any other economic system.
- treelovinhippie 7y agoIndoctrinated fool. Go read some past and present economic theory.
- wil421 7y agoHey treelovinhippie. Show me some sources so I can enlighten myself.
- AllanHoustonSt 7y agoAs a passive supporter of capitalism I’ve enjoyed reading Ha Joon Chang’s critiques of capitalism.
- antgly 7y ago^ person with facts relying on emotional outbursts. Checks out.
- bhk 7y agoBecause in this case, the "victims" were voluntarily involved. Also, the peanut gallery is free to throw peanuts at the stage.
- Pfhreak 7y agoYou think the rank and file got their just desserts?
- wpietri 7y agoMaybe? I mean, for the baristas and whatnot, sure, I feel bad for them. But for educated professionals? Especially the kinds of people who can extract significant compensation in equity? I struggle to feel particularly bad. Everybody involved knew (or should have known) that the recent round of money-losing IPOs were high-risk ventures. And I would hope anybody thinking about taking options instead of cash would learn enough about pricing options to be pretty clear on the risks involved. Also, if the con had gone on long enough for the "rank and file" to cash out after the lockup expired, how many of them would be giving money back to investors after WeWork's problems were revealed? I'm guessing zero. Let alone the salary they got for building what turned out to be worth way less than what was invested.
- chadcmulligan 7y agoThis isn't a failure of capitalism, its just due to blind optimism and lack of governance with people falling under the spell of a charismatic CEO imho. If it had worked, everyone would be saying this guys a genius. I looked at WeWork at one stage for an office, the prices seemed crazy, I didn't understand how any one was using it, you've been able to get serviced offices for years for way cheaper. He did OK though, he gets out with a bag of cash and leaves someone else carrying the debt.
- Pfhreak 7y agoYou aren't asking "why" enough. It's not just a bad actor... Why was it possible for him to do what he did? Why was he allowed to personally succeed and leave others the debt?
- chadcmulligan 7y agogreed, and a lack of oversight? I'm no fan of capitalism, it has many flaws. I'm not upset at VC's losing money though, thats the risk they take, it's a high stakes game, thats why the IPO failed, there are more rules for a listed company. The only alternative I can see is to regulate who can invest their money in what, I can't see that working, unless I'm missing something. There is a failure for the employees, but everyone knows, or should know they're rolling the dice working for a startup, as others have said shares are lottery tickets, and the system is stacked against you as an employee ever making money.
- katmannthree 7y agoWithout getting into that, on the bright side of this We does seem to have facilitated a fairly large-scale transfer of wealth from investors and landlords to contractors and people renting short-term office space.
- solotronics 7y agoTell me again how communism would have had a better outcome? There wouldn't be startups in the first place. Why have no world beating innovative tech companies come out of Cuba or Venezuela?
- Aeolun 7y agoI don’t think anyone is to blame here except the people that gave him money in the first place.
- JimboOmega 7y agoEspecially since they're the same ones that gave him still MORE money.
- mrkurt 7y agoPlus, you know, Adam Neumann for being a big sketchball.
- rdlecler1 7y agoVCs are supposed to diligence that. They fail they loose.
- mrkurt 7y agoIf a company gets to an S-1, the VCs are complicit. Seems like the only people losing are Wework employees.
- georgeecollins 7y ago“It takes two bad drivers to make an accident.“ F Scott Fitzgerald
- dickeytk 7y agoFirst of all, I get your point. Still, this is an awful analogy. What about 1-car collisions? And what if I hit a parked car?
- georgeecollins 7y agoThis is from Great Gatsby and not meant to be literal. It is how Jordan tells Nick that he is also to blame for their sad break up, as I recall. Typical HN to vote it down-- what a bunch of nerds! Just kidding.
