Adam Neuman of WeWork- A Great Salesman Or A Great Bullshitter

The WeWork story is one that most of us are familiar with but as you’d expect we go deep into how Nueman was able to raise billions from some of the savviest investors, and from other investors like Softbank, who, as we find out, aren’t very savvy at all.

What I love about this story is that as soon as I started digging, I kept coming across facts and figures and quotes from Neuman that just left me stunned- how did he get investors to fall for his schtick?

We dig into Masayoshi Son the founder of Softbank, this revered investor who takes the biggest bets and also, the most reckless ones.

Even if you thought you knew the WeWork story, as I myself thought, I promise that there’s a lot in here that will keep you in a state of disbelief.

It’s an incredible story- enjoy



[00:00:15] Hey folks and welcome to today's episode titled Adam Neuman of WeWork- A Great Salesman Or A Great Bullshitter.

[00:00:23] Now the WeWork story is one that most of us are familiar with but as you'd expect we go deep into how Neuman was able to raise billions from some of the savviest investors and from other investors like SoftBank who as we find out weren't that savvy at all.

[00:00:39] What I love about this story is that as soon as I started digging I kept on coming across facts and figures and quotes from Neuman that left me stunned.

[00:00:51] How did he get investors to fall for his spiel?

[00:00:55] We dig into Masayashi Sun, the founder of SoftBank, this revered investor who makes the biggest bets and also the most reckless ones.

[00:01:05] And even if you thought you knew the WeWork story as I myself thought, I promise there's a lot in here that will keep you in a state of disbelief.

[00:01:15] It's an incredible story. Enjoy.

[00:01:19] Morning Keith, how are you doing?

[00:01:21] How are you, I'm doing really well, thanks.

[00:01:23] Today's story is WeWork and you chose this so what made you choose this cracker?

[00:01:29] Yeah, so I suppose I first became aware of them as sort of, you know, visiting companies in the startup worlds when we had our advertising business.

[00:01:40] So, you know, you're going to meet people who are kind of in WeWork offices and you're in the shared space.

[00:01:48] And it was intriguing and fascinating.

[00:01:50] I thought this is really cool.

[00:01:52] This is really nice, you know, good coffee, nice vibes, really nice desks, really nice spaces.

[00:01:59] And I thought this is, as a concept, this is really cool.

[00:02:03] Then I met people who'd be kind of hot desking to be in one office one time, one another.

[00:02:09] So I thought this is an amazing concept.

[00:02:11] Yeah.

[00:02:12] Then, of course, Adam Neumann himself popped up and you'd see him.

[00:02:16] And then the whole messaging got really woo-woo, sort of changing the world type stuff.

[00:02:21] So I thought this guy must be the most amazing salesman in the world.

[00:02:27] And then, of course, it all blew up.

[00:02:28] So I thought it would be a really good story to kind of dive into a little bit.

[00:02:32] Yeah.

[00:02:32] But I just love the concept.

[00:02:36] I didn't know much about the underpinning business, which obviously not a lot of people did until it was quite late in the day.

[00:02:44] And he was a really intriguing and engaging figure.

[00:02:48] And I thought, wow, this could be a great story.

[00:02:51] So that's the interest in them there.

[00:02:54] Yeah.

[00:02:54] And I knew a bit about it because when it all blew up, there was a lot of articles about what went wrong with WeWork.

[00:03:03] And when I dug into it then for this episode, you said salesman.

[00:03:07] I'm even thinking of typing this episode, the world's greatest bullshitter, because there's a difference between salesmanship, I think, and bullshit.

[00:03:17] And the more I dug into it, the more I thought, is this guy for real?

[00:03:22] And not only is this guy for real, how is he getting away with this?

[00:03:26] How is he raising all these billions?

[00:03:29] As you said, when you go into the offices, they were very, very nice.

[00:03:33] They were very different to what had been out there before.

[00:03:36] But at the same time, that's not exactly what he was selling.

[00:03:40] And that's the great thing about the story.

[00:03:41] Yes.

[00:03:42] He was selling it as something way more than just office space.

[00:03:46] That's why they were able to raise all these billions.

[00:03:48] And all you had to do was scratch the surface and you realise there's not a whole lot behind what he's saying here.

[00:03:56] One world or story or moral that kept on coming into my head when I was reading, researching this, was The Emperor's New Clothes.

[00:04:04] It kept on coming up.

[00:04:06] I was reading what he was saying and what his investors were saying about him and going, this is just pure fiction.

[00:04:14] So he is obviously a fascinating character that he was able to do what he did and sell this story of what WeWork was about, which makes it such a great story.

[00:04:28] Especially when it all comes out.

[00:04:28] Yeah, and I think we, and the way he extracted himself in the end, I think is an amazing story.

[00:04:35] But we can talk about that as we get to it in chronological order.

[00:04:39] But I think that's one of the standout items.

[00:04:41] It is.

[00:04:42] And to begin the story, we will dig into his background and how he built it.

[00:04:46] But when I was writing the article for this, I started this in 2017, which is really when they were at their height.

[00:04:54] Because he was on the cover of Forbes magazine.

[00:04:56] It sort of gives out any listeners who aren't aware of WeWork.

[00:05:00] Although I'd be surprised if anybody hadn't come across WeWork at some stage because it was such a big story.

[00:05:05] And I think there was the Apple series as well.

[00:05:07] We crashed, was it, with Jared Leto?

[00:05:09] Oh, yeah.

[00:05:09] Yeah.

[00:05:10] But he was on the cover of Forbes magazine with quotes like, we're doing amazing things that no one else is doing.

[00:05:17] We are changing how and where the world does business.

[00:05:22] And he uses words like, it's a physical social network.

[00:05:25] Their mission statement was elevating the world's consciousness.

[00:05:30] And he said WeWork wasn't just renting office space.

[00:05:33] It was a movement, a revolution.

[00:05:35] It was something much, much greater.

[00:05:37] And Newman is central to all of this.

[00:05:40] He was this charismatic, evangelical.

[00:05:43] And as I was saying in the article, it wasn't just that he was selling a business.

[00:05:47] He was selling a myth.

[00:05:49] And he sold this myth really, really successfully.

[00:05:53] And the thing about it, Keith, is you're forgiven for thinking there was only Adam Newman in WeWork.

[00:05:57] Because he did have a co-founder.

[00:05:59] That's right, Miguel.

[00:06:01] Miguel, who really just went into the background.

[00:06:04] And even when I was doing my research on where are they now, you couldn't find anything about Miguel McKelvey.

[00:06:10] It's all Newman.

[00:06:12] Well, it would be difficult not to fade into the background.

[00:06:16] When you're sort of juxtaposed against somebody like Newman, I think.

[00:06:19] Yeah, yeah.

[00:06:20] And he was this very, very imposing 6'5", although Miguel McKelvey was even taller than him.

[00:06:27] Not that that may help him in any way.

[00:06:29] This 6'5'' figure with long brown hair, dressed like a tech bro in expensive trainers and T-shirts and jeans,

[00:06:38] and very much came across as being at the vanguard of this new tech sector, even though they weren't a tech business at all.

[00:06:46] But his background is born in 1979 in Israel to two doctors, lived in a kibbutz for a while, then went into the army, then moved off to New York.

[00:06:57] Started two very bad businesses.

[00:06:59] In fairness to Newman, he himself, I signed to view, he joked about how crap these initial businesses were.

[00:07:06] I suppose it's easy to joke about how crap they were when you've got a few billion in the bank.

[00:07:09] But one of them was...

[00:07:11] And were they also other people's money as well?

[00:07:13] I wonder.

[00:07:14] I didn't see anything about the investment he got for them, but he must have got some investment.

[00:07:18] One was a retractable high heel shoe, high heel shoe for women.

[00:07:22] And the other was a baby company, baby clothes company called Egg Baby.

[00:07:26] And their key product was crawlers, which had these pads on the knees and the byline.

[00:07:31] Or the tagline was something like, even though they don't hurt, or even though they can't talk, it doesn't mean they don't hurt.

[00:07:37] So this was...

[00:07:39] I mean, it was silly ideas.

[00:07:40] But he was outgoing, ambitious.

[00:07:44] Everybody who knew him back then said that he was very, very focused on success.

[00:07:49] You know, he was driven.

[00:07:51] And McKelvey then, a different character, quieter, he was brought up in a collective of single mothers in Oregon.

[00:07:57] And he went down to become an architect.

[00:08:00] But apparently their origin story, and I'm very suspected because, you know, Newman is just so full of it.

[00:08:06] But their origin is stories that they bonded over this shared experience of growing up in these communities.

[00:08:12] And it was this shared experience and this background that gave them this kind of, you know, insight that nobody else had.

[00:08:20] This kind of superpower as to what makes a great community.

[00:08:24] That smells like bullshit.

[00:08:25] Yeah, it does.

[00:08:26] It does.

[00:08:27] And so they formed this idea of, you know, leasing out office space.

[00:08:33] That was it, basically.

[00:08:34] A company that were ranked office space, but with a communal twist.

[00:08:37] And they started out in 2010 with a company called GreenDesk, which was this eco-friendly office space company in Brooklyn.

[00:08:43] They got one floor off a landlord.

[00:08:45] It was a very opportune moment.

[00:08:47] They did do very well from the get-go because this is just two years after the 2008 crash.

[00:08:52] Real estate is very cheap.

[00:08:54] You had an awful lot of people coming out of 2008 without any jobs.

[00:08:58] So it led to an increase in freelancers, in startups, people starting their own companies, and just architects and self-employed people were starting moving into this space.

[00:09:08] And also college graduates were seeing self-employment, freelancing as a viable career opportunity.

[00:09:16] So there was going demand for this sort of flexible month-to-month office space.

[00:09:20] So GreenDesk did very well, but they had huge, huge ambitions.

[00:09:23] Newman was massively ambitious.

[00:09:25] He wanted to expand into Manhattan.

[00:09:27] So they sold GreenDesk.

[00:09:29] They said they sold it back to their landlord for $3 million, which seems like a big amount of money, I thought, for what was a very, very small business back then.

[00:09:37] I couldn't verify whether it was true or not.

[00:09:40] And they started.

[00:09:41] We worked with this distinct space that it wouldn't be just a place to work.

[00:09:45] It would be vibrant communities.

[00:09:47] Newman called this a capitalist kibbutz, mixing commerce with community.

[00:09:53] And again, harking back to why we should be very circumspect about anything that Newman says.

[00:09:59] In their origin story, they said that, you know, they pitched it to a lot of Manhattan landlords

[00:10:04] and that they were getting the cold shoulder until they came across Joel Schweber, this landlord,

[00:10:10] who after a three-hour lengthy meeting eventually gave him 15 million quid, just like that, for a 30% stake.

[00:10:17] And Schweber said, I did negotiate.

[00:10:19] I said yes.

[00:10:20] I loved Adam's energy.

[00:10:21] And that was a story that's carried throughout in Hulu documentary, in every article I read.

[00:10:26] That was sort of a given.

[00:10:29] But I started digging into Joel Schweber just because I was interested.

[00:10:31] I thought, my God, if he got 30% of the company for $15 million, how much did this guy earn in the end?

[00:10:36] How much did he cash out?

[00:10:37] So I dug around and I came across a few articles that had a very interesting history on Joel Schweber.

[00:10:45] He was a controversial character, ruffled an awful lot of feathers.

[00:10:51] And within the articles, Schweber himself admitted that he only ended up giving $1 to $2 million to WeWork.

[00:10:59] And even though he said this publicly and in these articles he said it,

[00:11:03] Newman continued with the narrative that they got $15 million from Joel Schweber.

