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'WeWork, saddled with expensive long-term leases and more than $3 billion of debt, recorded a negative cash flow of around $4.3 billion between July 2020 and Se

'WeWork, saddled with expensive long-term leases and more than $3 billion of debt, recorded a negative cash flow of around $4.3 billion between July 2020 and September of this year. It has been able to cover its losses partly with loans and equity investments from its biggest backer, SoftBank Group Corp. , which to date has sank more than $10 billion into the business. WeWork has burned through nearly all of it. The company has $500 million in undrawn debt commitments from SoftBank and has said it expects to end 2022 with $300 million in cash, less than one-third of what it had at the end of 2021. Its debt contracts allow it to borrow another $500 million'. Wikipedia: https://en.wikipedia.org/wiki/Adam_Neumann https://en.wikipedia.org/wiki/Adam_Neumann As WeWork CEO, Neumann on multiple occasions purchased buildings and then leased the space back to WeWork.[56] Observers noted this as a potential conflict of interest and one that would not be allowed if WeWork were a public company.[57] During his tenure as CEO of WeWork, Neumann also purchased US$90 million worth of residences, including a 60-acre (24 ha) estate in Westchester County, New York, a 6,000-square-foot (560 m2) condominium near Gramercy Park, two homes in The Hamptons, and a US$21 million mansion in Corte Madera, California.[19] Neumann has begun purchasing apartment buildings and, as of early 2022, owned some 4,000 apartments worth about US$1 billion, primarily located in the American South.[58]' In 'Generation Hustle' someone is left holding the bag...

