10 ms·

Veteran executives and financiers helped fuel WeWork’s rise and fall

97 points by raiyu 7y ago

raiyu 7y ago
As the fallout of WeWork being bailed out played out in the public eye it was obvious that there were tremendous problems at the company. But this article really goes into detail to show the true dysfunction that existed. I mean a CEO that skipped board meetings entirely? An entire board that basically sat quietly as valuations grew ever further out of touch with reality and that the first time they brought it up as an issue was already after the failed IPO had been halted, really is something straight out of an episode of Silicon Valley on HBO.
- bsder 7y ago
  > An entire board that basically sat quietly as valuations grew ever further out of touch with reality and that the first time they brought it up as an issue was already after the failed IPO had been halted Um, like, duh. The whole point of that IPO was to leave the public holding the bag. If Adam Neumann had only been slightly less of a douchebag, it might have happened.
  - chii 7y ago
    Banking on the public being stupid is not a good idea. Wisdom of the crowds is real. As long as there are regulations about financial reporting, these false valuations will come out eventually. They needed to go all in, and commit fraud like Enron, if they really wanted to leave the public holding the bag.
    - onetimemanytime 7y ago
      >>Banking on the public being stupid is not a good idea. By the time public wakes up, the thinking goes, we've already cashed our chips. How many investment firms buy solid businesses, only to chop them up, milk them dry, load with debt and then IPO?
      - dba7dba 7y ago
        This comment is downvoted but I have to agree with this. Rarely, very rarely do these people ever get caught or have to pay back the ill gotten money.
      - kortilla 7y ago
        To the point where the business is no longer viable? Very rarely because without fraud it’s hard to hide that in the IPO docs.
        onetimemanytime 7y ago
        No longer viable or barely viable is a fine line. Here are a few cases: https://www.washingtonpost.com/business/the-debt-laden-lbo-that-wants-to-be-a-hot-tech-ipo/2019/09/13/eec65d76-d619-11e9-8924-1db7dac797fb_story.html https://www.washingtonpost.com/business/the-debt-laden-lbo-t... https://www.bloomberg.com/news/articles/2006-08-06/buy-it-strip-it-then-flip-it https://www.bloomberg.com/news/articles/2006-08-06/buy-it-st... Edit: It's not fraud, they disclose it all but a lot of people are fooled by the low IPO price, even though the business is loaded with debt and has a gazillion shares issued.
      - aguyfromnb 7y ago
        This is why Silicon Valley stalwarts like a16z are pushing for an "alternative" stock market. They need a less transparent place to dump this stuff on the bagholders.
    - unityByFreedom 7y ago
      The public is left holding the bag every time a public company fails to achieve profit. No fraud necessary.
    - leggomylibro 7y ago
      The aphorism that I'm familiar with is, "the wisdom of a crowd is proportional to the square root of its members."
      - andy_ppp 7y ago
        Does that actually mean anything?
        iudqnolq 7y ago
        It's apparently a Terry Pratchett quote: "The intelligence of that creature known as a crowd is the square root of the number of people in it." A sixteen-year-old newsgroup poster explains it as follows: > Sorry to disagree, but I thought the quote worked extremely well the first time and on further reflection, still do. I think it's very apt and I would hesitate to say that perhaps you didn't see the intended purpose on first reading. > Terry talks about the crowd as a creature, therefore implying one single IQ. So, to use your own methods, let's say a crowd of 100 people would have an IQ of 10 - not each, but altogether. Each person would have an IQ of 0.1 if you wanted to break it down, although to do so would be completely counter-productive, because we are talking about a crowd and not a single person. Once you start talking about single people, they are no longer part of the crowd and their IQ would revert to normal status. The crowd is a whole, and the description provides a picture of it being a single organism with one purpose (to imply the fervour that people get swept up in, in crowds, e.g. race riots, Paedophile lynchings, vigilantes that one person would not do) > I think the purpose behind the description was to provide the metaphor of a crowd being a big, dumb, violent animal composed of intelligent, reasoning people - a sort of paraphrase on "the sum is greater than the parts". https://alt.books.pratchett.narkive.com/nVL49SnZ/quote-from-jingo#post3 https://alt.books.pratchett.narkive.com/nVL49SnZ/quote-from-... As an aside, I find it amazing that I was able to go from a paraphrased description of a quote to an in depth discussion of the accuracy of the quote with suggestions for alternative functions. Despite all its flaws, the hacks upon hacks upon hacks we call the internet is incredible when you step back and consider it all.
