Then WeCame to the End

What happened since August wasn’t the consequence of the kind of investigative journalism that felled Theranos, or the long-foreshadowed public tumble of an Uber. It was more akin to a Twitter cancellation. Long known facts were re-aired in a new climate. What was once amusing or somewhat confusing was now, in a new light, merely horrifying. The hopped-up teenagers and amorphous social media celebrities who direct cascades of moralistic condemnation at mediocre movies and TV shows were replaced by middle-aged men moralizing about and condemning a 220-page SEC document on Twitter, in real time.

WeWork’s contradictions

WeWork founder Adam Neumann leers toward the future, Future Brainstorm TECH 2016 conference

It’s so easy to focus on Adam Neumann, the tall, long-haired, barefoot, meat-banning, weed-smoking, tequila-drinking, Kabbalah-studying, experimental school-opening Paltrow-cousin-in-law and founder and now deposed chief executive officer of We, the real estate company that dropped “Work” from its name after it bought the copyright for the word “We” from Neumann himself.1

Neumann’s ambitions were as ludicrous as his persona. “Rather than just renting desks,” Fast Company reported in January, “the company aims to encompass all aspects of people’s lives, in both physical and digital worlds.” This included expanding the WeWork model to residential housing and education (a private school in Chelsea called WeGrow, now on the chopping block). Before Neumann had even started the company, he had envisioned “WeSleep to WeSail to WeBank.” While none of these will ever be realized, perhaps he was right to think beyond office space subleasing. The company as he had built it is in crisis.

Everything went wrong for WeWork soon after it publicly filed documents for an initial public offering, on August 14. Six weeks later, Neumann had voted to remove himself from the CEO job and given up his majority control of WeWork’s stock; the company’s proposed valuation had fallen by more than half; and the IPO had gotten called off entirely. The failed IPO and, as of last week, the company’s takeover by SoftBank, its largest investor, were both facilitated by the public exposure of long-known information: WeWork was losing a ton of money; its projections of the size of the market for shared office space (up to $3 trillion) were wildly optimistic (it counted anyone who worked at a desk in an American city where there was a WeWork as a potential “member”; in non-US cities with WeWorks, the estimate applied to anyone with an office job); and its corporate culture and strategy were completely in hock to Neumann and his family’s bizarre ideas and whims, many of which should have stayed on his private plane, or at least gone up in marijuana smoke. The company’s business model was known to be expensive and have little path to profitability since at least 2015, when BuzzFeed first published documents WeWork had used to solicit investors. Neumann’s weird behavior, meanwhile, had been part of the sales pitch from the very beginning.

What seemed to make this year’s WeWork stories different, and more damaging, was the addition of double-dealing and self-enrichment by Neumann to the core model of leasing office buildings, transforming them into “shared” workspaces, providing free (but—sadly—limited) beer to tenants, and then counting on a rotating cast of freelancers, venture-funded startups, and some larger corporations to pay rents that could be as short as a month at a time. But Neumann’s propensity to sell stock and lease buildings he partially owned back to WeWork wasn’t news either—it was exposed by the Wall Street Journal earlier this year, before the trouble started.

The more skeptical sections of the financial press have always had WeWork’s number, even when the company’s footprint and valuation were soaring. In 2017, the Wall Street Journal’s indefatigable Neumann correspondent Eliot Brown described “A $20 Billion Startup Fueled by Silicon Valley Pixie Dust.” It was all there: his casual transubstantiation of office space subleasing into something more like software (he had told investors they were buying into a “physical social network”), as well as the doubts from anyone who knew about his actual business—real estate—that the company was worth $20 billion, let alone the $47 billion it was valued at in its last round of private fundraising, let alone the more than $100 billion Morgan Stanley told the company it could be worth.

What happened since August wasn’t the consequence of the kind of investigative journalism that felled Theranos, or the long-foreshadowed public tumble of an Uber. It was more akin to a Twitter cancellation. Widely known facts were re-aired in a new climate. What was once amusing or somewhat confusing was now, in a new light, merely horrifying. The hopped-up teenagers and amorphous social media celebrities who direct cascades of moralistic condemnation at mediocre movies and TV shows were replaced by middle-aged men moralizing about and condemning a 220-page SEC document on Twitter, in real time.