anon223345 4y ago
What’s epic is that A16Z actually just invested a shit ton with Neumann again August 2022 https://a16z.com/2022/08/15/investing-in-flow/ https://a16z.com/2022/08/15/investing-in-flow/
Marazan 4y ago
My opinion of Neumann has varied from total contempt to amazement amd grudging respect at his abilitu at conning vast quantaties of cash from VCs. Overall though his contribution to massive capital mis-allocation is a huge net negative for my opinion of him.
- gtowey 4y ago
  I'm not sure I understand the perspective that people like Neumann have anything admirable about them. All he has "discovered" is the one of the oldest lessons in the world -- it's pretty easy to sell something when you can lie as much as possible. Or put another way, that if you're willing to ignore the rules of society that most people agree to, then it's pretty easy to take advantage of the system. Now I know that not everyone could be as convincing of a liar as Neumann, but most of us have the ethical boundaries to not really try. So all you can really say is that of the people who are morally bankrupt enough to try to steal as much money as possible, he seems better at it than average.
  - lazide 4y ago
    In a competition of Olympic divers, the one who wins and the one who somehow makes it there and then does a gigantic, hospital trip inducing, bellyflop are both notable. The bellyflop is probably the one that will be remembered the longest though.
    - cafard 4y ago
      Hey, Eddie the Eagle got a rule named after him: https://en.wikipedia.org/wiki/Eddie_the_Eagle https://en.wikipedia.org/wiki/Eddie_the_Eagle
    - cutemonster 4y ago
      Especially if the bellyflopper did the bellyflop because the winner had said "I have an idea, do a bellyflop, you before me!"
  - Marazan 4y ago
    Don't get me wrong, he is not admirable. In my moral system his actions are fundamentally criminal. But... as far as I'm aware he didn't hide any of this from his investors. They just handed over the cash no questions asked until the grift got too blatant (I think it was the trademark ownership/name change that was the straw that broke the camel's back.)
PragmaticPulp 4y ago
There was a common sentiment that speed was everything in VC over the past several years. Due Diligence only slowed you down and made you miss deals. If you wanted gains, you had to invest first with conviction and trust the founders. Amazing to see how efficiently some of the biggest grifters exploited this dynamic to funnel money straight from investors and into their own personal net worth, while building businesses that couldn't have possibly been profitable. It didn't matter, though, because they needed the sense of scale and growth to continue grifting investors. WeWork, Theranos, and FTX are widely known examples. Two of those founders acted criminally and have been arrested. Neumann was shockingly good at perform open-book grifts that benefited himself, but investors looked the other way. One of my favorite stories from this era is Pipe, a fintech company with a business model that didn't really make sense to anyone familiar with their industry. They raised hundreds of millions at multi-billion dollar valuations, then the entire founding team of 3 people just stepped down: https://techcrunch.com/2022/11/22/pipes-founding-team-stepping-down-as-hunt-for-veteran-ceo-begins/ https://techcrunch.com/2022/11/22/pipes-founding-team-steppi... They're trying to spin it as a narrative about being 0-1 builders, but it's hard to take them seriously when 3 people are stepping down simultaneously right after getting a huge bump to their personal wealth. Raising money was their goal, building a perception of a successful business was only useful as far as it supported transfers from investors to their bank accounts. Would be fun to see how much they sold in secondaries.
- btown 4y ago
  Out of curiosity, why wouldn't Pipe's model have worked? To my knowledge, invoice factoring has been around since ancient times, and became a key (albeit exploitative) part of the textile industry among others. If a SaaS has a degree of lock-in to the extent that churn rates can be modeled predictably, I don't see how churn risk couldn't just be modeled alongside the traditional risk that the customer becomes insolvent on existing invoices. Now, if Pipe was subsidizing those risk-adjusted prices with VC money, then squandering that by being an inexperienced operating team, I can see how they themselves may have failed. But is that a death knell for the entire model? Is it that VC backed companies are themselves at higher risk of default in a correlated way that wasn't being taken into account?
- 4y ago
hintymad 4y ago
> As WeWork CEO, Neumann on multiple occasions purchased buildings and then leased the space back to WeWork.[56] Observers noted this as a potential conflict of interest and one that would not be allowed if WeWork were a public company. Isn't it unethical? The VCs in the podcast All In and the firm a16z defended Neumann because he bootstrapped a real-estate sector into a billion-dollar business even before getting huge VC investment. I don't doubt that, but didn't everyone say the most the important thing in a leader is integrity? Yet I hardly see how one can trust Neumann again as he skimmed his own company's money.
- rsanheim 4y ago
  It was incredibly unethical. VCs defend it because they were riding along w Neumann the whole time, throwing more and more money into the trash fire as the we work valuation rose to insane levels. And of course they were the first to get out with a profitable return before things come crashing down.
  - fragmede 4y ago
    Or maybe the VC's don't see it as unethical because that's just a tiny view of how things really work under the covers.
- inthewoods 4y ago
  VCs talk a game about being ethical, but let's be real - if it works they probably don't care. Uber is a great example of this - the rules can be bent to serve the purpose.
- digitaltrees 4y ago
  There may be facts that make it not only reasonable but prudent for the equity holders and executives to buy assets for use by a business. For example, imagine the that the business can’t get a line of credit independently but the founder can individually. The founder could buy an asset and lease it back to the company. While there is a clear possibility of unjust enrichment by acting against the interests of the company there are mechanisms in corporate governance to review and sign off on these types of transactions by having the board review the details and ensure that the terms are the same as would be in place with a third party. For example, that the lease rate was what a random sample of similar market leases. We now know that Neumann had access to large personal lines of credit from large banks secured by his we work equity. So these transactions allowed we work to have access to properties without taking on liability for a mortgage but enjoying perhaps a more reasonable landlord that wouldn’t terminate a lease or refuse to renew in order for extract the value of renovation (which is unfortunately really common). I am not justifying any particular action or transaction, just saying 1. The facts matter in this situation because it could have been totally in the company’s interest 2. We should equivocate we work with others like FTX where the facts appear that they told customers they would safeguard assets as a custodian (which has a very specific legal definition and set of obligations FTX must abide by) but then used the assets for risk taking investments without disclosure or Theranos where they knowingly lied about their technology it’s efficacy and prospects for further advancement. Both of those were fraudulent misrepresentation. We work was instead a related party transaction that arguably has a win-win for both parties and was signed off by the board after full and complete disclosure.