        cobbzilla 7y ago
    - bsder 7y ago
      > Banking on the public being stupid is not a good idea. Wisdom of the crowds is real. Hardly. It wasn't the fact that WeWork had horrific fundamentals that killed the IPO--look at Uber and Lyft. What killed the IPO was all the reporting on how Neumann was looting the company in just incredibly douchey ways. If Neumann had been a touch more sophisticated or slightly less brazen in looting the company, the IPO probably would have succeeded.
  - Gibbon1 7y ago
    I've been wondering lately about the similarities between startups and the movie industry. Most movies don't make a profit. But everyone involved makes money. One wonders what's in it for the investors using their own money. Along with the suspicion that making a profit isn't 1st on the list.
    - onetimemanytime 7y ago
      >>Most movies don't make a profit. But everyone involved makes money. They do this to screw the small fish that might have a % agreement and/or for tax purposes. So ABC Movie makes no money for Disney but (say) Disney Productions made $XX million to produce it, Disney Promotions $XX to promote it and so on. In the end it all went to Disney' pockets, but the movie lost money.
- newguy1234 7y ago
  The only reason that happened was because Masayoshi Son pioneered the idea that you could make any idea a success if you gave the company enough funding. Obviously, that turns out to a total disaster of an idea. The reality is that you still need to make customer satisfaction and value the number one priority. You need to make a product or service that people want, need and are willing to pay for (or allow you monetize it profitably). Of course, that turns out be very very hard to do in practice so it is understandable why Son was looking for a shortcut.
HeWhoLurksLate 7y ago
Interesting first two lines. :( Anyone have a mirror?
- 6nf 7y ago
  https://luxorr.media/the-money-men-who-enabled-adam-neumann-and-the-wework-debacle/ https://luxorr.media/the-money-men-who-enabled-adam-neumann-...
  - dboreham 7y ago
    "Mr. Neumann mesmerized them together with his pitch"
- adventured 7y ago
  http://archive.is/p0KYR http://archive.is/p0KYR and: https://outline.com/ATFz7Z https://outline.com/ATFz7Z (outline breaks the formatting on financial data in the article)
- jen729w 7y ago
  Either HN bans paywalled links, or it bans downvoting people asking for a back channel to the linked content. Seeing this same pattern every time is getting really boring. I get it. I agree. Content isn’t free. But I can’t sign up for everything, and this site is meant to be an aggregator. There’s no point aggregating content that we can’t see.
  - dang 7y ago
    If there's a workaround, it's ok. Users usually post workarounds in the thread. This is in the FAQ at https://news.ycombinator.com/newsfaq.html https://news.ycombinator.com/newsfaq.html and there's more explanation here: https://news.ycombinator.com/item?id=10178989 https://news.ycombinator.com/item?id=10178989 Note this bit: It's ok to ask how to read an article or to help other users by sharing a workaround. But please do this without going on about paywalls. Focus on the content. https://hn.algolia.com/?sort=byDate&dateRange=all&type=comment&storyText=false&prefix&page=0&query=by:dang%20paywall https://hn.algolia.com/?sort=byDate&dateRange=all&type=comme...
onetimemanytime 7y ago
So even Mr. Schwartz spoke only after all came crushing down? Do I feel bad about their rich investors? Nope, they got way too greedy and got burned.
doublement 7y ago
> The sixth floor of its low-slung headquarters was redone, with a large section just for executives, including an exercise room. Building an executive oasis in the office probably counts as some kind of warning sign. Departure from reality.
- ProAm 7y ago
  Pretty much every company has special amenities for executives.
jeromekampot 7y ago
What I find the most depressing in this saga is that all the people mentionned are now sipping champagne from their 5 star hotel room. All are billionaires/millionnairs thanks to a fraud. While good/normal/working people are just trying to pay their bills. How do you build a society where lying/cheating/bullshitting is more valuable to the community than working ?
- thundergolfer 7y ago
  Did you mean to say “less valuable” in your question? Because if you didn’t, well we can study recent history to get an answer because we’ve already built that society. What complicates the picture though is that these lying/cheating/bullshitting financiers work some of the most hours in society. It’s a weird new phenomenon where the very richest and the very poorest are all working very long work weeks. The poorest are cleaners, care workers, and teachers though, and then there’s these rich people pulling off scams, losing money and contributing nothing of value, yet still getting paid a shitload. I’m reading “Liar’s Poker” now, and man it is awful learning the anti-social attitudes of these workplaces and knowing that this book then became something that further promulgated those attitudes.