[00:11:06] Now, apparently, Schweber had about 1% of the company at the time of IPO.

[00:11:11] That's the best figure I could get.

[00:11:12] Which still would have been a hefty sum if he managed to cash out.

[00:11:15] But again, it just shows that as with anything Newman says, you have to be taken with a pinch of salt, really.

[00:11:22] I suppose that helped their valuation as well.

[00:11:25] I suppose if they said 30% was $15 million, then it's a much better story for investors thereafter.

[00:11:32] Maybe that's what was motivating him.

[00:11:34] It does.

[00:11:34] And it also feeds into this narrative of Newman being this fantastic visionary that, you know,

[00:11:39] he goes in, meets the landlord and without even doing any due diligence,

[00:11:42] the landlord just slaps down $15 million and says, there you go, because I believe in you, Adam.

[00:11:47] That kind of stuff.

[00:11:49] I really, I mean, as you can tell, I'm very anti Newman.

[00:11:54] But not just him.

[00:11:55] I'm very anti the people who bought into his shtick, because I'm looking at them kind of going, what were you up to?

[00:12:01] But anyway, let's look at the business model.

[00:12:03] So the business model was simple, but effective.

[00:12:07] They created spaces with, it must be said, as you even testified, an irresistible draw for the target market.

[00:12:13] Oh, they're very cool.

[00:12:14] Very, very, very cool.

[00:12:15] That's it.

[00:12:15] They were saying like this industrial chic aesthetic with it, like exposed brickwork, open areas, comfy couches, cool murals and piped in music.

[00:12:25] And an aspect that I came across all the time in the articles is the free beer.

[00:12:30] Did you come across the beer?

[00:12:32] No, free beer.

[00:12:33] No.

[00:12:33] Yeah, I think that might have been just in the American ones.

[00:12:36] Free flowing beer.

[00:12:37] Alcohol was a huge element of the whole WeWork culture.

[00:12:41] But the basis behind it was very simple.

[00:12:44] Make work more enjoyable and improve productivity.

[00:12:48] And they were.

[00:12:50] Yeah.

[00:12:50] And there was this sense that, you know, it could sort of encourage serendipity.

[00:12:56] You could just bump into another person and, you know, innovation will flourish as a result.

[00:13:02] And, you know, in my research, so, I mean, at the start, this is a quote from an architect who had a desk there.

[00:13:09] And she said, I have to say the vibe there is magnetic.

[00:13:12] People are chatting in small groups or having coffee and working on a laptop.

[00:13:16] This energy, this magnetic productive buzz is what she testified to.

[00:13:20] So, I mean, they did get some of that vibe going, I guess.

[00:13:24] Yeah, I guess the other side of it is, though, if you're maybe a grumpy old man like me, if people on either side of you are focused on their business with headphones on, having loud conversations about something that has nothing to do with your business.

[00:13:40] Yeah.

[00:13:40] And it's like, Jesus Christ, give me some space.

[00:13:43] There was a lot of that.

[00:13:45] I get the feeling that it was really, you know, for young people, I guess is that, you know, a 40-year-old, you know, accountant, you know, trying to crunch his numbers would not like that whole vibe going on.

[00:13:57] So it was very much for the young people, this whole free beer and comfy couches and every mixing and, you know, all that kind of stuff.

[00:14:03] Yeah, it wouldn't be my cup of tea at all.

[00:14:05] And they were charging anything from $45 a month for a temporary desk to $220 a month for a more permanent hot desk and up to $22,000 for up to 50 employees.

[00:14:18] And in later years, larger businesses did start getting, taking space in WeWork offices.

[00:14:24] But at the start, it was mainly freelancers and startups.

[00:14:28] And it was fresh and it was exciting.

[00:14:30] And people will say that, you know, when Google and Facebook and tech companies were doing this years beforehand, they were.

[00:14:37] But this was the first time really that startups managed to experience that kind of, you know, open space, arcades, pool tables, that kind of vibe.

[00:14:47] Yeah, yeah.

[00:14:49] And the sign-in experience with a little iPad mini and all that sort of stuff.

[00:14:53] Oh, yeah, yeah, sure.

[00:14:54] You know, you're having your face scanned, all that sort of crap.

[00:14:57] Yeah, the technology that Newman went out of this.

[00:15:00] That's one thing that we're going to dig into.

[00:15:02] But the thing about it is that for all its coolness and all its vibes, there's no USP here.

[00:15:07] There was nothing here that couldn't be copied.

[00:15:09] And they weren't unique.

[00:15:10] There was people in the space for many years that we are going to dig into as well.

[00:15:14] So it was a very easy thing to copy and competitors did copy it.

[00:15:19] But Newman, what Newman's trick was in convincing everyone that it was much more than that.

[00:15:25] He really fought against this idea that they were just a real estate office rental company.

[00:15:32] And his pitch was, he'd go into the pitch.

[00:15:35] This is what he'd say.

[00:15:37] How do you change the world, he'd ask.

[00:15:40] His answer, bring people together.

[00:15:42] Where is the easiest place to, where is the easiest big place to bring people together in the work environment?

[00:15:48] So he was talking about changing the world.

[00:15:50] That's how he framed it all the time.

[00:15:51] And he used various terms to make WeWork seem much more than it was.

[00:16:00] He'd call it a tech company.

[00:16:01] He'd call it a platform, a physical network or an operating system layering additional streams of revenue,

[00:16:08] saying that, oh no, we're like a physical operating system and we're going to be able to sell insurance and software

[00:16:13] and all these additional services to our customers.

[00:16:16] And his bullshit was infectious because here's a quote from their CFO who says,

[00:16:21] we frankly are in our own category.

[00:16:23] We use real estate and services to empower our community.

[00:16:29] And they use an awful lot of this kind of fluffy language to boost the company.

[00:16:34] Which looking back, and it's not just with hindsight.

[00:16:36] If anybody started talking to me like that about their business, I'd say, look, just give me your numbers, man.

[00:16:41] Tell me how much you're making and how much you're going to make and where your ROI.

[00:16:46] I think that's always coming from what your bottom line is.

[00:16:48] Don't give me this bullshit about empowering your community.

[00:16:52] But this empowering community sounds charitable, Max.

[00:16:55] I know.

[00:16:56] You know, it's like a higher mission.

[00:16:58] Yes.

[00:16:59] Oh, this is all that they're all about.

[00:17:01] We're much more than just, you know, a pure real estate player.

[00:17:04] We're here to, you know, make people better, make the world better.

[00:17:08] But the simple fact of it was that it was a company that had to charge members more than it paid with landlords.

[00:17:14] And it was dependent on a thriving office rental market, which itself is dependent on a strong economy.

[00:17:20] And anybody, you don't have to be a savvy investor to know that real estate is one of the most cyclical businesses in the world.

[00:17:27] Yeah.

[00:17:27] And that's all it was.

[00:17:28] So, of course, to grow, they had to get a lot of money.

[00:17:31] They initially got 7 million from friends and family because it should be noted that Newman's wife, Rebecca, who will be talked about a little bit in the episode, was the first cousin of Gwyneth Paltrow.

[00:17:42] So, they moved in affluent circles and they managed to raise the 7 million from those friends and family, but they needed a lot more money.

[00:17:49] So, in 2012, they pitched to Benchmark, a very well-known venture capital firm.

[00:17:55] And they convinced them, as we talked about, that WeWork was more than the sum of its parts.

[00:18:01] That when he was called up on this, when Benchmark called him up on his valuation and saying, you know, but hey, Adam, you're only leasing three buildings at the moment.

[00:18:11] Adam said, what do you mean?

[00:18:13] I have hundreds of buildings.

[00:18:15] They're just not built, yes.

[00:18:18] Oh, Jesus Christ.

[00:18:23] They fell for us.

[00:18:24] As they said, they weren't really investing in the business at this stage.

[00:18:27] They were investing in him because this is the quote from Bruce Dunleavy, the partner with Benchmark.

[00:18:31] He said, let's give him some money and he'll figure it out.

[00:18:34] So, they gave him $17 million at a valuation of $100 million.

[00:18:39] And then, over the next few years, as they needed more money, they got $150 million from JP Morgan in 2014, valuing them now at $1.4 billion.

[00:18:48] In 2016, they got $430 million from a giant Chinese VC firm, valuing them past $16 billion.

[00:18:57] And the reason why they were able to do this, you're kind of going, because, you know, people were going to bring it into comparison with another company that had been around and doing exactly as we were could be doing for over 20 years.

[00:19:08] And this valuation of $16 billion was way too high.

[00:19:12] And it's because he was using the tech startup playbook.

[00:19:16] It was an idea of grow fast, acquire as many users, or in this case, tenants as you can, and worry about profitability later.

[00:19:24] And as we said, he was very, very good at selling it.

[00:19:27] He was charismatic.

[00:19:29] He was energetic.

[00:19:30] And it wasn't just employees.

[00:19:32] He even had the likes of Jamie Dimon.

[00:19:35] Like, I mean, Jamie Dimon, as far as I'm concerned, is, you know, probably top of the tree in terms of financial know-how and sensibility.

[00:19:44] I've read numerous books on the 2008 crash and how JP Morgan got through.

[00:19:49] He said a lot of it comes down to how Jamie Dimon is this steady hand who just, you know, doesn't lose the head.

[00:19:55] But he came out after they invested in WeWork and said, it's a hybrid hospitality and tech company that's entirely different from anything in real estate.

[00:20:04] Again, notice the tech.

[00:20:05] Walter Isaacson.

[00:20:07] I mean, you know.

[00:20:08] Oh, my God.

[00:20:09] He compared it to Steve Jobs.

[00:20:10] He said, like Steve Jobs and other great entrepreneurs, he knows how to connect the humanities with business and technology.

[00:20:18] So you've got these stalwarts, people who I would normally look up to as much as you'd look up to some of these people.

[00:20:25] But just kind of think, OK, well, these guys have a bit of sense.

[00:20:28] And they are all lavishing praise.

[00:20:29] So obviously, Newman in company, because I've watched videos and I'm not swayed by him, but obviously in company he must have been.

[00:20:37] Had some sort of.

[00:20:40] Charismatic, engaging.

[00:20:41] There must be something there.

[00:20:43] Because both Diamond and Isaacson talk about the tech.

[00:20:49] So obviously he sold them on the tech.

[00:20:51] And this is another quote from them, from WeWork.

[00:20:53] They said, landlords just sell aluminium.

[00:20:56] We make iPhones.

[00:20:58] So you're kind of thinking, OK, so these guys must be doing some amazing technology stuff if you've got all these people buying into them, valuing them as a tech startup.

[00:21:06] But they didn't.

[00:21:08] Like there was nothing there technology-wise.

[00:21:10] The Forbes magazine that I mentioned at the start, they talked about, this is a real puff piece.

[00:21:16] They talked about complex technology and logistic systems for optimising space.

[00:21:21] But companies like IWG that we'll talk about, they'd be refining space optimisation for decades.

[00:21:27] There was nothing new there.

[00:21:28] This is what was in the article as well to kind of exemplify their technology.

[00:21:32] They talked about laptops and touchscreens wired to doors.

[00:21:37] Adjustable desks that could be adjusted with the swipe of a card.

[00:21:41] And they even talked about soundproof phone booths that have adjustable lighting and temperature.

[00:21:49] I can't go, what the hell?

[00:21:51] Like this is just shiny window dressing.

[00:21:54] There's nothing new.

[00:21:54] They talked about their ability to collect and analyse data, conform optimal design and a breakthrough.

[00:22:00] And this is no bullshit.

[00:22:02] In the article that Forbes said to highlight how good they were using their technology and how much they were more than just a real estate company.