londons_explore 4y ago
So how did Neumann personally have enough money for the downpayment on $1B worth of property? Do mortgage providers consider it enough to show a signed multi-year tenancy agreement as sufficient collateral to offer a 100% value mortgage, and therefore Neumann didn't need to put in any cash himself?
- humanistbot 4y ago
  > Do mortgage providers consider it enough to show a signed multi-year tenancy agreement as sufficient collateral to offer a 100% value mortgage, and therefore Neumann didn't need to put in any cash himself? I'm pretty sure he didn't apply for a traditional mortgage through a traditional lender in the way that we plebians or even publicly traded companies do. He has a long history of using his charisma and star power to get private individuals to make completely idiotic deals that benefit him and leave them holding the bag.
- martinald 4y ago
  I thought he got a ~$500m payout from softbank? Can easily leverage that to buy a billion+ worth of property.
danrocks 4y ago
I have always wondered how Neumann was able to afford all of this. Did he sell shares of WeWork to SoftBank? Obtained some loans giving illiquid shares as collateral? I really don’t understand how these founders get so rich with a money losing business without selling shares in an IPO. Sounds like a financial engineering orgy.
- twostorytower 4y ago
  This was covered in WeCrashed (and not sure how entirely accurate it is) but JP Morgan gave him a huge line of credit with his shares as collateral.
  - LASR 4y ago
    So he didn't cash out. Didn't pay cap-gains on those. Yet, generated cashflow from the shares. As a common person, I've been looking into this myself with my RSUs and option grants. But there aren't credit lines that banks offer using equity as collateral for the common person. I guess when your net worth is high-enough, you can pull anything off with the banks.
    - digitaltrees 4y ago
      Yes. Ultra high net worth individuals actually have separate banks within the banks. They will have a private banker for their accounts. And the private bank often has a separate balance sheet and policies.
    - bombcar 4y ago
      You have to be big enough that a bank will take time to work it out by hand; and I suspect the bank that gave him the loans was also prime on doing business with WeWork (and potentially an IPO). The closest "normal" people can get to this is with real estate.
    - mtwshngtn 4y ago
      Charles Schwab Pledged Asset Line [0]? equities as collateral, gain a line of credit. Fidelity Fully Paid Lending Program [1]? not quite what you're looking for, but still generate cashflow from owned equities. [0]: https://www.schwab.com/pledged-asset-line https://www.schwab.com/pledged-asset-line [1]: https://www.fidelity.com/trading/fully-paid-lending https://www.fidelity.com/trading/fully-paid-lending Disclaimer: i am not a fiduciary, nor a financial professional. this is not financial advice.
hn_throwaway_99 4y ago
> Neumann has begun purchasing apartment buildings and, as of early 2022, owned some 4,000 apartments worth about US$1 billion, primarily located in the American South. This is Neumann's "Flow" company that a16z backed with $350 million this summer. Scheduled to launch next year, will be interesting to see how it fares in this new interest rate environment. https://techcrunch.com/2022/10/18/a16z-chris-dixon-adam-neumann-flow-funding-disrupt-2022/ https://techcrunch.com/2022/10/18/a16z-chris-dixon-adam-neum... https://en.wikipedia.org/wiki/Flow_(real_estate_company) https://en.wikipedia.org/wiki/Flow_(real_estate_company)
- rchaud 4y ago
  Maybe after that tanks, they can hire him again as a Criss Angel impersonator. He does seem to have formidable powers of telekinesis, the money just flies into his pockets!
subsubzero 4y ago
Highly suspect Wework won't survive 2023, expect it to fold possibly mid-year next year, maybe sooner.
spaceman_2020 4y ago
The funny part is that Wework built its valuation on the narrative that it's a "tech company", but the tech-side of the member experience has actually become worse or has been unchanged for years.
sytelus 4y ago
I want to offer contrarian take. I can't count number of founders who found refuge at WeWork, thrived there, met their co-founders, customers and first employees. We Work was an essential ingredient of gig culture and founding of countless new companies. Neumann's original vision was, and, in fact continues to be seductive and revolutionary. The incumbent players in these business were simply way too behind in meeting needs of modern startups. Neumann used age-old strategy to ignite this business: throw VC money to create foundation for business while doing that at loss. When he signed the over the top leases, no one - and I repeat no one - ever thought we were going to be off of 0% interest rates. No one thought real estate will plunge. It made sense at the time and VCs threw even more money as everyone held same view. In alternate universe, COVID would have never happened, QEs would have continued for another decade and WeWork would have been highly profitable monopoly. This is not to say Neumann acted in unethical manner. He used WeWork cash and assets as his personal property. But keep in mind VCs always thought of WeWork as his "family business" just like how they thought of Facebook as Zuck's family business.
- rchaud 4y ago
  > We Work was an essential ingredient of gig culture and founding of countless new companies. Perhaps they should have pivoted to become an incubator!
- shagmin 4y ago
  As to your first point, I'm curious how much of this varies from market to market or how true this is. Where I live there's a big co-working space that has accelerator programs and ties to local universities that's been around for longer than WeWork, and a lot of smaller co-working spaces too - some trendy/modern looking and some not so much. When WeWork came to my area it seemed like just another one but with better name recognition.
zetazzed 4y ago
Hmm... they have 300 mil in cash, 500 mil from Softbank, and another 500 mil from other commitments. So, $1.3 bln of accessible cash in total. I know they burn some money, but this doesn't sound like a tiny pool to me.