  - jeromekampot 7y ago
    I meant more valuable in the sense that these people who are not doing their part in improving society seem more valuable (read, make more money) than people who do. How do you raise your kid not to cheat or lie OR ELSE he will live a life of leisure. How can these people not be stripped of their assets and left to rot in a vulgar jail ? Why are we rewarding these destructive behaviour ? I've read a lot of these post mortem articles. They all feel like the author wished he was Neuman, wished he got away with the millions. I am a software engineer, have been for 20 years, I always felt I was contributing to society. I've build things that make people's life easier (in exchange for teaching my kids, baking my bread or treating me when I'm sick). These predatory people do not bring anything to the table but are regarded as gods.
    - timwaagh 7y ago
gumby 7y ago
Why does the article say, "It was a watershed moment for Silicon Valley"? WeWork was started in NY, has a bunch of facilities in SF but in SV just one in RWC.
- s_dev 7y ago
  Because Silicon Valley has become a synonym for the American tech scene. Many great films are made in New York but they still fall under the moniker Hollywood.
  - austhrow743 7y ago
    Its not a technology company either though.
  - wavefunction 7y ago
    I think you're underlining OP's point? WeWork is head-quartered in NYC but does some biz around the world and is called SV. Hollywood is the location of many of the headquarters of movie studios, though they do work around the world.
iamleppert 7y ago
Why isn't the DOJ looking into him? He should be brought up on charges just like Elizabeth Holmes. There has to be a clear fraud cause in here somewhere. He can't be allowed to get away with what he has done, he needs to be stripped of his money and spend some time in jail to act as a deterrent for others who would seek to do the same.
- darawk 7y ago
  He didn't really commit fraud, though. He really did create a successful business. He didn't defraud anyone, he just convinced supposedly smart investors that he was somehow going to generate billions in profit from a company that just didn't have the business model for that. He found a little glitch in the system, and honestly, that's fine. This is how the system learns, and hopefully fewer investors will waste their money on someone like him in the future. But at the end of the day, what he did wasn't really illegal, and it shouldn't be. The bare essence of what happened is he asked some supposedly very smart and sophisticated people to give him billions of dollars, and they said "we like you, so yes". There's nothing intrinsically wrong with that, it's their money to throw away how they please, and they should have known better.
- neffy 7y ago
  What he did should be illegal - and maybe one day it will be - but right now there are no laws against this. If there were, a lot of very rich people - who have exploited this particular loophole would need to be prosecuted...
neonate 7y ago
http://archive.md/p0KYR http://archive.md/p0KYR
randycupertino 7y ago
> In late 2015, WeWork was completing an investment round led by Beijing-based Hony Capital Ltd. that pushed its valuation to $16 billion. Mr. Neumann invited its CEO, John Zhao, to a party at 110 Wall Street, where WeWork was about to open its first WeLive dormlike apartment building. Toward the end of the night, Mr. Neumann led others to the roof of the 27-story building. There, guests passed around tequila shots. Mr. Neumann picked up a fire extinguisher and set it off, spraying Mr. Zhao and others with white foam. > The deal went through. Mr. Zhao joined WeWork’s board in July 2016. Spraying potential investors with a fire extinguisher... now there's a fundraising technique I won't be trying.
- hn_throwaway_99 7y ago
  > now there's a fundraising technique I won't be trying. Well, it worked ¯\_(ツ)_/¯
  - randycupertino 7y ago
    Probably only works if you're a 6'5, enigmatic, charismatic, handsome, youthful "Visionary" who is married to Gwyneth Paltrow's cousin. I'm just a 5'9, balding, middle-aged coding schmuck who's married to a school nurse.
    - partingshots 7y ago
      What’s wrong with school nurses?
      - randycupertino 7y ago
        Nothing! My wife loves her job and I love my wife. :) I'm just trying to point out that being married to a school nurse doesn't carry the same cache as being married to Gwyneth Paltrow's cousin.
        blaser-waffle 7y ago