Like an actor or filmmaker caught in an unanticipated critical maelstrom, WeWork and Neumann tried hard to swim against the current of cancellation. There was the eventual partial compromise to stem the tide of ill will, when Neumann finally returned to WeWork the $6 million or so he got for . . . the name “We.” But that didn’t help the valuation. Nothing did. Bankers proposed cutting the company’s value by more than 50 percent until the capitulation became final. By September 24, Neumann was out of his job and the WeWork show was pulled from the air. There would be no debut, no whirring of computers at Nasdaq’s New Jersey servers. Now the company is majority owned by SoftBank at a valuation of $8 billion, well short of the $13 billion that’s been put into it.

As with any public meltdown in 2019, there were tweets, and think pieces (ahem, “columns in the business sections of newspapers”), as well as the emergence of a voluble quasi-expert—in this case the interestingly bespectacled New York University marketing professor Scott Galloway, whose profane and voluble denunciations of the company on Twitter, podcasts, and New York Magazine (WeWork’s “fall from grace . . . has been so dramatic and yet so fucking obvious,” he declared) proliferated as quickly as WeWork’s valuation kept falling. (He’s now hiring for his media company, which promises “short-form video, podcasts, live events and membership programs [that] target younger strivers who are not served by the boring and bland business media incumbents.”)

Past exposés of WeWork’s kooky business practices and sunny projections had relied on documents distributed to potential venture investors. When WeWork turned to the bond market last year to borrow hundreds of millions, it had to deliver some more revelations. These documents quickly found their way into the hands of financial journalists and gave birth to the now-eternal “Community Adjusted EBITDA.” Even the most profit-hungry businesses tend to actually target different measures, especially if they have substantial debt payments that can only be made in cash. One measure of this is EBITDA, or “earnings before interest, tax, depreciation, and amortization,” a commonly accepted metric in the business world. Over the past few years, tech companies have innovated in the field, generating ever more expansive “adjusted” EBITDA metrics, stripping out more and more costs, like the stock given to employees as compensation, in order to appear profitable. With its Community Adjusted EBITDA—a measure of earnings that eliminated all the costs associated with opening new locations (including nearly all sales and marketing expenses)—WeWork took things further. The Financial Times described the gimmick with almost parodic English understatement as “a rather quixotic take on the famous EBITDA metric.” When WeWork went to the bond market, its “Community Adjusted EBITDA” figure was prominently on display and, crucially, showed up in the black. It was “the most infamous financial metric of a generation,” in the FT’s phrase, and it may end up as We’s greatest legacy.


What the investor documents also showed was that in 2017 WeWork had lost $883 million despite having some $886 million in revenue. Another leak to the FT revealed that in 2018 the company managed to lose $1.9 billion on some $1.8 billion of revenue, spending $2.5 billion on investment, thanks to raising $2.7 billion. Using more traditional—and less community-adjusted—financial measurements, its margin was some negative 75.6 percent, up slightly from 86.8 percent before.

Throughout all this, Neumann was being Neumann. His private jet trips may have involved some incidental transportation of marijuana across international borders, his wife may have fired employees for their bad vibes, and the company may have ended a meeting announcing layoffs with a performance by a member of Run-DMC.

But Neumann’s patrimonial leadership and loose corporate culture wasn’t all surfing in the Maldives, guitar-shaped houses, and expensive experimental schools, most seriously according to one lawsuit. A former WeWork employee alleged last year in a civil case that she was groped or forcibly kissed at multiple corporate events, including at an alcohol-fueled WeWork “Summer Camp,” and that her complaints resulted in little attention from human resources and little to no action against her alleged assailants. She was later fired.

“The sexual harassment and assaults of Plaintiff did not happen in a vacuum,” the employee’s complaint read. “They are product in part of the entitled, frat-boy culture that permeates WeWork from the top down.” The former employee specifically mentioned that during her job interview with Neumann, he served shots of tequila, that the company’s New York headquarters “has a mandated happy hour for employees every Friday,” and that “company managers and executives heap immense pressure on employees to attend after-work events and place a premium on employees’ participation in the parties that WeWork sponsors.” The company said she had been fired for poor performance.

And still, for all that, no cancellation.