anon223345 4y ago

What’s epic is that A16Z actually just invested a shit ton with Neumann again August 2022 https://a16z.com/2022/08/15/investing-in-flow/ https://a16z.com/2022/08/15/investing-in-flow/

Marazan 4y ago

My opinion of Neumann has varied from total contempt to amazement amd grudging respect at his abilitu at conning vast quantaties of cash from VCs. Overall though his contribution to massive capital mis-allocation is a huge net negative for my opinion of him.

gtowey 4y ago
I'm not sure I understand the perspective that people like Neumann have anything admirable about them. All he has "discovered" is the one of the oldest lessons in the world -- it's pretty easy to sell something when you can lie as much as possible. Or put another way, that if you're willing to ignore the rules of society that most people agree to, then it's pretty easy to take advantage of the system. Now I know that not everyone could be as convincing of a liar as Neumann, but most of us have the ethical boundaries to not really try. So all you can really say is that of the people who are morally bankrupt enough to try to steal as much money as possible, he seems better at it than average.
- lazide 4y ago
  In a competition of Olympic divers, the one who wins and the one who somehow makes it there and then does a gigantic, hospital trip inducing, bellyflop are both notable. The bellyflop is probably the one that will be remembered the longest though.
  - cafard 4y ago
    Hey, Eddie the Eagle got a rule named after him: https://en.wikipedia.org/wiki/Eddie_the_Eagle https://en.wikipedia.org/wiki/Eddie_the_Eagle
  - cutemonster 4y ago
    Especially if the bellyflopper did the bellyflop because the winner had said "I have an idea, do a bellyflop, you before me!"
- Marazan 4y ago
  Don't get me wrong, he is not admirable. In my moral system his actions are fundamentally criminal. But... as far as I'm aware he didn't hide any of this from his investors. They just handed over the cash no questions asked until the grift got too blatant (I think it was the trademark ownership/name change that was the straw that broke the camel's back.)

PragmaticPulp 4y ago

There was a common sentiment that speed was everything in VC over the past several years. Due Diligence only slowed you down and made you miss deals. If you wanted gains, you had to invest first with conviction and trust the founders. Amazing to see how efficiently some of the biggest grifters exploited this dynamic to funnel money straight from investors and into their own personal net worth, while building businesses that couldn't have possibly been profitable. It didn't matter, though, because they needed the sense of scale and growth to continue grifting investors. WeWork, Theranos, and FTX are widely known examples. Two of those founders acted criminally and have been arrested. Neumann was shockingly good at perform open-book grifts that benefited himself, but investors looked the other way. One of my favorite stories from this era is Pipe, a fintech company with a business model that didn't really make sense to anyone familiar with their industry. They raised hundreds of millions at multi-billion dollar valuations, then the entire founding team of 3 people just stepped down: https://techcrunch.com/2022/11/22/pipes-founding-team-stepping-down-as-hunt-for-veteran-ceo-begins/ https://techcrunch.com/2022/11/22/pipes-founding-team-steppi... They're trying to spin it as a narrative about being 0-1 builders, but it's hard to take them seriously when 3 people are stepping down simultaneously right after getting a huge bump to their personal wealth. Raising money was their goal, building a perception of a successful business was only useful as far as it supported transfers from investors to their bank accounts. Would be fun to see how much they sold in secondaries.

