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I don’t really see why it’s his fault investors over valued his company — he believed in his own spin and was phenomenally successful at building a large, real

I don’t really see why it’s his fault investors over valued his company — he believed in his own spin and was phenomenally successful at building a large, real business. This was not like Theranos where he was straight up lying about a product working — anyone could analyze the business based on the fundamentals, and investors seemed ever willing to invest at high valuations. The self dealing was reprehensible and evidence of low morals in my view, but none of those events actually materially impact the value of the business. Instead, overnight, investors just came to their senses about what kind of value this type of business is worth. Definitely a strategic misstep on his part, but it’s not like he stole billions of value away from the company. The drop in value is more like what happened to Uber or Blue Apron post IPO, except, unfortunately for the employees, it happened before they could exit.

bogomipz 7y ago
>"he believed in his own spin and was phenomenally successful at building a large, real business.' How was he "phenomenally successful" if the company needed an emergency bailout because they were about to run out of cash?
- sidr 7y ago
  > How was he "phenomenally successful" He walked away with $1.7 billion.
dclowd9901 7y ago
Agreed. This is the direct and intended result of a society which values those with money (investors) over those without money (people who invest their time, talent and effort). He did nothing wrong in this society, so maybe we ought to fucking change society.
- perl4ever 7y ago
  That seems like an odd statement, considering that to participate in WeWork, employees got paid, customers got subsidized, and investors (Saudis, I guess) got charged vast amounts to no benefit for them. Nothing about it suggests valuing investors, but the opposite.
JeremyNT 7y ago
Ah yes, "if it's legal, it's not his fault." It's not "his fault" for the gross incompetence that lead to this outcome? Whose was it? I would suggest that it is in fact "his fault," but why would he ever have cared? He lacked any incentive to fret any potential negative outcomes for the business, since after a point he had assured that they all ended in him being astronomically wealthy regardless. This sort of thing sends ripples across peoples' lives. Normal people (outside of the idle rich who can afford to waste money on speculation with effectively no consequences) do lose out when things like this blow up. The lack of regulation and legal accountability here is shocking. The fact that regulation doesn't currently exist shouldn't be used as a justification for excusing the behavior of bad actors!
- charlesdm 7y ago
  The investors. If you give a loose cannon many billions of dollars, who is at fault? But yes, normal employees are paying the price here.
  - jakemal 7y ago
    The investors also paid a hefty price. The only person getting out of this scot-free is Adam.
    - zwily 7y ago
      He’s getting punished too. He thought he was going to be the first ruler of the entire world, and now that dream is (probably) dashed.
aeturnum 7y ago
> I don’t really see why it’s his fault investors over valued his company > he believed in his own spin It's his fault because he accepted the price for his business! He was in numerous conversations where people wanted to invest in WoWork and he told them that the valuations they were investing at were not just reasonable, but under the real market price - which is why venture buys into companies. > none of those events actually materially impact the value of the business > overnight, investors just came to their senses about what kind of value this type of business is worth These things seem like they contradict each other. If Neumann's actions are not material, why did his removal reveal the true value of the company? Material just means it changes the value of the company. There are lots of "material" events that don't have anything to do with business fundamentals.
- ReptileMan 7y ago
  VC-s as a rule of thumb do due diligence before investing. They didn't throw money at him on the whim. They examined the books and everything else you could think of (or should have done so). Unless he was cooking the books or conned some other way - you may say he is the one scumbag to rule them all if you like for walking with fuck you money squared while his employees get the shaft, but he did nothing wrong in pitching high valuations that the others side accepted.
- magashna 7y ago
  I refuse to believe anyone wouldn't take 1.7 billion to walk away from a company.
  - hef19898 7y ago
    Not before paying, I don't know, something like 10-20 million to have the deal and everything else made watertight and 110% legal. Other that, you cannot blame him for the 1.7 billion. For the way how he got them he can be blamed so, IMHO.
- danielisaac 7y ago
  I think it's unlikely that Adam would be liable for having accepted an inflated valuation. Courts typically give management pretty wide latitude to make business decisions as along as they can give some plausible explanation. It's called the "business judgment rule" in corporate law and gives the company quite a bit of deference[0]. It derives from Delaware General Corporate Law § 141(a), then gets carved out through case law. That said, there are a few ways to overcome it. Self-dealing is one way, assuming Adam didn't disclose the transactions. Fraud would be another. All this stuff is pretty fact-specific. We can guess, but there's a lot we won't know until it gets litigated. [0] https://en.wikipedia.org/wiki/Business_judgment_rule https://en.wikipedia.org/wiki/Business_judgment_rule
r00fus 7y ago
> I don’t really see why it’s his fault investors over valued his company ... This was not like Theranos where he was straight up lying about a product working Hell of a low bar you're setting. Self dealing is fraudulent. It sends a message to con-artists of the future to do exactly what Neumann did for a potential big payout.