[00:22:10] The guy who was analysing this said they had a breakthrough.

[00:22:13] They realised that customers liked desks that were seated beside windows.

[00:22:19] That's what their data informed them.

[00:22:23] So, like, they also created an internal social media platform so that all the people in WeWork could, you know, be on this one social media platform.

[00:22:33] It totally flopped.

[00:22:34] Kind of a LinkedIn.

[00:22:35] Nobody used it.

[00:22:36] Yeah, yeah, yeah.

[00:22:37] And the world, or not the world, the Harvard Business Review then did an analysis of WeWork and how it was claiming to be a tech company.

[00:22:45] And they said the criteria for a tech startup or any tech company should have network effects, low capsule inquirements, low customer acquisition costs, and the ability to scale quickly.

[00:22:55] WeWork didn't shake.

[00:22:56] None of those.

[00:22:57] None of those.

[00:22:57] And nor did it have any technology, proprietary technology, that disrupted any sector in any way.

[00:23:05] It was...

[00:23:05] Oh, it's all CapEx as well, like, pretty much.

[00:23:07] Massively CapEx.

[00:23:09] Massively CapEx.

[00:23:10] And the fabrication just didn't extend to the technology.

[00:23:14] They also used to do what they called, internally, was activate the space.

[00:23:20] And that's whenever Newman was bringing investors around their WeWork building.

[00:23:25] Newman would get all the employees down into the lobby.

[00:23:27] They'd start drinking margaritas.

[00:23:29] They'd start playing pool.

[00:23:31] It was all a fabrication to make it seem like it was this huge, vibrant workplace.

[00:23:35] So he even fabricated that side.

[00:23:37] Now, that I gave him a break.

[00:23:39] I mean, that's probably a bit of, you know, salesmanship and people will do that.

[00:23:43] But the whole tech side of it was pure, as far as I'm concerned.

[00:23:48] Yeah, you know, I can remember the signing with the iPad and I thought that was cool.

[00:23:52] Yeah, a lot of cool stuff.

[00:23:53] I can remember the little phone booths and stuff like that.

[00:23:56] But that was just common sense.

[00:23:58] Yeah, just...

[00:23:58] If you wanted to have a private conversation, you didn't want everybody to over here.

[00:24:03] Yeah.

[00:24:04] But you wouldn't call any of that technology.

[00:24:08] They're just...

[00:24:09] Little add-ons.

[00:24:10] Labour-saving devices or add-ons.

[00:24:12] There's no core proprietary IP there at all.

[00:24:15] No, and just like the pipe music and the nice murals,

[00:24:17] they all add to the atmosphere and they all make it seem a bit cool.

[00:24:21] But there's nothing...

[00:24:22] Yeah.

[00:24:22] There's no underlying or proprietary technology or disruptive technology in any way.

[00:24:26] That's what he was selling and that's what the people were buying into.

[00:24:29] Again, savvy investors putting billions in on this basis.

[00:24:34] They also talked about their culture.

[00:24:36] And this is what Newman said.

[00:24:38] He said, culture is our intellectual property.

[00:24:40] And it wasn't just to promote culture internally.

[00:24:43] It was also a selling point.

[00:24:44] We talked about the we operating system.

[00:24:47] He used culture as something that they would also sell to prospective tenants,

[00:24:52] saying that we're not just going to optimise office space here.

[00:24:54] We're also optimising your company culture.

[00:24:58] But again, you dig down into it.

[00:25:00] Like, if you're going to say that you're a tech company,

[00:25:03] you know, have some technology.

[00:25:04] If you're going to say that your culture is your intellectual property,

[00:25:08] you know, have something to back it up.

[00:25:09] They didn't have anything to back it up.

[00:25:11] They did have a purpose and an awful lot of people bought into that purpose

[00:25:14] that they were changing the way people work.

[00:25:16] But really, the only thing in one of the articles that I read,

[00:25:19] they said their only intellectual property in terms of culture was alcohol

[00:25:22] because they actively promoted alcohol like no other company that they ever came across.

[00:25:27] They had beer on tap.

[00:25:29] They posted it all over the wall encouraging people to meet up for it.

[00:25:33] Newman himself had this tequila called Don Julio 1942.

[00:25:37] It was a very expensive bottle of tequila.

[00:25:40] And every time there was a business success,

[00:25:43] whether he was with a landlord or a business partner or his employees,

[00:25:46] there were shots of tequila all around.

[00:25:48] Drinking was very much part of the culture.

[00:25:52] They'd have a mandatory Monday night event called Thank God It's Monday.

[00:25:56] Mandatory.

[00:25:56] Everybody had to attend where Newman would go up on stage

[00:26:00] and talk about how great they were and talk about this movement they were creating.

[00:26:03] And that was also followed by shots.

[00:26:06] And then they'd have a yearly annual event at the Summer Camp is what it was called.

[00:26:11] I don't know.

[00:26:11] Did you see the Hulu documentary?

[00:26:13] I did.

[00:26:14] Not that.

[00:26:14] Was it Hulu?

[00:26:16] But I was.

[00:26:16] I thought it was HBO.

[00:26:18] It could be HBO.

[00:26:19] I'm not too sure.

[00:26:20] But it was.

[00:26:21] I did.

[00:26:21] I saw this really odd sort of social event where people were really pumped up.

[00:26:28] Yes.

[00:26:28] It was overexcited and it was cultish weird.

[00:26:32] Very cultish.

[00:26:34] Very.

[00:26:34] They started off that shot of the summer event with just drinking.

[00:26:40] Loads of drinking.

[00:26:41] People going nuts, getting drunk.

[00:26:43] And alcohol was free and it was everywhere.

[00:26:46] But then you're right.

[00:26:47] Then there was these events.

[00:26:48] And again, the summer camp was mandatory.

[00:26:50] People had to attend.

[00:26:51] And there was people in that documentary who said, I wasn't comfortable with the alcohol.

[00:26:55] I wasn't comfortable with the cult-like feel.

[00:26:58] And I didn't.

[00:26:59] I expressed that to HR and said, I didn't want to go.

[00:27:02] And HR said, tough.

[00:27:03] You got to go.

[00:27:04] Not only did they have to go, they were also given bracelets that were, that they could be tracked on so that the organizers could enforce them.

[00:27:13] In other words, you had to attend these talks that Adam gave.

[00:27:16] And Adam and his wife would stand on stage for hours on end talking about how great their marriage is.

[00:27:22] And also talking about how they tended to save the world and solve the problem of orphanages around the world.

[00:27:28] And also at one stage, Adam said that he, kind of half jokingly, that he could become the president of the world.

[00:27:35] So it was very cult-like.

[00:27:38] And you're right, in that documentary, you saw the intensity of the people and the belief that they had.

[00:27:44] And it did seem a bit off.

[00:27:47] And some of them are very young.

[00:27:49] Yes.

[00:27:49] And innocent to felt exploitative in some respects.

[00:27:52] Yeah.

[00:27:53] And they were exploited, Keith.

[00:27:54] Because in the research, it all just showed that an awful lot of these young people were working 60 to 70 hours a week.

[00:28:00] Which you'd understand, you know, they were working for low pay as well because they bought into this.

[00:28:06] They're saving the world.

[00:28:08] Yes.

[00:28:08] This vision that Newman was promoting.

[00:28:12] And, but there was also a huge turnover because they were working so hard.

[00:28:16] And also there were stories that Newman was intending to cut up to 20% of the workforce every year.

[00:28:22] And this is a quote from one person.

[00:28:23] He said, when you're at WeWork, there's a certain lack of culture, which is ironic for a company selling culture.

[00:28:29] If there is a culture, it's that of a revolving door.

[00:28:32] So again, if you're going to set yourself up as culture is your intellectual property, you need to have a lot more behind it than just, you know, we go to summer camp once a year.

[00:28:40] And in actual fact, you're forced to go.

[00:28:43] We have a Monday night session where Adam spouts out about how great they are and you're forced to go.

[00:28:48] And we also have loads of alcohol.

[00:28:50] You know, there needs to be a bit more to it than that.

[00:28:52] But, you know, despite our criticisms, WeWork continued to grow in 2017.

[00:28:58] Had 163 locations in 52 cities, 150,000 members.

[00:29:04] It had revenue of 886 million.

[00:29:07] So that's all good.

[00:29:08] Except that 886 million revenue was balanced by an $883 million loss.

[00:29:16] So they were nearly losing a dollar for every dollar that they were spending.

[00:29:21] But they managed to keep on raising investment.

[00:29:24] And part of this is due to the markets back then.

[00:29:28] Because if you look back on, say, the likes of Amazon, when they started up, they'd raise one round of funding.

[00:29:35] And then they usually go to the IPO.

[00:29:37] That was the norm.

[00:29:38] But since the 2000s, that's kind of changed.

[00:29:41] Facebook were able to do six rounds before they did an IPO.

[00:29:44] And the reason is they didn't need it.

[00:29:46] Because after the 2008 crash, 2008 crash was a lot to answer for it in terms of all the things that happened to happen.

[00:29:54] But there was a sluggish market.

[00:29:56] There was increased.

[00:29:57] So, you know, people weren't investing really in the market.

[00:30:00] There was also increased regulation, which meant that the IPO was less appealing.

[00:30:05] There was low interest rates, which meant that borrowing was cheap.

[00:30:08] So you had all these poor private investors.

[00:30:11] Not poor.

[00:30:11] I mean poor in that.

[00:30:12] You feel sorry for them because they were sitting on this enormous amounts of cash.

[00:30:16] And they didn't know what to do with them.

[00:30:17] So they started investing in the most ridiculous companies.

[00:30:21] And people remember loads of what was called D2C companies back then, like Dollar Shave Club.

[00:30:27] Casper, the mattress company.

[00:30:30] That raised over $340 million.

[00:30:32] It's now over $260 million.

[00:30:35] Wag, this one.

[00:30:36] Wag was a dog walking app, right?

[00:30:39] It raised $300 million.

[00:30:42] It's now worth about $700 million.

[00:30:44] Does Tyrannus.

[00:30:45] That raised $700 million.

[00:30:47] Quibi, the video sharing company.

[00:30:50] It was set up by Jeffrey Katzenberg and Meg Whitman.

[00:30:52] Yeah, the short form video.

[00:30:54] Yes.

[00:30:55] That raised $1.75 billion.

[00:30:57] So there's tons of private equity or private money around.

[00:31:01] And they started investing in all these internet startups or tech startups, but not lots of

[00:31:06] more tech at all.

[00:31:08] And what was the general property market like at this time?

[00:31:11] I mean, was there cheap property swept up by the guys?

[00:31:14] Well, initially there was.

[00:31:15] You know, in 2010, I would say up to maybe about, I don't know exactly when the property

[00:31:22] market would have started increasing.

[00:31:23] But I'm guessing the economy itself was on the way up back then.

[00:31:28] So when the economy is up, I'm guessing, and as we'll dig into the investment that WeWork

[00:31:33] got, and then the prices they started having to pay to get property, I think of the real

[00:31:38] estate market was making a recovery because, as we said, the real estate market is cyclical.

[00:31:44] So it's down, it goes up, and then it'll go down again, you know, as sure as night

[00:31:49] follows day.

[00:31:50] But out of all the bad investments and companies that private money went into WeWork, why WeWork,

[00:31:59] why we're doing a story on WeWork, is because WeWork stood out as being the worst of them

[00:32:05] all in terms of the amount of money it raised and how it all fell apart.

[00:32:08] And the big move for WeWork was when, I'll try and get his name right, Masayoshi Son entered

[00:32:17] the fray.

[00:32:17] We called him Masa because everybody calls him Masa.