btown 4y ago
Out of curiosity, why wouldn't Pipe's model have worked? To my knowledge, invoice factoring has been around since ancient times, and became a key (albeit exploitative) part of the textile industry among others. If a SaaS has a degree of lock-in to the extent that churn rates can be modeled predictably, I don't see how churn risk couldn't just be modeled alongside the traditional risk that the customer becomes insolvent on existing invoices. Now, if Pipe was subsidizing those risk-adjusted prices with VC money, then squandering that by being an inexperienced operating team, I can see how they themselves may have failed. But is that a death knell for the entire model? Is it that VC backed companies are themselves at higher risk of default in a correlated way that wasn't being taken into account?
4y ago

hintymad 4y ago

> As WeWork CEO, Neumann on multiple occasions purchased buildings and then leased the space back to WeWork.[56] Observers noted this as a potential conflict of interest and one that would not be allowed if WeWork were a public company. Isn't it unethical? The VCs in the podcast All In and the firm a16z defended Neumann because he bootstrapped a real-estate sector into a billion-dollar business even before getting huge VC investment. I don't doubt that, but didn't everyone say the most the important thing in a leader is integrity? Yet I hardly see how one can trust Neumann again as he skimmed his own company's money.

rsanheim 4y ago
It was incredibly unethical. VCs defend it because they were riding along w Neumann the whole time, throwing more and more money into the trash fire as the we work valuation rose to insane levels. And of course they were the first to get out with a profitable return before things come crashing down.
- fragmede 4y ago
  Or maybe the VC's don't see it as unethical because that's just a tiny view of how things really work under the covers.
inthewoods 4y ago
VCs talk a game about being ethical, but let's be real - if it works they probably don't care. Uber is a great example of this - the rules can be bent to serve the purpose.
digitaltrees 4y ago
There may be facts that make it not only reasonable but prudent for the equity holders and executives to buy assets for use by a business. For example, imagine the that the business can’t get a line of credit independently but the founder can individually. The founder could buy an asset and lease it back to the company. While there is a clear possibility of unjust enrichment by acting against the interests of the company there are mechanisms in corporate governance to review and sign off on these types of transactions by having the board review the details and ensure that the terms are the same as would be in place with a third party. For example, that the lease rate was what a random sample of similar market leases. We now know that Neumann had access to large personal lines of credit from large banks secured by his we work equity. So these transactions allowed we work to have access to properties without taking on liability for a mortgage but enjoying perhaps a more reasonable landlord that wouldn’t terminate a lease or refuse to renew in order for extract the value of renovation (which is unfortunately really common). I am not justifying any particular action or transaction, just saying 1. The facts matter in this situation because it could have been totally in the company’s interest 2. We should equivocate we work with others like FTX where the facts appear that they told customers they would safeguard assets as a custodian (which has a very specific legal definition and set of obligations FTX must abide by) but then used the assets for risk taking investments without disclosure or Theranos where they knowingly lied about their technology it’s efficacy and prospects for further advancement. Both of those were fraudulent misrepresentation. We work was instead a related party transaction that arguably has a win-win for both parties and was signed off by the board after full and complete disclosure.

londons_explore 4y ago

So how did Neumann personally have enough money for the downpayment on $1B worth of property? Do mortgage providers consider it enough to show a signed multi-year tenancy agreement as sufficient collateral to offer a 100% value mortgage, and therefore Neumann didn't need to put in any cash himself?

humanistbot 4y ago
> Do mortgage providers consider it enough to show a signed multi-year tenancy agreement as sufficient collateral to offer a 100% value mortgage, and therefore Neumann didn't need to put in any cash himself? I'm pretty sure he didn't apply for a traditional mortgage through a traditional lender in the way that we plebians or even publicly traded companies do. He has a long history of using his charisma and star power to get private individuals to make completely idiotic deals that benefit him and leave them holding the bag.
martinald 4y ago
I thought he got a ~$500m payout from softbank? Can easily leverage that to buy a billion+ worth of property.

danrocks 4y ago

I have always wondered how Neumann was able to afford all of this. Did he sell shares of WeWork to SoftBank? Obtained some loans giving illiquid shares as collateral? I really don’t understand how these founders get so rich with a money losing business without selling shares in an IPO. Sounds like a financial engineering orgy.