What transformed WeWork from an investor darling into a pariah didn’t belong to any predetermined boom-and-bust model, and it wasn’t about prosaic investor concerns, like future cash flows. According to the great Bloomberg columnist Matt Levine—a former banker and lawyer whose daily financial newsletter combines the command of technical detail so valued by those two fields with the impish wit of an anthologized diarist—WeWork’s downfall could only be explained in abstract terms. Something about what happened—and the speed with which it occurred—seemed unknowable.

Levine pointed out last month that at its peak valuation, WeWork was worth almost half the entire value of publicly traded US real estate investment trusts: “Nobody gets into venture capital because the best-case scenario is doubling their money. For WeWork, maximal office-landlording success would be kind of disappointing.” Even putting aside the mythical WeSail, if you could somehow build a company that included micro-apartments, software, and schools, then, sure, why not? Maybe it really would be worth $100 billion someday. Or, at least, if people as smart as WeWork’s venture capital investors—which included one of the most prominent and respected firms in Silicon Valley—bought into this, then surely the less sophisticated asset managers that buy into IPOs would, too.

That’s not how things worked out. Private investors are supposed to be long-term thinkers—especially SoftBank, which claims it wants “to create an ecosystem that will continue to grow for 300 years.” But WeWork’s investors folded quickly, suddenly demanding from the company the focus and discipline critics had been saying was missing for years. Maybe some of the more dour and anonymous asset managers expected the CEO of a nearly $50 billion company to act like one, while his venture capital investors wanted him to maintain his overwhelming ambition.

But it was precisely those investors, SoftBank and the Silicon Valley venture firm Benchmark, that forced him out. As they knew better than anyone, WeWork really did need to raise more money to address its endemic cash burning. Even Levine admitted to being a little stumped: “I get it, and yet . . . I don’t?” he wrote, “WeWork’s investors, particularly SoftBank, were there because of Neumann’s upside, his ability to sell a wild vision of WeWork as a transformative company that can dominate the world and justify a $47 billion private valuation. And now, nah, never mind, office landlord.”

Unlike real estate booms past, which were the result of bewilderingly massive cross-border flows of capital, WeWork’s subleasing spree won’t leave behind many monuments: no half-built skyscraper complexes in Kuala Lumpur, no pointless airports in rural Spain. Instead the money found its way into already existing infrastructure, made visible only by discreet signs or logos on windows scattered on office buildings throughout the company’s larger markets in New York, San Francisco, Seattle, and Boston. WeWork had consistently promoted itself as “asset light”: its buildings leased from developers, then, after being subdivided, rented out on a short-term basis.

This lightness will stand out as WeWork’s true innovation, in two ways. The first was that by signing leases, as opposed to buying or even building, it could grow incredibly quickly, as long it was able to raise enough money to cough up rent. It also built light. Contra its loudest critics, WeWork is more than just marketing, spin, and pineapple water. It has used all of that atmospherical ephemera to convince workers—whether they’re freelancers or employees of fast-growing companies that can’t build out their own space quickly enough—that they don’t need as much space as they might have thought. One estimate puts WeWork’s square footage per “member” at around 50 square feet, well short of the office average of 250. WeWork is thus able to charge high rents for substantially less space than its competitors—including an option where renters don’t have a permanent, dedicated desk.

But because of the pretensions to being a technology company, the offering to tenants is famously flexible: you can rent month to month and can easily expand or shrink your space according to your needs. For WeWork, this means that the revenue can vary substantially over the course of a year. If there were ever a generalized pullback in demand for flexible office space, WeWork would still have its own lease payments to contend with, however. In its SEC filings, WeWork placed its average lease length at fifteen years and wrote that it was on the hook for some $47 billion worth of payments, with only $4 billion of revenue commitments from members who have more long-term arrangements with the company. The company is essentially renting long and subleasing short, leaving itself exposed to the same risk as financial institutions that fund themselves with short-term borrowing while maintaining long-term funding commitments.