[00:32:20] Yeah.

[00:32:21] He's the sort of enigmatic CEO of Softbank.

[00:32:25] Yeah.

[00:32:25] And I think we will do a story, we have to do a story on him someday because he's very

[00:32:29] interesting.

[00:32:30] Did a little bit of research on him just to give our listeners a feeling for who this

[00:32:35] guy is.

[00:32:35] So he was born into poverty in Japan.

[00:32:39] He moved to California when he was just 16 and he started up a company called Softbank,

[00:32:44] which started doing software distribution, but then diversified into tech publication.

[00:32:49] And it floated in 1994 with a valuation of 3 billion.

[00:32:54] Sorry.

[00:32:55] So on the back of that, Masa then had a lot of money.

[00:32:59] And what sets Masa apart from everyone else was his willingness to take, you call it take

[00:33:07] massive bets or invest massive amounts, whichever way you want to put it.

[00:33:11] But he really shook up.

[00:33:13] If you're talking about disruption, Masa did disrupt the venture capital business in a big

[00:33:19] way.

[00:33:19] I read a book.

[00:33:20] I just finished it actually when I was researching this by Sebastian Malady.

[00:33:24] And it's a book on venture capsule.

[00:33:26] And he gives a big section of it to Masa and shows how Masa really disrupted the VC world.

[00:33:32] He started in 1995 with Yahoo.

[00:33:34] He came in half, gave half to a $5 million funding of Yahoo.

[00:33:41] But then he came back four months later to the Yahoo guys and said, I want to give you

[00:33:46] $100 million for 30% stake.

[00:33:49] This was the largest minority stake ever given in Silicon Valley.

[00:33:52] And he also increased the value of Yahoo by eightfold within four months by just making

[00:33:59] that offer.

[00:34:00] And the Yahoo guys and their head investor, who was Michael Moritz from Sequoia Capsules,

[00:34:05] who also showed up in the PayPal episode, they didn't really want to take it because they

[00:34:09] were on for going for an IPO.

[00:34:12] But Masa said to them, he said, write down your two biggest competitors.

[00:34:16] And they wrote down Excise and Lycos.

[00:34:18] And he said, right, he said, if I don't invest in Yahoo, I'll invest in Excise and I'll kill

[00:34:25] you.

[00:34:26] So in other words, and at that time, $100 million going into Excise would have given them

[00:34:30] a huge advantage over Yahoo.

[00:34:31] So he basically just threatened them.

[00:34:33] Blackmail them.

[00:34:34] Don't take my money grand.

[00:34:35] I'll give it to your competitor.

[00:34:37] And that'll be the end of the deal.

[00:34:38] So they took the money.

[00:34:39] I still think, I think they still went and did the IPO.

[00:34:42] They did a deal whereby they said, okay, we'll take your money, but we'll still do the

[00:34:45] IPO.

[00:34:45] But it gave Masa a huge stake in a company.

[00:34:50] Well, it was still a minority stake, but at its height.

[00:34:53] Yahoo was worth $110 billion, given his $100 million investment worth $33 billion at the

[00:35:00] height.

[00:35:00] Wow.

[00:35:01] At the height.

[00:35:02] So Masa then continued to invest during the dot-com boom.

[00:35:06] He invested a total of $1.7 billion in 100 startups.

[00:35:09] His MO was to bet big, bet early, and let the founders run the show.

[00:35:16] This was a big difference as well.

[00:35:18] It wasn't just the amount of money he gave to companies.

[00:35:21] It was his hands-off approach that really shook up the VC world.

[00:35:24] Because up to then, an awful lot of the time, VCs would put money into a company, either

[00:35:28] move the founders over to the side and bring in their own management, or else have an awful

[00:35:32] lot of oversight anyway over the business.

[00:35:35] The boresh.

[00:35:36] Exactly.

[00:35:36] But this hands-off approach really led to the emergence of the likes of Larry Page and

[00:35:42] Serge Brayne and Zuckerberg, where they had outsized voting power.

[00:35:46] Peter Thiel was also a very heavy influence in this.

[00:35:49] He goes even further than Masa.

[00:35:50] He believes that the biggest payouts come from real outliers, and that the outliers, you've

[00:35:57] got to just, you know, don't interfere at all.

[00:36:00] Do nothing at all.

[00:36:01] Just give them the money and let them go wild with it.

[00:36:03] And you'll lose some, but you'll win one or two big ones, and they'll more than make up

[00:36:08] for the whatever ones you haven't lost.

[00:36:10] And it's an interesting concept.

[00:36:12] But as we shall see here, I think that the sweet, as we shall see here, it doesn't work

[00:36:16] out.

[00:36:17] The sweet spot usually is somewhere in the middle, because we mentioned Google.

[00:36:21] Google did bring in Eric Schmidt.

[00:36:23] And Larry Page and Serge Brayne, they were still very much involved.

[00:36:25] But they moved to the side and let Eric Schmidt scale the business.

[00:36:29] Zuckerberg brought in Sheryl Sandberg and very much leaned on her, I suppose.

[00:36:35] Doesn't that her book is right?

[00:36:36] Yeah, that's, oh yeah, lean in.

[00:36:39] And she was an incredible hire, really.

[00:36:42] She was.

[00:36:43] She was.

[00:36:43] And I think that's the, I don't believe this, you should let the founders, you know,

[00:36:47] go nuts.

[00:36:47] Because as you shall see here, they will go nuts.

[00:36:50] You need a bit of a balance.

[00:36:52] Sure, you need the founders, I think, still in there.

[00:36:54] You need their vision and their drive behind it.

[00:36:57] But you need that balance to look at the business.

[00:36:58] But mistakes are expensive to make for the first time.

[00:37:01] Yes.

[00:37:02] So why not bring in somebody who's done it?

[00:37:04] Yeah, yeah.

[00:37:04] And Sheryl Sandberg, great track record, same with Eric Schmidt.

[00:37:08] Yeah, yeah.

[00:37:09] Yeah.

[00:37:09] But anyway, so there was Massa investing in the dot-com bubble, but of course,

[00:37:14] he lost 90% of his personal wealth after that.

[00:37:19] But he survived mainly due to a late investment he made just before the dot,

[00:37:25] the bubble burst in 2000.

[00:37:26] He put 20 million into Alibaba.

[00:37:29] And over the course of 2000 to 2015, that nested them about 72 billion altogether.

[00:37:35] I think he sold his last stake in that in around 2023.

[00:37:38] So with that, he was still able to invest throughout the 2000s.

[00:37:43] And he invested SoftBank into everything.

[00:37:46] They got into internet companies, but also baseball teams, robotics.

[00:37:50] They bought Vodafone Japan.

[00:37:52] They brought out their own mobile phones.

[00:37:54] And then he really catapulted himself.

[00:37:58] Center stage again in 2016 when he launched the Vision Funds.

[00:38:02] This was the biggest tech fund ever.

[00:38:04] 100 billion.

[00:38:05] 45 billion from Saudi Arabia.

[00:38:07] 15 billion from the UAE health fund.

[00:38:11] 28 billion from SoftBank gave themselves.

[00:38:14] And then Apple were also an investor.

[00:38:16] And there was a few others.

[00:38:18] And their strategy was really, or Massa's strategy was blitzscaling.

[00:38:22] And this is invest huge amounts of money into what they called disruptive tech companies

[00:38:27] so that these companies can then dominate the markets and also give the founders one piece of control.

[00:38:35] And like overall, my assessment, as I said, we're going to dig into Massa.

[00:38:39] We will do an episode on Massa.

[00:38:41] He had some massive wins.

[00:38:43] There is that.

[00:38:44] And I mean, the whole VC business, when I read Spassio Maladie's book,

[00:38:47] it is founded on the fact that, you know, you're going to hit some home runs.

[00:38:52] And those home runs are going to be so massive that they'll more than make up for some of the investments that don't work out.

[00:38:58] But I get the idea from Massa.

[00:39:00] I'm not seeing a very skilled investor.

[00:39:03] I think he gets caught up in an awful lot of hype because we could see that with the dot-com bubble.

[00:39:08] He's just a very scattergun approach with very little oversight.

[00:39:12] And maybe one or two of the big bets do win.

[00:39:15] But when you lose and when they don't all work out, you lose big time as he did in the dot-com bubble.

[00:39:20] And the Vision Fund, Keith, I mean, they got like, they put 300 million into WAG.

[00:39:25] They put 380 million into a company called Getaround.

[00:39:29] I think it was a car rinky company.

[00:39:32] That's now worth 4 million.

[00:39:34] They put 1.1 billion into a company called View Inc that made Smart Glass.

[00:39:39] That's worth less than a million now.

[00:39:41] And not even their investments, their divestments.

[00:39:45] In 2019, they sold their 4.9% stake in NVIDIA for 3.6 billion.

[00:39:52] If they had held on to that, it'd be worth 160 billion now.

[00:39:56] So a lot of stupid mistakes.

[00:39:58] And in 2023, the Vision Fund reported a $32 billion loss.

[00:40:04] So like his track record, I remember reading articles throughout the last few years

[00:40:09] and they nearly talk of Massa as this messianic figure.

[00:40:13] You know, this guy, you know, has, you know, he...

[00:40:17] The Midas touch.

[00:40:18] The Midas touch.

[00:40:18] If Massa gets involved, you know, your goals, that's it, you're made.

[00:40:22] And then you're reading his track record and you're kind of saying,

[00:40:24] yeah, he makes the biggest bets, but it doesn't seem to come to...

[00:40:29] It doesn't seem to work out well for him in the end, you know?

[00:40:32] And Weworth was his biggest and definitely most infamous.

[00:40:36] And again, the bullshit that surrounds this.

[00:40:41] So he was late for meeting Newman, wasn't he?

[00:40:43] Yeah, the famous 12-minute pitch.

[00:40:45] They'd only a couple of minutes.

[00:40:46] Yeah, yeah.

[00:40:46] Okay, I'm going to read the quote.

[00:40:49] In my mind, this sounds like something off the fucking currency, kids.

[00:40:53] So this is Massa to Newman.

[00:40:55] He says,

[00:40:56] In a fight, who wins?

[00:40:58] The smart guy or the crazy guy?

[00:41:00] Newman answered, crazy guy.

[00:41:02] Massa smiled and said, you are correct,

[00:41:04] but you and Miguel are not crazy enough.

[00:41:07] Make it 10 times bigger than your original plan.

[00:41:09] If you think in that manner, the valuation is cheap.

[00:41:12] It can be worth a few hundred billion dollars.

[00:41:15] And you're kind of going, yeah.

[00:41:17] I mean, if you want to think and project without any reasoning,

[00:41:20] without any foundation, without any reality,

[00:41:23] you can push any value on any fucking business.

[00:41:26] Like, it's just nonsense.

[00:41:31] But you walk in there and you think,

[00:41:33] hmm, these guys aren't crazy enough.

[00:41:35] Yes.

[00:41:36] Yes.

[00:41:36] It's just, you meet out of the Newman and listen to him

[00:41:40] for even 12 minutes and think,

[00:41:42] this guy just isn't crazy enough.

[00:41:45] Yeah.

[00:41:45] Yeah.

[00:41:46] Go crazier.

[00:41:47] And here's,

[00:41:47] and here's 4.5 billion,

[00:41:50] which is what he gave after that 12 minute pitch,

[00:41:52] there and then,

[00:41:52] it wasn't like weeks later after negotiations.

[00:41:55] There and then,

[00:41:56] after that 12 minute pitch,

[00:41:58] and I think Adam Newman did travel in his limo.