twostorytower 4y ago
This was covered in WeCrashed (and not sure how entirely accurate it is) but JP Morgan gave him a huge line of credit with his shares as collateral.
- LASR 4y ago
  So he didn't cash out. Didn't pay cap-gains on those. Yet, generated cashflow from the shares. As a common person, I've been looking into this myself with my RSUs and option grants. But there aren't credit lines that banks offer using equity as collateral for the common person. I guess when your net worth is high-enough, you can pull anything off with the banks.
  - digitaltrees 4y ago
    Yes. Ultra high net worth individuals actually have separate banks within the banks. They will have a private banker for their accounts. And the private bank often has a separate balance sheet and policies.
  - bombcar 4y ago
    You have to be big enough that a bank will take time to work it out by hand; and I suspect the bank that gave him the loans was also prime on doing business with WeWork (and potentially an IPO). The closest "normal" people can get to this is with real estate.
  - mtwshngtn 4y ago
    Charles Schwab Pledged Asset Line [0]? equities as collateral, gain a line of credit. Fidelity Fully Paid Lending Program [1]? not quite what you're looking for, but still generate cashflow from owned equities. [0]: https://www.schwab.com/pledged-asset-line https://www.schwab.com/pledged-asset-line [1]: https://www.fidelity.com/trading/fully-paid-lending https://www.fidelity.com/trading/fully-paid-lending Disclaimer: i am not a fiduciary, nor a financial professional. this is not financial advice.

hn_throwaway_99 4y ago

> Neumann has begun purchasing apartment buildings and, as of early 2022, owned some 4,000 apartments worth about US$1 billion, primarily located in the American South. This is Neumann's "Flow" company that a16z backed with $350 million this summer. Scheduled to launch next year, will be interesting to see how it fares in this new interest rate environment. https://techcrunch.com/2022/10/18/a16z-chris-dixon-adam-neumann-flow-funding-disrupt-2022/ https://techcrunch.com/2022/10/18/a16z-chris-dixon-adam-neum... https://en.wikipedia.org/wiki/Flow_(real_estate_company) https://en.wikipedia.org/wiki/Flow_(real_estate_company)

rchaud 4y ago
Maybe after that tanks, they can hire him again as a Criss Angel impersonator. He does seem to have formidable powers of telekinesis, the money just flies into his pockets!

subsubzero 4y ago

Highly suspect Wework won't survive 2023, expect it to fold possibly mid-year next year, maybe sooner.

spaceman_2020 4y ago

The funny part is that Wework built its valuation on the narrative that it's a "tech company", but the tech-side of the member experience has actually become worse or has been unchanged for years.

sytelus 4y ago

I want to offer contrarian take. I can't count number of founders who found refuge at WeWork, thrived there, met their co-founders, customers and first employees. We Work was an essential ingredient of gig culture and founding of countless new companies. Neumann's original vision was, and, in fact continues to be seductive and revolutionary. The incumbent players in these business were simply way too behind in meeting needs of modern startups. Neumann used age-old strategy to ignite this business: throw VC money to create foundation for business while doing that at loss. When he signed the over the top leases, no one - and I repeat no one - ever thought we were going to be off of 0% interest rates. No one thought real estate will plunge. It made sense at the time and VCs threw even more money as everyone held same view. In alternate universe, COVID would have never happened, QEs would have continued for another decade and WeWork would have been highly profitable monopoly. This is not to say Neumann acted in unethical manner. He used WeWork cash and assets as his personal property. But keep in mind VCs always thought of WeWork as his "family business" just like how they thought of Facebook as Zuck's family business.

rchaud 4y ago
> We Work was an essential ingredient of gig culture and founding of countless new companies. Perhaps they should have pivoted to become an incubator!
shagmin 4y ago
As to your first point, I'm curious how much of this varies from market to market or how true this is. Where I live there's a big co-working space that has accelerator programs and ties to local universities that's been around for longer than WeWork, and a lot of smaller co-working spaces too - some trendy/modern looking and some not so much. When WeWork came to my area it seemed like just another one but with better name recognition.

zetazzed 4y ago

Hmm... they have 300 mil in cash, 500 mil from Softbank, and another 500 mil from other commitments. So, $1.3 bln of accessible cash in total. I know they burn some money, but this doesn't sound like a tiny pool to me.