97 points by raiyu 7y ago

As the fallout of WeWork being bailed out played out in the public eye it was obvious that there were tremendous problems at the company. But this article really goes into detail to show the true dysfunction that existed. I mean a CEO that skipped board meetings entirely? An entire board that basically sat quietly as valuations grew ever further out of touch with reality and that the first time they brought it up as an issue was already after the failed IPO had been halted, really is something straight out of an episode of Silicon Valley on HBO.

bsder 7y ago
> An entire board that basically sat quietly as valuations grew ever further out of touch with reality and that the first time they brought it up as an issue was already after the failed IPO had been halted Um, like, duh. The whole point of that IPO was to leave the public holding the bag. If Adam Neumann had only been slightly less of a douchebag, it might have happened.
- chii 7y ago
  Banking on the public being stupid is not a good idea. Wisdom of the crowds is real. As long as there are regulations about financial reporting, these false valuations will come out eventually. They needed to go all in, and commit fraud like Enron, if they really wanted to leave the public holding the bag.
  - onetimemanytime 7y ago
    >>Banking on the public being stupid is not a good idea. By the time public wakes up, the thinking goes, we've already cashed our chips. How many investment firms buy solid businesses, only to chop them up, milk them dry, load with debt and then IPO?
    - dba7dba 7y ago
      This comment is downvoted but I have to agree with this. Rarely, very rarely do these people ever get caught or have to pay back the ill gotten money.
    - kortilla 7y ago
      To the point where the business is no longer viable? Very rarely because without fraud it’s hard to hide that in the IPO docs.
      - onetimemanytime 7y ago
        No longer viable or barely viable is a fine line. Here are a few cases: https://www.washingtonpost.com/business/the-debt-laden-lbo-that-wants-to-be-a-hot-tech-ipo/2019/09/13/eec65d76-d619-11e9-8924-1db7dac797fb_story.html https://www.washingtonpost.com/business/the-debt-laden-lbo-t... https://www.bloomberg.com/news/articles/2006-08-06/buy-it-strip-it-then-flip-it https://www.bloomberg.com/news/articles/2006-08-06/buy-it-st... Edit: It's not fraud, they disclose it all but a lot of people are fooled by the low IPO price, even though the business is loaded with debt and has a gazillion shares issued.
    - aguyfromnb 7y ago
      This is why Silicon Valley stalwarts like a16z are pushing for an "alternative" stock market. They need a less transparent place to dump this stuff on the bagholders.
  - unityByFreedom 7y ago
    The public is left holding the bag every time a public company fails to achieve profit. No fraud necessary.
  - leggomylibro 7y ago
    The aphorism that I'm familiar with is, "the wisdom of a crowd is proportional to the square root of its members."
    - andy_ppp 7y ago
      Does that actually mean anything?
      - iudqnolq 7y ago
        It's apparently a Terry Pratchett quote: "The intelligence of that creature known as a crowd is the square root of the number of people in it." A sixteen-year-old newsgroup poster explains it as follows: > Sorry to disagree, but I thought the quote worked extremely well the first time and on further reflection, still do. I think it's very apt and I would hesitate to say that perhaps you didn't see the intended purpose on first reading. > Terry talks about the crowd as a creature, therefore implying one single IQ. So, to use your own methods, let's say a crowd of 100 people would have an IQ of 10 - not each, but altogether. Each person would have an IQ of 0.1 if you wanted to break it down, although to do so would be completely counter-productive, because we are talking about a crowd and not a single person. Once you start talking about single people, they are no longer part of the crowd and their IQ would revert to normal status. The crowd is a whole, and the description provides a picture of it being a single organism with one purpose (to imply the fervour that people get swept up in, in crowds, e.g. race riots, Paedophile lynchings, vigilantes that one person would not do) > I think the purpose behind the description was to provide the metaphor of a crowd being a big, dumb, violent animal composed of intelligent, reasoning people - a sort of paraphrase on "the sum is greater than the parts". https://alt.books.pratchett.narkive.com/nVL49SnZ/quote-from-jingo#post3 https://alt.books.pratchett.narkive.com/nVL49SnZ/quote-from-... As an aside, I find it amazing that I was able to go from a paraphrased description of a quote to an in depth discussion of the accuracy of the quote with suggestions for alternative functions. Despite all its flaws, the hacks upon hacks upon hacks we call the internet is incredible when you step back and consider it all.
        cobbzilla 7y ago
  - bsder 7y ago
    > Banking on the public being stupid is not a good idea. Wisdom of the crowds is real. Hardly. It wasn't the fact that WeWork had horrific fundamentals that killed the IPO--look at Uber and Lyft. What killed the IPO was all the reporting on how Neumann was looting the company in just incredibly douchey ways. If Neumann had been a touch more sophisticated or slightly less brazen in looting the company, the IPO probably would have succeeded.
- Gibbon1 7y ago
  I've been wondering lately about the similarities between startups and the movie industry. Most movies don't make a profit. But everyone involved makes money. One wonders what's in it for the investors using their own money. Along with the suspicion that making a profit isn't 1st on the list.
  - onetimemanytime 7y ago
    >>Most movies don't make a profit. But everyone involved makes money. They do this to screw the small fish that might have a % agreement and/or for tax purposes. So ABC Movie makes no money for Disney but (say) Disney Productions made $XX million to produce it, Disney Promotions $XX to promote it and so on. In the end it all went to Disney' pockets, but the movie lost money.
newguy1234 7y ago
The only reason that happened was because Masayoshi Son pioneered the idea that you could make any idea a success if you gave the company enough funding. Obviously, that turns out to a total disaster of an idea. The reality is that you still need to make customer satisfaction and value the number one priority. You need to make a product or service that people want, need and are willing to pay for (or allow you monetize it profitably). Of course, that turns out be very very hard to do in practice so it is understandable why Son was looking for a shortcut.