chris11 7y ago
> The self dealing was reprehensible and evidence of low morals in my view, but none of those events actually materially impact the value of the business. Materially WeWork is a real estate company selling itself as a tech company to get a higher valuation. Sure, it's expected that founders don't have a realistic idea of what their company is worth, investors should have done more research. But Neumann's ethical failings in regards to self-dealing is closely related to failing to accurately represent the state of his business. I think Neumann is fully responsible for WeWork's overvaluation, even if he fully believed his own spin.
- lotsofpulp 7y ago
  Unless Neumann presented fraudulent numbers, then the buyer is responsible for valuing what they buy. Sellers don't get to dictate what something is worth.
  - chris11 7y ago
    I'm not arguing that Neumann's actions meet the legal definition of fraud. I'm arguing that he has a moral responsibility. Investors are responsible for believing Neumann. But I think that if he had been an ethical person who did not self-deal, WeWork might not have been over valued so much. I think self-dealing and dishonestly representing your company's worth is related.
    - lotsofpulp 7y ago
      The self dealing was not hidden, so I am perplexed why one would think a company with self dealing is worth more than a company without self dealing. Neumann, as a seller, went out into the market and found some buyers. A seller sells for the most they can, and the buyer buys for the least they can. Except in this case, the buyer wanted to flip it, so the buyer wanted to over value it, so that they could claim it was worth even more (due to the rate of increase in "valuations") when they try to IPO it. If anyone was lacking in morals, it would be the buyer who intentionally paid more than they knew they would if their aim was to hold onto it as a business, just so they could pawn it off onto someone else who didn't know better.
AlexandrB 7y ago
> was phenomenally successful at building a large, real business What? How? He built an 8b business with 16b in investment. Anyone can do that. Take 16b, put it in index funds, call yourself an investment bank. You'd get better returns than -50%, for sure.
- dreamcompiler 7y ago
  Or as Matt Levine might say, take the $16b, light half of it on fire, and put the other half under your mattress. Boom: You've just beaten negative interest rates.
- deleted 7y ago
  [deleted]
- rollerboi 7y ago
  Not just anyone gets 16b of funding to lose 50% on it. You need to be a very charismatic CEO - maybe borderline cult-leader status
  - kmonsen 7y ago
    I think you also need some "special" investors. In this case softbank appreciated the crazyness of the CEO.
    - rollerboi 7y ago
      Yes, but don't forget that those "special" investors were funded by even richer, special-er investors. Softbank funded WeWork via the Vision fund, which is primarily funded with Saudi money.
  - Uhuhreally 7y ago
    and there you have hit the nail on the head
  - arcticbull 7y ago
    Right but we're assessing the quality of the business he built. It's crap. That doesn't change with what the parent said.
just_observing 7y ago
> This was not like Theranos where he was straight up lying about a product working She.
- reroute1 7y ago
  He. He's talking about the WeWork guy, not the theranos woman. I think it's a strange sentence, but technically correct.
  - just_observing 7y ago
    Ah. I stand corrected. Thank you.
rchaud 7y ago
> phenomenally successful at building a large, real business. That's like saying the Soviet Union was successful at building a strong consumer economy. Anything can look good when you're able to under-price your services using someone else's money.
arcticbull 7y ago
> ...he believed in his own spin and was phenomenally successful at building a large, real business. Successful at building a large, real business selling $10 bills for $8. It's a dreadful business, they lose money hand over fist with no path to stopping the bleeding. For a while now, any company who could claim to be a "tech" company like WeWork (an objectively real estate company) did was able to raise on terms that are only suitable for zero-marginal-cost businesses. That is unlikely to continue.
- hef19898 7y ago
  Doesn't have to be necessarily a bad thing if you ask me.
  - arcticbull 7y ago
    Oh no, I'm actually glad. There's a case to be made that the benefit of a recession is that it kills off these types of wildly unsustainable businesses as they're forced to prove their model. It's been over a decade since the last one. This allows us to remove some of the froth from the market without necessarily going through the same level of hardship en route.
- Sohcahtoa82 7y ago
  > selling $10 bills for $8. The classic "We lose money on every sale, but make it up in volume" approach.
  - arcticbull 7y ago
    A neat spin on it actually! "We lose money on every sale and we have no idea how we'll ever stop, but let's do a lot of it anyways."
- sanysany 7y ago
  I was under the impression it wasn't even a real estate company since it only rented it's properties and then sublet them. It didn't even buy properties.
dannylandau 7y ago
Just one small comment -- instead of investors, it was mostly Masayoshi Son at SoftBank that was pumping capital into WeWork and each round invested pumped up the valuation as well, so never had to face any reality from other investors, but it all came to a head in the prospectus for the IPO. I think Galloway explains it well in this video -- https://www.youtube.com/watch?v=3UdhLWGrtDI https://www.youtube.com/watch?v=3UdhLWGrtDI
yalogin 7y ago
Wait, did he not use company funds to buy real estate in his own name and then lease them back to the company? That is still not illegal but super shady. You cannot paper over things with "investors overvalued it" logic. He went to extra lengths to make his cheating legal.
- sanysany 7y ago
  Did not know about that, do you have a source on that?