Eric Rosengren, the president of the Boston Fed, endorsed this analysis, and extended it out further, noting that if subtenants flee, the risk isn’t just to WeWork, but also to its landlords: because WeWork signs its leases through legally complex special purpose vehicles, WeWork might be able to abandon a specific building’s lease with the landlord unable to go to the parent company to collect what’s due. Furthermore, WeWork’s small and venture-funded company tenants might abandon their subleases faster than typical commercial real estate occupants. Not only would WeWork be missing out on sublease payments—its landlords could then get into trouble as WeWork’s special purpose vehicles can’t come up with the rent, putting both those companies at risk as well as their lenders. “I am concerned that commercial real estate losses will be larger in the next downturn because of this growing feature of the real estate market, which could ultimately make runs and vacancies more likely due to this new leasing model,” Rosengren said.

A model this risky requires an unusual source of investment, and these days SoftBank is the most unusual of all. Or the second most unusual, after its own limited partner: the Saudi government. A year before SoftBank’s Saudi-backed Vision Fund poured $4.4 billion into WeWork, in 2017, the Saudis invested directly in Uber.

The companies’ involvement with the Saudi government raised hackles in the press. For a while, before the assassination of Jamal Khashoggi, Uber and WeWork were able to pitch themselves as liberalizing forces, helped along by the government’s eventual announcement that women would finally be able to drive in Saudi Arabia. But when the Saudis attempted to host a “Davos in the Desert” investment conference soon after Khashoggi’s murder, several technology and finance executives dropped out. Crown Prince Mohammad bin Salman’s brutal purge of the Saudi elite investor class had not provoked much of an outcry from the American public and business class; neither had the brutal war against and starvation of Yemen. The dismemberment of a journalist overseen by some of the prince’s closest advisers was different.

Khashoggi’s killing was so shocking and blunt that even SoftBank’s CEO, Masayoshi Son, was compelled to condemn it. But that was as far as Son went. He would stay in business with the Saudis because SoftBank had “accepted the responsibility to the people of Saudi Arabia . . . to help them manage their financial resources and diversify their economy.” Much like MbS, Son is an ambitious man trying to turn his empire into something new for the future. Much like Neumann, Son is charismatic, far-seeing, and deliberately idiosyncratic. (Also like Neumann and his Kabbalism, Son has a taste for numerology—he likes to invest in big, round numbers.)


Late last year, SoftBank sold shares in its core business, a Japanese mobile phone company, to the public, helping effectuate its transition into a technology investing company that’s made up of stakes in a variety of businesses—including the Chinese e-commerce marketplace Alibaba, a wholly owned English semiconductor company, and Sprint—and its funds for investing in companies, including the Vision Fund, whose biggest single investment was WeWork. The Fund is supposed to invest in “unicorns,” or in companies that are or will be leaders in their sectors. Typically these types of bets are supposed to be lower risk, because companies with valuations that high have businesses that are more or less . . . real. Though the fund is supposed to be yoked to Son’s 300-year vision, it also promises some investors 7 percent returns every year.

It is in this nexus—between the Japanese telecom company trying to turn itself into an investor betting on a global technology revolution, a cash-rich nation trying to diversify its economy and embed itself into non-energy global markets, and an ambitious entrepreneur trying to raise as much money as possible—that the WeWork mania and Neumann’s behavior come into focus. There are two diverging explanations of the latter. In one telling, Neumann let his ambition get ahead of his abilities to run a profitable business: he was simply taking what money was available and pouring it back into the company, trying to deliver the impressive revenue growth that venture capital investors supposedly want. In a different telling, suggested by another one of WeWork’s great chroniclers, New York’s Reeves Wiedeman, Neumann is the genius of this period of venture capital mania. His deal to give up control over the company in SoftBank’s acquisition of majority control over it only proves it further: the Japanese conglomerate is buying $1 billion of WeWork stock from Neumann along with an $185 million consulting fee and a $500 million in order to pay off a loan from JPMorgan.

One of the great mysteries of modern finance is how to make money when you know there’s a bubble, or at least how to get much, much richer than everyone else. The obvious way is to bet against the bubble, but this is difficult, as its expansion can easily outlast one’s ability to finance the wager. And then if the bubble is happening in the private markets—as it did with WeWork—the mechanism to go short where others are going long simply isn’t there. (To bet against a share, you need to be able to borrow and sell it first). In that scenario, the best solution is for the farsighted is to sell into the bubble, get what money you can, employ as many friends and family members as possible, and hope you can hold on even as things go to shit. But you can only do this if there’s enough to be had. It was just as important for WeWork to serve as a parking place for Saudi and Japanese cash as it was to provide office space for burgeoning businesses. In the introduction to SoftBank’s most recent annual report, Son writes that

Together, we are working to resolve a variety of challenges for the benefit of humanity. Thank you for your support as we continue to move forward, inspired by our belief in the power of technology to build a more connected, efficient, and joyful world, as expressed by our corporate philosophy: “Information Revolution—Happiness for Everyone.” . . . We are on the cusp of the AI Revolution, which is poised to redefine all industries—including education, health care, real estate, and finance as well as the advertising and retail sectors . . . We want to be the conductor [that is, the funder] of the AI Revolution.