HeWhoLurksLate 7y ago

Interesting first two lines. :( Anyone have a mirror?

6nf 7y ago
https://luxorr.media/the-money-men-who-enabled-adam-neumann-and-the-wework-debacle/ https://luxorr.media/the-money-men-who-enabled-adam-neumann-...
- dboreham 7y ago
  "Mr. Neumann mesmerized them together with his pitch"
adventured 7y ago
http://archive.is/p0KYR http://archive.is/p0KYR and: https://outline.com/ATFz7Z https://outline.com/ATFz7Z (outline breaks the formatting on financial data in the article)
jen729w 7y ago
Either HN bans paywalled links, or it bans downvoting people asking for a back channel to the linked content. Seeing this same pattern every time is getting really boring. I get it. I agree. Content isn’t free. But I can’t sign up for everything, and this site is meant to be an aggregator. There’s no point aggregating content that we can’t see.
- dang 7y ago
  If there's a workaround, it's ok. Users usually post workarounds in the thread. This is in the FAQ at https://news.ycombinator.com/newsfaq.html https://news.ycombinator.com/newsfaq.html and there's more explanation here: https://news.ycombinator.com/item?id=10178989 https://news.ycombinator.com/item?id=10178989 Note this bit: It's ok to ask how to read an article or to help other users by sharing a workaround. But please do this without going on about paywalls. Focus on the content. https://hn.algolia.com/?sort=byDate&dateRange=all&type=comment&storyText=false&prefix&page=0&query=by:dang%20paywall https://hn.algolia.com/?sort=byDate&dateRange=all&type=comme...

onetimemanytime 7y ago

So even Mr. Schwartz spoke only after all came crushing down? Do I feel bad about their rich investors? Nope, they got way too greedy and got burned.

doublement 7y ago

> The sixth floor of its low-slung headquarters was redone, with a large section just for executives, including an exercise room. Building an executive oasis in the office probably counts as some kind of warning sign. Departure from reality.

ProAm 7y ago
Pretty much every company has special amenities for executives.

jeromekampot 7y ago

What I find the most depressing in this saga is that all the people mentionned are now sipping champagne from their 5 star hotel room. All are billionaires/millionnairs thanks to a fraud. While good/normal/working people are just trying to pay their bills. How do you build a society where lying/cheating/bullshitting is more valuable to the community than working ?