[00:42:00] And it was while they were driving in the limo

[00:42:02] to wherever Massa was going next,

[00:42:05] some planet somewhere,

[00:42:06] he invested 4.5 billion in WeWork,

[00:42:10] valuing it as 29 billion.

[00:42:12] So all together now,

[00:42:13] by this stage,

[00:42:14] WeWork had 6.9 billion raised.

[00:42:17] And Massa gave him no guidance at all,

[00:42:20] other than they agreed that 1.4 billion

[00:42:23] would go into expansion in Asia and Japan,

[00:42:26] China and Asia overall.

[00:42:29] So that was it.

[00:42:31] And okay,

[00:42:32] so we're going 20 billion.

[00:42:34] That's crazy.

[00:42:35] So you got to give it some context then.

[00:42:37] Why are we saying 20 billion is crazy?

[00:42:40] And the reason why it's so crazy

[00:42:42] is because WeWork wasn't the first office,

[00:42:46] short term office rental company in the world.

[00:42:49] Far from it.

[00:42:50] There was a company called Regis,

[00:42:52] which was a trailblazer in the 90s.

[00:42:55] And actually Fast Company in the 90s

[00:42:57] called Regis the Office of the Future

[00:43:00] and highlighted its efforts to foster community.

[00:43:04] The dot-com bubble burst the company

[00:43:06] and it was saddled because it was saddled

[00:43:08] with high fixed costs and went into bankruptcy.

[00:43:11] And Mark Dixon,

[00:43:12] who was their CEO and continues to be their CEO,

[00:43:15] he said at the time,

[00:43:16] if you expand too rapidly as any one point in the market,

[00:43:20] that can catch you.

[00:43:21] So he learned a valuable lesson

[00:43:23] and he continued to build up Regis,

[00:43:26] which was renamed IWG in about 2017 or 2016.

[00:43:32] And he continued to build it up.

[00:43:34] And as he saw WeWork growing as well,

[00:43:36] he also copied a lot of what WeWork was doing,

[00:43:38] you know, making it cooler and all that.

[00:43:40] But let's look at the numbers

[00:43:41] in terms of this is in 2017.

[00:43:44] WeWork or IWG versus WeWork.

[00:43:47] IWG had 3,000 locations.

[00:43:50] WeWork had 163.

[00:43:52] Now, WeWork added a few,

[00:43:54] a lot more in 2017,

[00:43:55] but this is at the time of the 20 billion valuation.

[00:43:59] IWG had 2.5 million customers.

[00:44:02] WeWork had 150,000.

[00:44:05] Revenue per member,

[00:44:06] both of them averaged about $8,000 per desk.

[00:44:10] But IWG,

[00:44:12] the value of it per desk was $5,600,

[00:44:15] was the value it put on each desk.

[00:44:17] The value of each desk in WeWork was $135,000,

[00:44:22] even though they were both making $8,000 off each desk each year.

[00:44:27] Revenue,

[00:44:27] IWG had earned $2.8 billion

[00:44:30] and a profit of $185 million.

[00:44:33] WeWork,

[00:44:33] as we said,

[00:44:34] $886 million

[00:44:35] and a loss of $803 million.

[00:44:37] IWG also owned a lot of their buildings,

[00:44:41] giving them long-term stability,

[00:44:42] whereas WeWork relied on long-term leases

[00:44:44] backed by short-term rental units.

[00:44:46] Really risky.

[00:44:48] And the valuation,

[00:44:50] IWG was valued at $3.7 billion

[00:44:53] and WeWork was valued at $20 billion.

[00:44:56] So,

[00:44:57] in nearly every aspect,

[00:45:00] IWG is bigger,

[00:45:01] massively bigger,

[00:45:03] massively more profitable,

[00:45:04] massively more stable,

[00:45:07] and yes,

[00:45:08] WeWork has this...

[00:45:09] But it doesn't have the sprinkle of fairy dust

[00:45:11] from Newman and the technology spin.

[00:45:14] This is it.

[00:45:15] But see,

[00:45:16] this is,

[00:45:16] it wasn't,

[00:45:17] see what we're mistaken,

[00:45:19] Keith here,

[00:45:19] is we're stupidly valuing companies

[00:45:22] based on revenue

[00:45:23] and based on business models,

[00:45:25] whereas what we should have been doing,

[00:45:26] as Newman says,

[00:45:27] and I'll quote...

[00:45:28] On the future potential or something.

[00:45:31] Oh, it's even better than that, Keith.

[00:45:32] It's even better.

[00:45:33] Our valuation and size today

[00:45:35] are much more based

[00:45:36] on our energy

[00:45:37] and spirituality

[00:45:39] than it is

[00:45:40] on a multiple of our revenue.

[00:45:42] I'm just going to read it again

[00:45:43] because you really have to...

[00:45:45] Imagine you an investor

[00:45:46] and this is the guy,

[00:45:48] he's saying,

[00:45:48] no, no,

[00:45:48] you shouldn't be valuing us

[00:45:49] on revenue.

[00:45:50] Our valuation and size today

[00:45:52] are much more based

[00:45:53] on our energy

[00:45:53] and spirituality.

[00:45:55] So that's how you should value

[00:45:56] our company.

[00:45:58] Spirituality...

[00:45:58] I think I'll use that

[00:45:59] if I want to get a new mortgage

[00:46:00] or something.

[00:46:01] But you'd probably need to grow

[00:46:02] about a foot taller

[00:46:03] and grow your hair

[00:46:04] a bit longer

[00:46:04] and then you might have a chance.

[00:46:10] It was...

[00:46:11] Look, I've got in my notes here

[00:46:12] and I've said it before.

[00:46:14] It is a classic case

[00:46:15] of the Emperor's New Clothes

[00:46:17] except in the Emperor's New Clothes

[00:46:19] there's only one boy

[00:46:20] pointing at him

[00:46:21] saying he's got no clothes on.

[00:46:22] And with Newman

[00:46:23] and with WeWork,

[00:46:25] there were articles

[00:46:26] throughout their growth,

[00:46:27] not just one voice,

[00:46:29] numerous articles,

[00:46:30] numerous publications,

[00:46:32] even the puffiest piece,

[00:46:33] the Forbes article

[00:46:34] that were pointing out

[00:46:35] that at its core

[00:46:37] WeWork is just

[00:46:38] an office rental space.

[00:46:40] That's it.

[00:46:40] And at its core,

[00:46:42] despite all the technology,

[00:46:43] there's nothing behind it.

[00:46:45] This is a quote

[00:46:46] from the Wall Street Journal.

[00:46:47] At this time,

[00:46:48] this was something

[00:46:48] with hindsight.

[00:46:50] This was while it was

[00:46:51] getting all these accolades

[00:46:52] and all this hype.

[00:46:54] The Wall Street Journal said,

[00:46:54] how can an infrastructure

[00:46:56] dependent real estate venture

[00:46:57] scale like a low overhead

[00:46:59] software startup?

[00:47:01] How can a company

[00:47:02] that signs 15-year leases

[00:47:03] but sells multi-memberships

[00:47:05] expect to survive a downturn?

[00:47:08] So, you know,

[00:47:09] it wasn't as if,

[00:47:11] you know,

[00:47:11] nobody was pointing out

[00:47:14] the flaws in WeWork system.

[00:47:15] They were.

[00:47:16] And it really leaves you

[00:47:17] scratching your head

[00:47:18] thinking,

[00:47:19] what were the investors

[00:47:20] thinking?

[00:47:21] And was this timing,

[00:47:23] and I'm trying to think back,

[00:47:25] was it around the time

[00:47:26] sort of Uber

[00:47:27] and Airbnb

[00:47:28] where everything

[00:47:29] was being shared?

[00:47:32] Yes.

[00:47:32] Was it around that time?

[00:47:34] It was, it was.

[00:47:35] And Massa and SoftBank

[00:47:36] were a big investor

[00:47:37] in Uber as well.

[00:47:39] That's interesting.

[00:47:41] Yes.

[00:47:41] And what Sebastian Malady

[00:47:43] says in his book

[00:47:44] on venture capital,

[00:47:45] because of this big shift

[00:47:46] with private investors,

[00:47:48] the likes of the VC firms,

[00:47:50] the likes of Benchmark,

[00:47:52] who get in early,

[00:47:53] their share is obviously

[00:47:54] whittled down.

[00:47:55] Their 17 million share,

[00:47:56] they still had a nice piece

[00:47:58] and they made a lot of money

[00:47:59] I'm sure from it

[00:47:59] at some stage.

[00:48:00] But because their shares

[00:48:01] are whittled down,

[00:48:02] their voices are whittled down,

[00:48:04] they had very,

[00:48:05] very little input.

[00:48:07] And I had quotes

[00:48:07] that I came across

[00:48:08] for Brewster and Levy

[00:48:09] where he said,

[00:48:10] yeah, we tried to stop

[00:48:11] an awful lot of this,

[00:48:12] but he said,

[00:48:13] we didn't have the power.

[00:48:14] You know,

[00:48:14] by this stage,

[00:48:15] there was so much money

[00:48:16] gone in,

[00:48:17] their power is whittled down.

[00:48:18] Adam Neumann

[00:48:18] wasn't listening to them.

[00:48:20] So it was all this

[00:48:20] private investment

[00:48:21] that whittled down

[00:48:22] the normal,

[00:48:23] the whittled down

[00:48:24] of the investment

[00:48:24] and the power

[00:48:26] of the venture capitalists

[00:48:27] who normally would have had

[00:48:28] a more steadying approach

[00:48:31] and would be able to

[00:48:33] kick the VC

[00:48:34] or the CEO

[00:48:35] into line

[00:48:36] and sort of say,

[00:48:37] you know,

[00:48:37] cop on here.

[00:48:38] But they weren't able to,

[00:48:39] and that happened

[00:48:39] with Uber as well

[00:48:40] where,

[00:48:40] what's his name,

[00:48:41] Travis Kalanichik.

[00:48:43] Kalanich.

[00:48:43] Yeah,

[00:48:44] where he lost the run

[00:48:45] of himself

[00:48:45] because he was allowed to.

[00:48:47] You know,

[00:48:47] the VCs didn't have the power.

[00:48:48] but maybe there was

[00:48:49] this whole culture

[00:48:50] of business models

[00:48:51] being reinvented

[00:48:53] and democratised

[00:48:54] and I'm just trying

[00:48:56] to see if I can thread

[00:48:57] some sort of line of

[00:48:58] Well,

[00:48:59] there obviously was

[00:49:00] and I think that's

[00:49:00] probably partly

[00:49:01] where the hype

[00:49:03] overvaluations came from

[00:49:04] because people

[00:49:04] probably thought,

[00:49:06] no,

[00:49:06] we're in this new era.

[00:49:07] You know,

[00:49:07] this is a different...

[00:49:08] The sharing economy.

[00:49:09] Yeah.

[00:49:09] That's what it was got.

[00:49:10] Yeah.

[00:49:11] Yeah.

[00:49:12] So,

[00:49:14] go crazy

[00:49:15] as Masa

[00:49:15] told Newman to do

[00:49:17] and he did.

[00:49:18] He rebranded the company

[00:49:19] the We Company

[00:49:20] and he gave them

[00:49:21] a new mission statement

[00:49:23] and their new mission statement

[00:49:24] was

[00:49:24] to elevate

[00:49:25] the world's consciousness.

[00:49:27] So,

[00:49:28] that's what they were doing

[00:49:29] and as part of this

[00:49:30] expansion

[00:49:32] they diversified

[00:49:33] into

[00:49:34] various

[00:49:35] companies

[00:49:36] or various

[00:49:36] other areas.

[00:49:38] there was WeWork

[00:49:39] obviously

[00:49:40] then there was WeLive

[00:49:41] and then there was WeGrow.