- olliej 7y agoYet any early employees who signed on with compensation in the form of stock grants/options/RSUs have lost out on years of compensation. Claiming that it's a risk/reward tradeoff is nonsense, as ICs don't have any meaningful say on the path to exercising their "income", and there are huge incentives for founders and VCs to arrange deals like this. I really hope that people start realizing that this is a core behavior in business and stop letting themselves be screwed by people who aren't actually taking on meaningful risk.
- deleted 7y ago[deleted]
- Aloha 7y agoI've been saying for years that stock grants/options/RSUs are like playing the lotto, and salary/benefits are more important. They're also a tool to keep people in roles they no longer want, because of a promise of a great payoff someday.
- olliej 7y agoEspecially for companies that aren’t public yet so there’s no guarantee that you’ll be able to exercise ever, even if it does become profitable and worth real money.
- sokoloff 7y agoWhat prevents you from exercising options in the success case? You might not be able to sell the shares you receive, but you should be able to exercise and hold them. You might do this to manage tax exposure (to get the clock started on long term capital gains treatment and to make further gains capital rather than earned income).
- haditab 7y agoNothing prevents you, but keep in mind options are an option to buy at a strike price that is generally non-trivial. By exercising early you're basically doubling down.
- justboxing 7y agoSince when did loss making pre-IPO companies become "TOO BIG TO FAIL" ?
- JohnJamesRambo 7y agoAt least it was SoftBank bailing them out and not taxpayers.
- nevir 7y agoWhen they own/lease a shit ton of physical assets
- anonu 7y agoI don't think they have many assets on their books, relatively speaking. They lease most, if not all, their property. Neumann took personal loans to buy properties, keep them off balance sheet, and leased it back to wework. This news came out well before the s1. It's a miracle it took the s1 to get investors to give a damn when there were so many governance issues and conflicts of interest out in the open well before.
- ageyfman 7y agothey're one of (if not the) largest lessees in NYC (and other cities around the world), with long-term leases. A lot of landlords would have a conniption if these guys went out of business. Would rock the commercial RE market.
- jjeaff 7y agoI find it hard to believe they are the largest lesee in NYC. They aren't even the largest co-working space rental company (it's Regus, by a landslide).
- fzeroracer 7y agoThat's really the goal of modern business, isn't it? Pump a business full of cash and grow at massively unsustainable rates. If your company collapses then you take down a bunch of other businesses and industries which relies on the investor-subsidized stuff you bring to the market, making your company too big to fail. With the sheer amount of venture capital at your beck and call, you can also force out challengers trying to enter the market easily by dropping prices even further (and who cares, you're already non-profitable!) or just straight up buying them out. Profitability doesn't even matter as long as your business is considered valuable! Even better if you can get tax payers on the hook for saving your asses.
- tibbon 7y agoLesson: If you're rich and mess up, you'll become yet more rich.
- treelovinhippie 7y agoLate stage capitalism. What a wanker.
- antgly 7y agoBuzzword king, I see.
- hkmurakami 7y agoAs Matt Levine said, if you owe the bank a million dollars, you have a problem. If you owe the bank 100 million dollars, the bank has a problem.
- staticautomatic 7y agoI don't know who said that first but it certainly wasn't Matt Levine.
- hkmurakami 7y agoright, should have said "has oft quoted". Thanks for the correction.
- anonu 7y agoJ Paul Getty said this first, allegedly.
- lainga 7y agoBut the big question (for longtime readers) is: does that misattribution count as securities fraud?
- empath75 7y agoI have to ask when are the investors in softbank or the vision fund going to question this bail out? I’d be furious if it were my money being flushed down the toilet this way.
- deleted 7y ago[deleted]
- dehrmann 7y ago> I’d be furious if it were my money being flushed down the toilet this way You'd make a bad Saudi prince.
- rapsey 7y agoI read somewhere that softbank is a huge benefactor in japan central bank QE. So basically vision fund is for people with more money then they know what to do with and didn’t really earn it the hard way. They could have spent it more wisely.