thundergolfer 7y ago
Did you mean to say “less valuable” in your question? Because if you didn’t, well we can study recent history to get an answer because we’ve already built that society. What complicates the picture though is that these lying/cheating/bullshitting financiers work some of the most hours in society. It’s a weird new phenomenon where the very richest and the very poorest are all working very long work weeks. The poorest are cleaners, care workers, and teachers though, and then there’s these rich people pulling off scams, losing money and contributing nothing of value, yet still getting paid a shitload. I’m reading “Liar’s Poker” now, and man it is awful learning the anti-social attitudes of these workplaces and knowing that this book then became something that further promulgated those attitudes.
- jeromekampot 7y ago
  I meant more valuable in the sense that these people who are not doing their part in improving society seem more valuable (read, make more money) than people who do. How do you raise your kid not to cheat or lie OR ELSE he will live a life of leisure. How can these people not be stripped of their assets and left to rot in a vulgar jail ? Why are we rewarding these destructive behaviour ? I've read a lot of these post mortem articles. They all feel like the author wished he was Neuman, wished he got away with the millions. I am a software engineer, have been for 20 years, I always felt I was contributing to society. I've build things that make people's life easier (in exchange for teaching my kids, baking my bread or treating me when I'm sick). These predatory people do not bring anything to the table but are regarded as gods.
  - timwaagh 7y ago

gumby 7y ago

Why does the article say, "It was a watershed moment for Silicon Valley"? WeWork was started in NY, has a bunch of facilities in SF but in SV just one in RWC.

s_dev 7y ago
Because Silicon Valley has become a synonym for the American tech scene. Many great films are made in New York but they still fall under the moniker Hollywood.
- austhrow743 7y ago
  Its not a technology company either though.
- wavefunction 7y ago
  I think you're underlining OP's point? WeWork is head-quartered in NYC but does some biz around the world and is called SV. Hollywood is the location of many of the headquarters of movie studios, though they do work around the world.

iamleppert 7y ago

Why isn't the DOJ looking into him? He should be brought up on charges just like Elizabeth Holmes. There has to be a clear fraud cause in here somewhere. He can't be allowed to get away with what he has done, he needs to be stripped of his money and spend some time in jail to act as a deterrent for others who would seek to do the same.

darawk 7y ago
He didn't really commit fraud, though. He really did create a successful business. He didn't defraud anyone, he just convinced supposedly smart investors that he was somehow going to generate billions in profit from a company that just didn't have the business model for that. He found a little glitch in the system, and honestly, that's fine. This is how the system learns, and hopefully fewer investors will waste their money on someone like him in the future. But at the end of the day, what he did wasn't really illegal, and it shouldn't be. The bare essence of what happened is he asked some supposedly very smart and sophisticated people to give him billions of dollars, and they said "we like you, so yes". There's nothing intrinsically wrong with that, it's their money to throw away how they please, and they should have known better.
neffy 7y ago
What he did should be illegal - and maybe one day it will be - but right now there are no laws against this. If there were, a lot of very rich people - who have exploited this particular loophole would need to be prosecuted...

neonate 7y ago

http://archive.md/p0KYR http://archive.md/p0KYR

randycupertino 7y ago

> In late 2015, WeWork was completing an investment round led by Beijing-based Hony Capital Ltd. that pushed its valuation to $16 billion. Mr. Neumann invited its CEO, John Zhao, to a party at 110 Wall Street, where WeWork was about to open its first WeLive dormlike apartment building. Toward the end of the night, Mr. Neumann led others to the roof of the 27-story building. There, guests passed around tequila shots. Mr. Neumann picked up a fire extinguisher and set it off, spraying Mr. Zhao and others with white foam. > The deal went through. Mr. Zhao joined WeWork’s board in July 2016. Spraying potential investors with a fire extinguisher... now there's a fundraising technique I won't be trying.

hn_throwaway_99 7y ago
> now there's a fundraising technique I won't be trying. Well, it worked ¯\_(ツ)_/¯
- randycupertino 7y ago
  Probably only works if you're a 6'5, enigmatic, charismatic, handsome, youthful "Visionary" who is married to Gwyneth Paltrow's cousin. I'm just a 5'9, balding, middle-aged coding schmuck who's married to a school nurse.
  - partingshots 7y ago
    What’s wrong with school nurses?
    - randycupertino 7y ago
      Nothing! My wife loves her job and I love my wife. :) I'm just trying to point out that being married to a school nurse doesn't carry the same cache as being married to Gwyneth Paltrow's cousin.
      - blaser-waffle 7y ago