[00:49:43] So,

[00:49:43] WeLive

[00:49:44] was this loftily

[00:49:45] presented

[00:49:46] communal living

[00:49:48] design idea

[00:49:49] which was

[00:49:50] set up

[00:49:51] as they said

[00:49:52] to foster connection

[00:49:53] and combat loneliness.

[00:49:56] Oh,

[00:49:56] gosh.

[00:49:57] They were these

[00:49:58] apartments that had

[00:49:59] hot tubs out in the balconies

[00:50:00] they had a communal

[00:50:01] kitchen with a chef

[00:50:02] they had a laundry room

[00:50:04] a pool room

[00:50:05] but as

[00:50:05] WeWork

[00:50:06] quickly found out

[00:50:07] it was far more

[00:50:08] complex than

[00:50:09] managing office spaces

[00:50:10] because you had

[00:50:11] these legal regulations

[00:50:12] you had to manage

[00:50:13] tenant relationships

[00:50:14] it wasn't as easy

[00:50:15] as they thought

[00:50:16] they projected

[00:50:17] that they'd have

[00:50:17] 69 locations

[00:50:18] by 2018

[00:50:19] they ended up

[00:50:20] opening only two

[00:50:21] so it took

[00:50:22] a lot of resources

[00:50:23] and it took

[00:50:24] a lot of

[00:50:26] I suppose

[00:50:27] a lot of their

[00:50:28] attention away

[00:50:28] from what they

[00:50:29] should be doing

[00:50:30] their core area

[00:50:31] of expertise.