- nihonde 7y agoThere is a hell of a lot of money that doesn’t have a safe home. If you’re wealthy in 2019, it may cost you money just to stash it somewhere low risk. Now extend that to sovereign funds, etc., and you can start to see why these obvious shenanigans are tolerated. A zero percent “return” is a net gain over holding in savings or bonds in a lot of places.
- PhantomGremlin 7y agoIt depends on your definition of "wealthy". If you're worth less than 12 digits, you can easily "stash" your money in 3-month US treasury bills. They currently yield about 1.63%. https://www.bankrate.com/rates/interest-rates/91-day-treasury-bill.aspx https://www.bankrate.com/rates/interest-rates/91-day-treasur... Granted, if you're a Russian Oligarch or similar, this might not meet your definition of "a safe home". Otherwise, they're about as low risk as possible. I agree with your take on sovereign funds etc. The whole world can't just park its excess cash in T-bills. But unless you're talking about the dumbest of this money, it should be very broadly diversified: worldwide stock markets, bonds, real estate, natural resources, and smaller amounts to things like venture capital.
- WisNorCan 7y agoThere is another less discussed downside to Vision Fund’s reckless spending and overvaluation of startups. While Travis & Adam make their billions, the employees at Uber and WeWork are granted overvalued options and stock that subsequently crashes. The Uber stock is still below where it was 5 years ago and may never recover. The WeWork stock will likely never recover. As an employee, I would avoid working for a company that is taking funny money from VF. Its a big warning sign to see a company raise from VF given what has come to light.
- indemnity 7y agoEvery time I see these shenanigans it validates my position of turning options into cash if I’m above water ASAP, and getting as much of my raises into base salary as possible. Twice burned (2001, 2009)...
- WisNorCan 7y agoI completely agree. I recommend selling along the way. You may lose some upside, but you definitely lose some downside. Unfortunately, WeWork employees aren’t given that choice. They are getting fired with underwater options while Adam makes billions. I wonder how he can rationalize this to himself.
- jscotto 7y agoWhy would he need to rationalize this to himself? He just made over a billion dollars.
- svaha1728 7y agoHe can, and will, continue to fail upwards.
- SauciestGNU 7y agoWith his luck he should jump in the 2020 primaries.
- anonu 7y agoHow do you get around the paywall? The usual tricks don't work... Besides paying money.
- anm89 7y agoThis redefines failing upward. The lunacy of this is astounding.
- DoreenMichele 7y agoSo how do we help people like me (independent, small shops) monetize their work effectively to try to inject a smidgen of sanity into the world to counterbalance such lunacy?
- anm89 7y agoHonest answer: a beautiful thing about capital markets is that if you understand some piece of info which isn't being priced you have the ability to make lots of money. And being rich is a pretty good starting place for large scale change. You essentially get to take money from something you disagree with and reallocate it whatever way you see just. So basically go beat them at their own game. It seems like there are chances to do that.
- dehrmann 7y agoNot really. WeWork had $12.8B in funding. Now they're valued at $8B. They'll be valued at a lot less if they go bankrupt, so if Softbank can stabilize the company, they can cap their losses. Risk is also baked into that valuation, so if Softbank fixes things, they'll come out ahead.
- anm89 7y agoAnother perspective would be he got probably one of the 10 or 20 biggest pay days in history for giving We an 80% haircut. And that was directly on him. All he had to do was stop being a jerk and they probably would have slid through. I'm comfortable calling 80 a failure.
- iamsb 7y agoGiven that softbank is a public company, surprised there is not more shareholder outcry over the strategy of visionfund. In a way it is public money which is bailing out WeWork. Not to mention some of the questionable investments in Indian market (OYO, PayTM, Snapdeal) that seems to follow hyper valuation growth without seeing hyper value of growth of any of these companies.
- Amygaz 7y agoHow does one justify giving $1.7B to someone who looses $219k/h?