bogomipz 7y ago

>"he believed in his own spin and was phenomenally successful at building a large, real business.' How was he "phenomenally successful" if the company needed an emergency bailout because they were about to run out of cash?

sidr 7y ago
> How was he "phenomenally successful" He walked away with $1.7 billion.

dclowd9901 7y ago

Agreed. This is the direct and intended result of a society which values those with money (investors) over those without money (people who invest their time, talent and effort). He did nothing wrong in this society, so maybe we ought to fucking change society.

perl4ever 7y ago
That seems like an odd statement, considering that to participate in WeWork, employees got paid, customers got subsidized, and investors (Saudis, I guess) got charged vast amounts to no benefit for them. Nothing about it suggests valuing investors, but the opposite.

JeremyNT 7y ago

Ah yes, "if it's legal, it's not his fault." It's not "his fault" for the gross incompetence that lead to this outcome? Whose was it? I would suggest that it is in fact "his fault," but why would he ever have cared? He lacked any incentive to fret any potential negative outcomes for the business, since after a point he had assured that they all ended in him being astronomically wealthy regardless. This sort of thing sends ripples across peoples' lives. Normal people (outside of the idle rich who can afford to waste money on speculation with effectively no consequences) do lose out when things like this blow up. The lack of regulation and legal accountability here is shocking. The fact that regulation doesn't currently exist shouldn't be used as a justification for excusing the behavior of bad actors!

charlesdm 7y ago
The investors. If you give a loose cannon many billions of dollars, who is at fault? But yes, normal employees are paying the price here.
- jakemal 7y ago
  The investors also paid a hefty price. The only person getting out of this scot-free is Adam.
  - zwily 7y ago
    He’s getting punished too. He thought he was going to be the first ruler of the entire world, and now that dream is (probably) dashed.

aeturnum 7y ago

> I don’t really see why it’s his fault investors over valued his company > he believed in his own spin It's his fault because he accepted the price for his business! He was in numerous conversations where people wanted to invest in WoWork and he told them that the valuations they were investing at were not just reasonable, but under the real market price - which is why venture buys into companies. > none of those events actually materially impact the value of the business > overnight, investors just came to their senses about what kind of value this type of business is worth These things seem like they contradict each other. If Neumann's actions are not material, why did his removal reveal the true value of the company? Material just means it changes the value of the company. There are lots of "material" events that don't have anything to do with business fundamentals.

ReptileMan 7y ago
VC-s as a rule of thumb do due diligence before investing. They didn't throw money at him on the whim. They examined the books and everything else you could think of (or should have done so). Unless he was cooking the books or conned some other way - you may say he is the one scumbag to rule them all if you like for walking with fuck you money squared while his employees get the shaft, but he did nothing wrong in pitching high valuations that the others side accepted.
magashna 7y ago
I refuse to believe anyone wouldn't take 1.7 billion to walk away from a company.
- hef19898 7y ago
  Not before paying, I don't know, something like 10-20 million to have the deal and everything else made watertight and 110% legal. Other that, you cannot blame him for the 1.7 billion. For the way how he got them he can be blamed so, IMHO.
danielisaac 7y ago
I think it's unlikely that Adam would be liable for having accepted an inflated valuation. Courts typically give management pretty wide latitude to make business decisions as along as they can give some plausible explanation. It's called the "business judgment rule" in corporate law and gives the company quite a bit of deference[0]. It derives from Delaware General Corporate Law § 141(a), then gets carved out through case law. That said, there are a few ways to overcome it. Self-dealing is one way, assuming Adam didn't disclose the transactions. Fraud would be another. All this stuff is pretty fact-specific. We can guess, but there's a lot we won't know until it gets litigated. [0] https://en.wikipedia.org/wiki/Business_judgment_rule https://en.wikipedia.org/wiki/Business_judgment_rule

r00fus 7y ago

> I don’t really see why it’s his fault investors over valued his company ... This was not like Theranos where he was straight up lying about a product working Hell of a low bar you're setting. Self dealing is fraudulent. It sends a message to con-artists of the future to do exactly what Neumann did for a potential big payout.

chris11 7y ago

> The self dealing was reprehensible and evidence of low morals in my view, but none of those events actually materially impact the value of the business. Materially WeWork is a real estate company selling itself as a tech company to get a higher valuation. Sure, it's expected that founders don't have a realistic idea of what their company is worth, investors should have done more research. But Neumann's ethical failings in regards to self-dealing is closely related to failing to accurately represent the state of his business. I think Neumann is fully responsible for WeWork's overvaluation, even if he fully believed his own spin.