[00:50:32] They also launched

[00:50:33] WeGrow

[00:50:34] this was the

[00:50:34] brainchild

[00:50:35] of Newman's

[00:50:36] wife Rebecca

[00:50:36] who I'm going to

[00:50:37] talk about in a second

[00:50:38] and the

[00:50:40] idea behind this

[00:50:42] was to

[00:50:42] unleash

[00:50:43] every child's

[00:50:44] superpowers

[00:50:45] and the curriculum

[00:50:47] included

[00:50:47] farming

[00:50:48] meditation

[00:50:49] coding

[00:50:50] entrepreneurship

[00:50:51] spirituality

[00:50:52] and holistic

[00:50:54] education

[00:50:54] and you'd get

[00:50:56] all that

[00:50:56] for a nice

[00:50:57] price of

[00:50:58] $36,000

[00:50:59] annually

[00:51:00] for preschool

[00:51:01] aged children

[00:51:02] or $42,000

[00:51:03] annually

[00:51:04] for kids

[00:51:04] up to 11

[00:51:05] years of age

[00:51:06] and suffice

[00:51:08] to say

[00:51:09] it flopped

[00:51:10] now again

[00:51:11] I'm trying

[00:51:12] to be fair

[00:51:12] of the parents

[00:51:14] who sent

[00:51:14] their kids

[00:51:14] there

[00:51:15] they had

[00:51:15] nothing positive

[00:51:16] but positive

[00:51:17] things to say

[00:51:17] about this

[00:51:18] but

[00:51:18] it flopped

[00:51:20] spectacularly

[00:51:21] because who's

[00:51:22] going to pay

[00:51:22] that to send

[00:51:23] your kids

[00:51:23] to a school

[00:51:25] that's been

[00:51:25] run by

[00:51:26] Rebecca

[00:51:26] Newman

[00:51:27] and

[00:51:27] I'm going to

[00:51:28] dig in

[00:51:29] just very

[00:51:29] slightly

[00:51:30] into

[00:51:30] Rebecca

[00:51:31] Newman

[00:51:31] because

[00:51:31] by this

[00:51:32] stage

[00:51:32] in

[00:51:32] 2017

[00:51:33] she was

[00:51:34] down

[00:51:34] as a

[00:51:35] co-founder

[00:51:35] she was

[00:51:35] very prominent

[00:51:36] she was down

[00:51:37] as a co-founder

[00:51:38] now

[00:51:38] I am going

[00:51:40] to say

[00:51:40] that I think

[00:51:40] she was

[00:51:41] treated

[00:51:42] harshly

[00:51:43] because

[00:51:43] she was

[00:51:44] very much

[00:51:44] a lightning

[00:51:44] rod

[00:51:45] because

[00:51:45] she

[00:51:46] was

[00:51:47] into

[00:51:47] spirituality

[00:51:48] and she's

[00:51:49] very easy

[00:51:50] to pick

[00:51:50] on

[00:51:50] and people

[00:51:51] would point

[00:51:51] to a

[00:51:52] podcast

[00:51:52] she went

[00:51:53] on

[00:51:53] where she

[00:51:54] discouraged

[00:51:54] people

[00:51:55] from

[00:51:55] eating

[00:51:56] sad

[00:51:57] animals

[00:51:57] because if

[00:51:58] you eat

[00:51:58] sad animals

[00:51:59] you absorb

[00:52:00] their energy

[00:52:01] she also

[00:52:02] made employees

[00:52:03] very uncomfortable

[00:52:04] during one of the

[00:52:04] summer retreats

[00:52:05] where on stage

[00:52:06] she said

[00:52:07] and I quote

[00:52:07] a big part

[00:52:09] of being a woman

[00:52:10] is to help

[00:52:11] men manifest

[00:52:12] their calling

[00:52:13] in life

[00:52:15] so

[00:52:15] look

[00:52:16] it's easy

[00:52:16] to pick

[00:52:17] on her

[00:52:17] and as I

[00:52:18] said

[00:52:18] she's

[00:52:19] I thought

[00:52:19] she was

[00:52:20] treated

[00:52:20] harshly

[00:52:20] because

[00:52:21] I don't

[00:52:21] think

[00:52:22] it was

[00:52:22] her fault

[00:52:23] that she

[00:52:23] was there

[00:52:24] I think

[00:52:24] the problem

[00:52:25] here is

[00:52:25] that she

[00:52:26] should never

[00:52:26] have been

[00:52:26] at the

[00:52:27] top of

[00:52:27] the

[00:52:27] company

[00:52:28] what this

[00:52:28] really

[00:52:28] showed

[00:52:29] it

[00:52:43] look at

[00:52:44] all

[00:52:44] that's

[00:52:44] wrong

[00:52:45] with

[00:52:45] Weaver

[00:52:45] but what

[00:52:45] was wrong

[00:52:46] with

[00:52:46] Weaver

[00:52:46] was far

[00:52:47] far deeper

[00:52:47] than Rebecca

[00:52:48] Newman

[00:52:49] and her

[00:52:49] spirituality

[00:52:51] and then

[00:52:52] they also

[00:52:52] had other

[00:52:53] they diversified

[00:52:53] into

[00:52:54] a gym

[00:52:56] thing called

[00:52:57] Rise

[00:52:57] with We

[00:52:58] Weaver

[00:52:59] and this

[00:53:00] was

[00:53:02] headed by

[00:53:03] Newman's

[00:53:04] brother-in-law

[00:53:04] they also

[00:53:05] invested

[00:53:06] in a

[00:53:06] company

[00:53:06] called

[00:53:07] Wave

[00:53:07] Garden

[00:53:07] to

[00:53:08] they were

[00:53:09] going to

[00:53:09] start up

[00:53:09] indoor

[00:53:10] surfing

[00:53:10] they were

[00:53:12] also going

[00:53:12] to do

[00:53:12] WeSail

[00:53:13] which is

[00:53:13] WeWork

[00:53:14] out in

[00:53:14] the ocean

[00:53:15] on ships

[00:53:15] and they

[00:53:16] were going

[00:53:16] to launch

[00:53:17] WeBank

[00:53:17] as well

[00:53:18] a financial

[00:53:18] services

[00:53:20] company

[00:53:20] of some

[00:53:21] sort

[00:53:21] I'm not

[00:53:22] too

[00:53:22] sure

[00:53:23] oh

[00:53:24] Lord

[00:53:24] so they

[00:53:24] were all

[00:53:25] over

[00:53:25] and in

[00:53:26] fairness

[00:53:26] Massa said

[00:53:27] here's

[00:53:27] 4.5

[00:53:28] billion

[00:53:28] go crazy

[00:53:29] and Newman

[00:53:30] went crazy

[00:53:30] with it

[00:53:31] so they

[00:53:32] sit around

[00:53:33] rooms

[00:53:33] what crazy

[00:53:34] shit can we

[00:53:35] come up

[00:53:35] with

[00:53:35] I suppose

[00:53:36] after a few

[00:53:37] shots of

[00:53:37] tequila

[00:53:38] yeah

[00:53:38] and that's

[00:53:39] the kind

[00:53:39] of crazy

[00:53:39] shit

[00:53:39] you come

[00:53:40] up

[00:53:40] with

[00:53:42] now

[00:53:43] in

[00:53:43] his defence

[00:53:44] Newman

[00:53:45] would say

[00:53:45] that because

[00:53:46] they were

[00:53:46] expanding

[00:53:47] at such

[00:53:47] a huge

[00:53:47] rate

[00:53:48] and

[00:53:54] savings

[00:53:54] and that's

[00:53:55] only partly

[00:53:56] true

[00:53:56] but because

[00:53:57] of the

[00:53:57] pressure

[00:53:58] they had

[00:53:58] to expand

[00:53:59] and they

[00:54:00] had these

[00:54:00] huge goals

[00:54:01] they were

[00:54:02] very very

[00:54:02] vulnerable

[00:54:03] to

[00:54:04] inflated

[00:54:04] costs

[00:54:05] and they

[00:54:05] made

[00:54:05] desperate

[00:54:06] decisions

[00:54:06] because

[00:54:06] landlords

[00:54:07] were seeing

[00:54:07] WeWork

[00:54:08] coming to

[00:54:08] them

[00:54:09] desperate

[00:54:10] to get

[00:54:10] property

[00:54:11] because

[00:54:11] they had

[00:54:11] these

[00:54:12] huge

[00:54:12] targets

[00:54:12] with

[00:54:13] 4.5

[00:54:14] billion

[00:54:14] in the

[00:54:14] bank

[00:54:15] and the

[00:54:15] landlords

[00:54:15] are saying

[00:54:16] alright

[00:54:17] yeah you

[00:54:17] can have

[00:54:17] my

[00:54:17] building

[00:54:18] but they

[00:54:19] put an

[00:54:19] inflated

[00:54:19] cost

[00:54:20] on it

[00:54:20] and WeWork

[00:54:21] would eventually

[00:54:21] give in

[00:54:22] because they

[00:54:22] were so desperate

[00:54:23] to get the

[00:54:23] buildings

[00:54:24] and a huge

[00:54:24] long-term

[00:54:25] commitment

[00:54:25] obviously

[00:54:26] as well

[00:54:26] wait till you

[00:54:27] hear about

[00:54:28] the commitments

[00:54:28] they made

[00:54:29] but we'll get

[00:54:29] on to that

[00:54:30] when we get

[00:54:30] to the IPO

[00:54:31] they doubled

[00:54:32] brokers

[00:54:33] commissions

[00:54:33] to 20%

[00:54:34] of a year's

[00:54:35] rent

[00:54:35] twice the

[00:54:36] industry

[00:54:36] average

[00:54:37] they started

[00:54:38] sending

[00:54:38] emails

[00:54:39] out

[00:54:39] to people

[00:54:40] who were

[00:54:40] in

[00:54:41] competitor

[00:54:41] buildings

[00:54:42] offering

[00:54:43] to buy

[00:54:43] them out

[00:54:44] of their

[00:54:44] existing

[00:54:44] contracts

[00:54:45] and give

[00:54:46] them a

[00:54:46] year's

[00:54:46] free

[00:54:47] rent

[00:54:47] in

[00:54:48] WeWork

[00:54:48] and savvy

[00:54:49] renters

[00:54:50] then started

[00:54:51] gaming the

[00:54:51] system

[00:54:51] they'd go

[00:54:52] into one

[00:54:52] WeWork

[00:54:53] building

[00:54:53] for a year

[00:54:54] for free

[00:54:54] and then

[00:54:55] moved to

[00:54:55] another

[00:54:55] WeWork

[00:54:56] building

[00:54:56] for a year

[00:54:57] for free

[00:54:57] and because

[00:54:57] there was so

[00:54:58] much chaos

[00:54:59] going on

[00:54:59] WeWork

[00:55:00] weren't being

[00:55:00] able to

[00:55:01] track what

[00:55:01] was going

[00:55:02] on here

[00:55:02] so you had

[00:55:03] people

[00:55:03] who could

[00:55:04] go into

[00:55:04] WeWork

[00:55:04] building

[00:55:05] for up

[00:55:05] to two

[00:55:05] years

[00:55:06] rent-free

[00:55:07] nice

[00:55:07] and it

[00:55:08] and it was

[00:55:09] chaos

[00:55:09] and that's

[00:55:10] a quote

[00:55:10] from one

[00:55:11] of the

[00:55:12] people

[00:55:12] involved

[00:55:12] one of

[00:55:13] the

[00:55:13] executives

[00:55:13] in

[00:55:13] WeWork

[00:55:14] he said

[00:55:14] it wasn't

[00:55:15] just hyper

[00:55:16] growth

[00:55:16] it was

[00:55:17] chaos

[00:55:17] growth

[00:55:17] so it

[00:55:18] was just

[00:55:19] chaotic

[00:55:19] they were

[00:55:20] burning

[00:55:21] through

[00:55:21] money

[00:55:21] Keith

[00:55:21] the

[00:55:22] Financial

[00:55:22] Times

[00:55:23] in

[00:55:23] 2017

[00:55:24] or

[00:55:25] 2018

[00:55:26] they

[00:55:27] leaked

[00:55:27] a

[00:55:27] report

[00:55:28] that

[00:55:28] showed

[00:55:29] that

[00:55:29] WeWork

[00:55:30] made

[00:55:30] 1.8

[00:55:31] billion

[00:55:31] but lost

[00:55:33] 1.9

[00:55:34] billion

[00:55:34] and they

[00:55:35] were spending

[00:55:36] 100 million

[00:55:37] dollars a

[00:55:38] week

[00:55:39] so my

[00:55:40] George

[00:55:40] when you

[00:55:41] have that

[00:55:42] kind of

[00:55:42] money

[00:55:42] going out

[00:55:43] of your

[00:55:44] bank

[00:55:44] you need

[00:55:45] a lot

[00:55:45] more

[00:55:45] even

[00:55:46] that

[00:55:46] 4.5

[00:55:46] billion

[00:55:47] isn't

[00:55:47] going to

[00:55:47] last

[00:55:48] long

[00:55:48] and

[00:55:49] so

[00:55:49] in

[00:55:50] late

[00:55:50] 2018

[00:55:51] Softbank

[00:55:52] committed

[00:55:52] another

[00:55:53] 3 billion

[00:55:53] and they

[00:55:54] also were

[00:55:55] in

[00:55:55] discussions

[00:55:55] to invest

[00:55:56] 16 billion

[00:55:57] the following

[00:55:58] year to

[00:55:58] take half

[00:55:59] ownership

[00:55:59] of

[00:55:59] WeWork

[00:56:00] but then

[00:56:01] the turning

[00:56:02] point came

[00:56:02] on Christmas

[00:56:03] Eve

[00:56:03] on Christmas

[00:56:04] Eve

[00:56:04] 2018

[00:56:05] Massa

[00:56:06] phoned

[00:56:06] Newman

[00:56:07] Newman

[00:56:08] was on

[00:56:08] holidays

[00:56:08] with his

[00:56:09] family

[00:56:09] when I read

[00:56:10] this story

[00:56:10] I was

[00:56:11] thinking

[00:56:11] why the hell

[00:56:12] did he

[00:56:12] ring on

[00:56:13] Christmas

[00:56:13] Eve

[00:56:14] with news

[00:56:14] that they

[00:56:15] were pulling

[00:56:15] out of

[00:56:16] the deal

[00:56:16] could he

[00:56:16] not have

[00:56:17] waited

[00:56:17] a few

[00:56:18] days

[00:56:18] and at

[00:56:19] least

[00:56:19] let

[00:56:19] Newman

[00:56:19] and his

[00:56:20] family

[00:56:20] in

[00:56:20] it's

[00:56:20] cruel

[00:56:21] he rang

[00:56:22] on

[00:56:22] Christmas

[00:56:23] Eve

[00:56:23] to say

[00:56:23] that

[00:56:24] because

[00:56:24] the stock

[00:56:25] market

[00:56:25] was looking

[00:56:25] a bit

[00:56:26] shaky

[00:56:26] and because

[00:56:27] his

[00:56:27] investors

[00:56:28] were skittish

[00:56:28] about real

[00:56:29] estate

[00:56:29] price

[00:56:29] so

[00:56:30] thereby

[00:56:31] an

[00:56:31] acknowledgement

[00:56:31] that

[00:56:32] hey

[00:56:32] you're a

[00:56:33] real estate

[00:56:33] company

[00:56:34] they weren't

[00:56:35] going to go

[00:56:35] ahead with

[00:56:36] the 16

[00:56:36] billion

[00:56:36] eventually

[00:56:37] they ended

[00:56:38] up putting

[00:56:38] 1 billion

[00:56:39] in

[00:56:39] and they

[00:56:40] also did

[00:56:40] a 1

[00:56:41] billion

[00:56:41] share

[00:56:41] buyback

[00:56:42] from

[00:56:42] employees

[00:56:44] but despite

[00:56:45] that

[00:56:45] despite

[00:56:45] them

[00:56:46] pulling

[00:56:47] out

[00:56:47] by 2019

[00:56:48] it was

[00:56:48] valued

[00:56:49] at

[00:56:49] 47

[00:56:50] billion

[00:56:51] at this

[00:56:51] stage

[00:56:52] IWG

[00:56:53] a company

[00:56:54] far

[00:56:54] bigger

[00:56:55] far

[00:56:55] was worth

[00:56:57] 3.85

[00:56:57] billion

[00:56:58] so

[00:56:58] IWG's

[00:56:59] valuation

[00:57:00] had gone

[00:57:01] up

[00:57:01] slightly

[00:57:01] so I'm

[00:57:01] guessing

[00:57:02] the real

[00:57:03] estate

[00:57:03] market

[00:57:03] was

[00:57:04] going

[00:57:05] well

[00:57:05] but

[00:57:07] WeWork's

[00:57:08] valuation

[00:57:08] of

[00:57:08] 47

[00:57:09] billion

[00:57:09] was

[00:57:10] just

[00:57:10] nuts

[00:57:11] and

[00:57:12] so

[00:57:13] then

[00:57:13] they

[00:57:13] decided

[00:57:14] let's

[00:57:14] IPO

[00:57:14] well

[00:57:15] you know

[00:57:15] what

[00:57:15] they

[00:57:15] had

[00:57:16] to

[00:57:16] because

[00:57:16] when

[00:57:17] SoftBank

[00:57:18] pulled out

[00:57:18] 16

[00:57:18] billion

[00:57:19] funding

[00:57:19] they

[00:57:20] had

[00:57:20] to

[00:57:20] go

[00:57:20] and

[00:57:21] the

[00:57:21] reason

[00:57:21] why

[00:57:22] companies

[00:57:22] don't

[00:57:23] like

[00:57:23] going

[00:57:23] to

[00:57:23] IBO

[00:57:24] there

[00:57:24] was a

[00:57:24] great

[00:57:24] quote

[00:57:24] from

[00:57:25] Mark

[00:57:25] Binoff

[00:57:25] I don't

[00:57:26] have

[00:57:26] it