The scale suggested by this vision is massive—literally all industrial output for the rest of human history—and so it’s been matched by the Vision Fund, which raised almost $100 billion, including a $45 billion commitment from Saudi Arabia, as well as a follow-on investment vehicle. But you still have to invest the money,  or, as Son put it, “take the helm of a group of companies led by top AI entrepreneurs from all different fields, much like a preeminent orchestra made up of virtuosos on scores of instruments, and help them harmonize, while creating additional value along the way.”

To take Son’s logic seriously, if the entire world economy will be transformed by a set of emerging technologies, the investment opportunity is never too big. But then you see where the money ends up. One day you wake up and you’re funding on-demand dog walkers, indoor farming, and an Indian hotel chain, to the continued bafflement of journalists and market observers. The private equity titan Stephen Schwarzman put it delicately when he told CNBC, “[Tech] often comes with no earnings, and so if you’re going to finance the expansion of an industry that often doesn’t earn anything, you’re going to need large amounts of money to the extent you’re a believer . . . I understand how [Son is] in a particular place.”

Unlike traditional venture capital funds that might raise, at most, a few billion from wealthy families and pension funds, SoftBank needed to raise much, much more because its strategy was different. When those traditional venture capital firms are confronted with a bizarre, failed investment, more often than not they will shrug it off, pointing out that their overall returns are overwhelmingly generated from a few hugely successful bets. This model is most effective with software companies, which require some start-up capital to hire engineers and start selling a product, but then, thanks to the fact that making a copy of software to sell is as simple and copying 1s and 0s, they can quickly turn into highly profitable businesses as they find a market and mature.2

But as the technology industry grew, the market for funding tech companies changed. Following the financial crisis, interest rates, especially for ultra-safe US debt, fell to rock-bottom levels, cash piled up on companies’ balance sheets and in the hands of the ultra-wealthy, and regulatory changes made going public quickly less attractive. Technology companies were able to raise hundreds of millions of dollars from mutual funds, sovereign wealth funds, and other huge pools of capital when, ten years earlier, they would have had to sell their shares to the public. As it has been in so many other realms, Facebook was a forerunner in massive fundraising as a private company from non-traditional sources, including $200 million from Yuri Milner’s Digital Sky Technologies, and, two years later, $450 million from Goldman Sachs, along with another $50 million from Milner’s fund. (The New York Times later revealed that DST’s Facebook investments were preceded by sizable infusions of cash from Kremlin-linked companies.) But the resources and eagerness on the part of these funds—and the wealthy families that spent as lavishly—would come to mean what one might call over-investment. In some cases this dynamic opened the door to outright fraud, like Theranos’s motley crew of investors that included Rupert Murdoch and the DeVos family.

While the cost of starting a traditional startup has plummeted thanks to cheaply available server access from Amazon—the soaring price of Bay Area real estate notwithstanding—companies that, in the parlance of the industry, move “atoms” (stuff) instead of “bits” (code) can be ruinously expensive to run. Whether it’s the cost of leasing and building out new locations for WeWork or the torrent of rider discounts and driver bonuses that Uber and Lyft pay out to start up new markets, these companies eat through investor cash for years in order to survive. (This is to say nothing of Uber’s substantial investments in developing self-driving cars, a market that was previously driven by Google, which is able to liberally disperse its search advertising monopoly profits on research and investment.)

Looking backwards through the telescope, the mega-funding for app-based taxi-cab dispatchers and beer-distributing office subleasers makes more sense as a case of savvy operators creating landing zones for massive flows of cash. What distinguishes many of these companies, especially ones that have received investment from SoftBank, is their neither-fish-nor-fowl, real world/software nature, along with their insatiable need for capital. “Vision Fund may have confused ‘big capital needs with ‘big opportunity,’” the popular business analyst Ben Thompson has written. “What is striking about the firm’s portfolio is the paucity of ‘tech companies.’”