lotsofpulp 7y ago
Unless Neumann presented fraudulent numbers, then the buyer is responsible for valuing what they buy. Sellers don't get to dictate what something is worth.
- chris11 7y ago
  I'm not arguing that Neumann's actions meet the legal definition of fraud. I'm arguing that he has a moral responsibility. Investors are responsible for believing Neumann. But I think that if he had been an ethical person who did not self-deal, WeWork might not have been over valued so much. I think self-dealing and dishonestly representing your company's worth is related.
  - lotsofpulp 7y ago
    The self dealing was not hidden, so I am perplexed why one would think a company with self dealing is worth more than a company without self dealing. Neumann, as a seller, went out into the market and found some buyers. A seller sells for the most they can, and the buyer buys for the least they can. Except in this case, the buyer wanted to flip it, so the buyer wanted to over value it, so that they could claim it was worth even more (due to the rate of increase in "valuations") when they try to IPO it. If anyone was lacking in morals, it would be the buyer who intentionally paid more than they knew they would if their aim was to hold onto it as a business, just so they could pawn it off onto someone else who didn't know better.

AlexandrB 7y ago

> was phenomenally successful at building a large, real business What? How? He built an 8b business with 16b in investment. Anyone can do that. Take 16b, put it in index funds, call yourself an investment bank. You'd get better returns than -50%, for sure.

dreamcompiler 7y ago
Or as Matt Levine might say, take the $16b, light half of it on fire, and put the other half under your mattress. Boom: You've just beaten negative interest rates.
deleted 7y ago
[deleted]
rollerboi 7y ago
Not just anyone gets 16b of funding to lose 50% on it. You need to be a very charismatic CEO - maybe borderline cult-leader status
- kmonsen 7y ago
  I think you also need some "special" investors. In this case softbank appreciated the crazyness of the CEO.
  - rollerboi 7y ago
    Yes, but don't forget that those "special" investors were funded by even richer, special-er investors. Softbank funded WeWork via the Vision fund, which is primarily funded with Saudi money.
- Uhuhreally 7y ago
  and there you have hit the nail on the head
- arcticbull 7y ago
  Right but we're assessing the quality of the business he built. It's crap. That doesn't change with what the parent said.

just_observing 7y ago

> This was not like Theranos where he was straight up lying about a product working She.

reroute1 7y ago
He. He's talking about the WeWork guy, not the theranos woman. I think it's a strange sentence, but technically correct.
- just_observing 7y ago
  Ah. I stand corrected. Thank you.

rchaud 7y ago

> phenomenally successful at building a large, real business. That's like saying the Soviet Union was successful at building a strong consumer economy. Anything can look good when you're able to under-price your services using someone else's money.

arcticbull 7y ago

> ...he believed in his own spin and was phenomenally successful at building a large, real business. Successful at building a large, real business selling $10 bills for $8. It's a dreadful business, they lose money hand over fist with no path to stopping the bleeding. For a while now, any company who could claim to be a "tech" company like WeWork (an objectively real estate company) did was able to raise on terms that are only suitable for zero-marginal-cost businesses. That is unlikely to continue.

hef19898 7y ago
Doesn't have to be necessarily a bad thing if you ask me.
- arcticbull 7y ago
  Oh no, I'm actually glad. There's a case to be made that the benefit of a recession is that it kills off these types of wildly unsustainable businesses as they're forced to prove their model. It's been over a decade since the last one. This allows us to remove some of the froth from the market without necessarily going through the same level of hardship en route.
Sohcahtoa82 7y ago
> selling $10 bills for $8. The classic "We lose money on every sale, but make it up in volume" approach.
- arcticbull 7y ago
  A neat spin on it actually! "We lose money on every sale and we have no idea how we'll ever stop, but let's do a lot of it anyways."
sanysany 7y ago
I was under the impression it wasn't even a real estate company since it only rented it's properties and then sublet them. It didn't even buy properties.

dannylandau 7y ago

Just one small comment -- instead of investors, it was mostly Masayoshi Son at SoftBank that was pumping capital into WeWork and each round invested pumped up the valuation as well, so never had to face any reality from other investors, but it all came to a head in the prospectus for the IPO. I think Galloway explains it well in this video -- https://www.youtube.com/watch?v=3UdhLWGrtDI https://www.youtube.com/watch?v=3UdhLWGrtDI

yalogin 7y ago

Wait, did he not use company funds to buy real estate in his own name and then lease them back to the company? That is still not illegal but super shady. You cannot paper over things with "investors overvalued it" logic. He went to extra lengths to make his cheating legal.

sanysany 7y ago
Did not know about that, do you have a source on that?