The fit between the Saudis and Neumann was not just awkward for business reasons, but also cultural. Not because Neumann is Israeli, or likes weed and tequila, but because to a degree unusual even by sociopathic-utopian startup-founder standards, WeWork had wrapped itself in gauzy rhetoric about its ability to change the world. This led to predictable tension when it turned out that the company’s biggest funder was Saudi Arabia, where authoritarianism is the avant-garde and religious authorities still exercise tremendous control over everyday life—for one, there’s no legally available alcohol at all.

But as is so often the case in the world of technology investment, what looks like a contradiction may actually be consistency. If WeWork couldn’t offer software-esque returns on investment, then it could offer all the superficial trappings of a technology company: spiritualist pablum about elevating global consciousness, a charismatic CEO with a fondness for giving talks with a microphone attached to his face, and an overall approach that sometimes appears to have started with the HBO satire Silicon Valley and then worked backward into an actual company. If Saudi Arabia wanted to more fully enmesh itself into the global economy, then it had to sign up for the pseudo new-age bullshit on offer from some of its largest companies. For the companies, whose social liberalism often runs far ahead of the Republican Party’s, let alone that of the House of Saud, SoftBank’s intermediary role offered plausible deniability. But, as MbS put it himself, with admirable directness: “Without the PIF [Saudi Arabia’s sovereign wealth fund], there will be no SoftBank Vision Fund.”

In the old days—which is to say before 2017—Saudi leaders were sated by the fruit of discreet lobbying over security policy: Saudi ambassadors were always treated well in Congress and in the White House. Ever the flashy millennial, MbS couldn’t settle for mere halls of power, and instead publicly wooed the most visible instantiations of the American imperium: technology executives, Thomas Friedman, Dwayne “The Rock” Johnson. As part of his much-ballyhooed opening of Saudi Arabia, he even allowed an American movie to be screened on Saudi soil. The film told the story of an ambitious young king seeking to open up his rich but isolated country to the world: Black Panther.

The attempted diversification of Saudi Arabia’s economy has occasionally veered off into farce, like when the government tasked western consulting firms with implementing MbS’s dreams of a future city in the Arabian desert called Neom. (According to the Wall Street Journal, Neom would feature a beach that supposed to glow “like the face of a watch,” as well as a “robo-cage fight,” “one of many sports on offer.”)

If Neom and bin Salman’s big American grand tour were the physical instantiation to become something more than an oil supplier to the modern corporate technology world, then the check cut to SoftBank is the down payment. (What Saudi Arabia’s supposed payment for US troops stationed there constitutes in this relationship is up for the reader to determine.) And if WeWork is what happens when capital is in the hands of resource-rich autocracies, futurist telecom executives, and cash-rich mature companies, perhaps it can serve as a launching point for thinking about how capital would behave differently under the aegis of democratic control.

The “We” in WeWork was the customers working in the offices, living in the apartment buildings, and learning in the schools—not the people determining where any of this was built, and in what quantity. If money is indeed piling up on the balance sheets of large corporations and in the coffers of the Saudi Treasury as proceeds for burning the planet—and if that money is ultimately at the disposal of a farseeing Japanese cell phone mogul—one might ask if it could be managed differently if it were in the hands of, well, “We,” instead of flooded into commercial real estate for the purpose of acclimatizing office workers to ever smaller workspaces. Getting a better grip on the capital stocks and flows that enable WeWork and its mutant cousins may require a “mission to elevate the world’s consciousness,” but there’s an older and simpler word for it, too.

  1. I’m going to keep calling it WeWork because calling it We—much less The We Company—is a crime against the reading public, even though doing so would be both accurate and hilarious. 

  2. Son himself invested just $20 million on behalf of SoftBank into Alibaba, reaping billions’ worth of returns in what the Financial Times called “one of the best venture investments of all time” that still to this day makes up a substantial portion of Softbank’s value. (The most successful software company of all time, Microsoft, had no start-up capital except for the “sweat equity” of its co-founders, and eventually only sold a portion of the company to investors in order to get access to  a venture capitalist as a board member and adviser.)  

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