[00:57:26] now

[00:57:26] in

[00:57:26] Salesforce

[00:57:27] but

[00:57:27] what he's

[00:57:27] basically

[00:57:27] saying

[00:57:28] is that

[00:57:29] the

[00:57:29] IPO

[00:57:29] is

[00:57:30] the

[00:57:30] ultimate

[00:57:33] test

[00:57:34] of

[00:57:35] how

[00:57:35] you

[00:57:35] are

[00:57:36] as

[00:57:36] a

[00:57:36] company

[00:57:36] because

[00:57:36] you

[00:57:36] have

[00:57:37] to

[00:57:37] put

[00:57:37] everything

[00:57:37] out

[00:57:37] there

[00:57:38] everything

[00:57:39] is

[00:57:39] to

[00:57:39] close

[00:57:40] and

[00:57:41] that's

[00:57:41] why

[00:57:41] an

[00:57:41] awful

[00:57:41] lot

[00:57:42] of

[00:57:42] companies

[00:57:43] didn't

[00:57:43] want

[00:57:43] to

[00:57:43] go

[00:57:44] IPO

[00:57:44] they

[00:57:44] would

[00:57:44] have

[00:57:44] loved

[00:57:45] if

[00:57:45] SoftBank

[00:57:46] had

[00:57:46] given

[00:57:46] them

[00:57:46] that

[00:57:46] 16

[00:57:47] billion

[00:57:47] and

[00:57:47] they

[00:57:54] strategy

[00:57:54] for

[00:57:54] growth

[00:57:55] it

[00:57:55] was

[00:57:55] all

[00:57:55] up

[00:57:55] for

[00:57:56] scrutiny

[00:57:56] and

[00:57:57] they

[00:57:57] put

[00:57:57] up

[00:57:58] their

[00:57:58] S1

[00:57:58] filing

[00:57:59] which

[00:57:59] is

[00:57:59] the

[00:57:59] document

[00:57:59] in

[00:58:00] August

[00:58:00] 2019

[00:58:01] and

[00:58:02] in my notes

[00:58:03] I just

[00:58:04] have

[00:58:04] it is a

[00:58:05] complete

[00:58:05] shit show

[00:58:06] because

[00:58:06] while many

[00:58:07] questions

[00:58:08] were raised

[00:58:08] over the years

[00:58:09] by various

[00:58:10] media outlets

[00:58:11] this now

[00:58:12] had all

[00:58:13] their

[00:58:13] flaws

[00:58:14] condensed

[00:58:14] into

[00:58:15] one

[00:58:15] document

[00:58:16] but

[00:58:17] even

[00:58:17] before

[00:58:17] you

[00:58:18] got

[00:58:18] into

[00:58:18] the

[00:58:19] facts

[00:58:19] and

[00:58:19] figures

[00:58:19] key

[00:58:20] that

[00:58:20] we're

[00:58:20] going

[00:58:20] to

[00:58:20] get

[00:58:20] into

[00:58:21] the

[00:58:21] disbelief

[00:58:22] and

[00:58:22] ridicule

[00:58:23] that

[00:58:23] came

[00:58:25] about

[00:58:25] because

[00:58:25] of

[00:58:26] the

[00:58:26] actual

[00:58:27] design

[00:58:28] of

[00:58:28] the

[00:58:28] document

[00:58:29] because

[00:58:29] Rebecca

[00:58:29] Newman

[00:58:30] on

[00:58:31] reviewing

[00:58:31] the

[00:58:31] document

[00:58:31] felt

[00:58:32] that

[00:58:32] there

[00:58:32] was

[00:58:33] too

[00:58:33] many

[00:58:33] facts

[00:58:33] and

[00:58:34] figures

[00:58:34] and

[00:58:34] as

[00:58:35] she

[00:58:35] said

[00:58:35] business

[00:58:36] speak

[00:58:36] in

[00:58:37] the

[00:58:38] S1

[00:58:38] filing

[00:58:39] and

[00:58:39] an

[00:58:40] S1

[00:58:40] filing

[00:58:40] is

[00:58:41] just

[00:58:41] a

[00:58:41] black

[00:58:41] and

[00:58:41] white

[00:58:41] document

[00:58:42] with

[00:58:42] facts

[00:58:42] and

[00:58:43] figures

[00:58:43] that's

[00:58:43] what

[00:58:43] it's

[00:58:44] meant

[00:58:44] to be

[00:58:44] but

[00:58:44] she

[00:58:44] thought

[00:58:45] there was

[00:58:45] too much

[00:58:45] of that

[00:58:45] in there

[00:58:46] so she

[00:58:46] spent

[00:58:47] hundreds of

[00:58:47] thousands

[00:58:47] of dollars

[00:58:48] and put

[00:58:48] in 37

[00:58:49] pages

[00:58:50] of a

[00:58:50] fashion

[00:58:50] shoot

[00:58:51] into

[00:58:51] the

[00:58:52] S1

[00:58:52] filings

[00:58:53] oh my

[00:58:54] gosh

[00:58:54] so even

[00:58:55] before people

[00:58:55] got to

[00:58:56] the

[00:58:56] facts

[00:58:56] and

[00:58:56] figures

[00:58:57] I'm

[00:58:57] sure

[00:58:57] they

[00:58:57] were

[00:58:57] looking

[00:58:57] at

[00:58:57] this

[00:58:58] going

[00:58:58] what

[00:58:59] the

[00:58:59] Christ

[00:58:59] is

[00:59:00] this

[00:59:02] so

[00:59:02] and

[00:59:08] first of

[00:59:09] all

[00:59:09] there was

[00:59:10] this

[00:59:10] voting

[00:59:11] power

[00:59:11] that

[00:59:11] Newman

[00:59:12] wanted

[00:59:12] to

[00:59:12] give

[00:59:12] himself

[00:59:13] for

[00:59:14] he

[00:59:15] had

[00:59:15] over

[00:59:15] half

[00:59:16] the

[00:59:16] voting

[00:59:16] power

[00:59:16] now

[00:59:17] as

[00:59:18] you

[00:59:18] say

[00:59:18] this

[00:59:19] did

[00:59:20] happen

[00:59:20] with

[00:59:21] Facebook

[00:59:21] and

[00:59:22] Google

[00:59:22] but

[00:59:23] Facebook

[00:59:23] and

[00:59:24] Google

[00:59:24] were

[00:59:24] different

[00:59:24] propositions

[00:59:25] altogether

[00:59:26] they

[00:59:26] were

[00:59:27] tech

[00:59:27] startups

[00:59:27] that

[00:59:28] were

[00:59:29] very

[00:59:29] much

[00:59:29] dominant

[00:59:30] in

[00:59:30] their

[00:59:31] own

[00:59:31] category

[00:59:31] they

[00:59:31] had

[00:59:32] nobody

[00:59:32] that

[00:59:32] was

[00:59:33] close

[00:59:33] to

[00:59:33] them

[00:59:33] they

[00:59:33] had

[00:59:34] these

[00:59:34] network

[00:59:34] effects

[00:59:35] scalable

[00:59:36] business

[00:59:36] models

[00:59:37] dominating

[00:59:37] their

[00:59:39] investors

[00:59:39] were

[00:59:39] willing

[00:59:39] to

[00:59:39] go

[00:59:40] yeah

[00:59:40] I'm

[00:59:41] willing

[00:59:41] to

[00:59:41] give

[00:59:41] them

[00:59:41] half

[00:59:41] the

[00:59:42] voting

[00:59:42] rights

[00:59:42] because

[00:59:42] I

[00:59:42] know

[00:59:42] I'm

[00:59:43] going

[00:59:43] to

[00:59:43] make

[00:59:43] money

[00:59:43] off

[00:59:43] this

[00:59:44] they

[00:59:44] were

[00:59:44] looking

[00:59:44] at

[00:59:45] WeWork

[00:59:45] and

[00:59:45] they

[00:59:45] weren't

[00:59:45] going

[00:59:46] to

[01:01:08] billion in long-term lease obligations with only four billion in tenant commitments.

[01:01:15] Terrifying.

[01:01:16] Yeah. And I mean, the laughable fact, the laughable things within this, they put their

[01:01:21] market size potential at three trillion dollars because they counted everyone who worked at

[01:01:28] a desk in any city where they had a location as a potential customer. And like these, it's

[01:01:35] just too ridicule. It was, it would like, people were just laughing at this by this stage.

[01:01:40] And they had the line, here's the line. I mean, if you're an investor, would this make

[01:01:44] invest in WeWork? We have a history of losses. And especially if we continue to grow as an

[01:01:48] accelerated race, we may be unable to achieve profitability for the foreseeable future.

[01:01:55] What's amazing, Keith, is that again, their investors would have reviewed this document

[01:02:01] and these are savvy investors, apparently, allowed them. And they were looking at this

[01:02:05] document for the 37 page photo shoot and with these facts and figures and quotes in there

[01:02:10] and they were going, yeah, go for it. I just don't understand this.

[01:02:14] Yeah, back to Isaacson then, maybe it's the reality distortion fields that makes Newman

[01:02:20] similar to Steve Jobs.

[01:02:22] Yeah, maybe. Maybe because I'm looking at this and I'm kind of going, I don't know how this

[01:02:27] got anywhere close to where it got in.

[01:02:30] And they would have had a bank underwriting it, I would assume.

[01:02:33] Oh, I bet you, well, I'm sure JP Morgan did. They did invest 150 million into it after all.

[01:02:39] The word technology appeared 110 times in the filing. But of course, there was nothing to

[01:02:45] back up the technology aspect of us. And the much-touted WeWork operating system that Adam

[01:02:50] Newman kept on spouting on about where he said that they are selling services like insurance

[01:02:54] and software, excuse me, where they're selling services like software insurance, that only

[01:03:01] accounted for 5% of their revenue. So there's nothing behind that either. And of course, on

[01:03:06] the back of all this, once the S1 filing was put out, the media just started, you know,

[01:03:13] zeroing in on WeWork and all these stories start coming out. There was the infamous hotbox

[01:03:18] incident where Newman and his friends flew over to Israel and they turned their private jet

[01:03:24] into what is called a hotbox. It was so full of marijuana smoke that the flight crew had

[01:03:29] to wear oxygen masks. And they then left a huge amount of grass behind hidden in a cereal

[01:03:34] box. So the pilots and the flight crew could have been charged with transporting drugs and

[01:03:39] they refused to fly them back.

[01:03:42] It also pointed out to, oh, there was also the story of Rebecca Newman demanding that certain

[01:03:48] employees be fired if she felt that their energy was, in inverted commas, off. It pointed to

[01:03:57] glaring nepotism, a weak board, weak oversight. It was just a shit show. And within a few weeks,

[01:04:04] the valuation had dropped to 20 billion. By November, it had dropped to 9 billion and the IPO was called

[01:04:09] off. And it left SoftBank and the investors with a difficult kind of paradox because Newen was the

[01:04:16] guy who sold the vision. He sold a vision that was far grander than a real estate company. And

[01:04:21] without him to sell it, it's not going to reach the valuation and they're not going to be able to raise

[01:04:27] the money. Yet at the same time, he had no credibility.

[01:04:30] He's the heart of the problem.

[01:04:31] Yeah, there was no credibility at all. They couldn't keep on with him. So they had to sack

[01:04:35] him. And they put a real estate executive in charge. Now, Newman's once 22% state that had

[01:04:42] been worth 10.6 billion and his hope, as he expressed at one stage, to become the world's

[01:04:46] first trillionaire was no longer going to happen. But he still got, Keith, 1 billion for his shares,

[01:04:53] a billion for his shares, 185 million consulting contract, other cash incentives. And together with

[01:04:59] the 700 million shares that he sold pre-IPO, he came out of it with a net worth of about 2 billion.

[01:05:06] Not too bad?

[01:05:07] Not too bad. And I'm sure it left a very bitter taste in the amounts of the thousands of employees

[01:05:14] who were let go on the back of the failed IPO. And this whole idea that Newman extolled about,

[01:05:21] you know, we're a community and we're all in this together. And look, I don't expect any CEO to be

[01:05:26] sharing their, you know, funds with their employees. But Newman, he peddled a certain

[01:05:33] kind of shtick. He was all on for this. We're all in this together. And yes, when it all went

[01:05:38] to shit and he got his 2 billion, he didn't help anybody else. Community went out the door as soon

[01:05:44] as, you know, it all went to shit. So I'm not a fan of his. But WeWork itself, just to see how it all

[01:05:52] ended up, they brought in a new CEO, cost cutting, layoffs. They scaled back their properties from

[01:05:58] 500 to 330 locations. And he rightly positioned it as a straightforward office renting company.

[01:06:04] They floated in 2021 with a valuation still of 9 billion, still way overvalued. This is in the

[01:06:10] middle of the pandemic. IWG at this stage was valued at 2.9 billion. So still three times the

[01:06:16] valuation of IWG. And of course...

[01:06:18] And the pandemic, nobody else would be sitting in a shared office space. That's really interesting.

[01:06:23] No, no. But what is interesting is the pandemic worked out well for them in the end because

[01:06:28] they filed for bankruptcy in 2023 because they were way down with 10 billion in lease obligations

[01:06:33] and 15 billion due again in 2020 East. But because of the pandemic and because now landlords

[01:06:39] were in such dire straits, when it came to re-negotiating their contracts, they were in a

[01:06:44] stronger position to kind of say, well, you know, who else have you got to rent your office

[01:06:48] space? And we want to re-negotiate our prices down, whatever. Newman actually tried to buy

[01:06:54] it back from bankruptcy for 500 million, but it was rejected. And a software company called

[01:06:59] Yardi purchased Webook for 450 million. And in 2024, when I looked at it, Keith, just before

[01:07:06] we recorded, it had a market cap of 41 million. Now, I think that's probably way undervalued

[01:07:12] at the moment, but it's probably as a result of all the bad reputation and everything. So

[01:07:17] SoftBank ended up losing 10 billion and other investors lost between 4 to 6 billion. So

[01:07:23] 16 billion in total was lost in WeWork. But you can't keep a good man down, Keith, because

[01:07:32] Adam Newman is back at it again. He's got a company called Flow. Okay. So this is a new venture.

[01:07:40] Just, I got a quote from him here. And he's just kind of going, what's happening here? A new

[01:07:45] venture aiming to reshape residential housing. And he managed to raise 350 million for

[01:07:51] Anderson Horowitz in 2022. And this is a quote from Newman as to what Flow is all about.

[01:07:59] Okay. What if we use technology to operate the systems better? Bring people who are all

[01:08:07] about hospitality and run an apartment the way you'd expect the Four Seasons to run with that level of

[01:08:14] hospitality. Now, the problem here is that the Four Seasons and similar brands offer precisely this

[01:08:20] type of model with their branded residences. And in terms of innovation, what they have,

[01:08:26] from what I can gather, is an app that helps people for buzzing in guests or requesting maintenance.

[01:08:33] That's this. And Andreessen Horowitz, who invest in tech companies.

[01:08:39] Again, it's like this is deja vu all over again. How is he managing to do this?

[01:08:45] They've spent over a billion buying 3,000 units in Fort Lauderdale in Miami in 2024. And they've

[01:08:50] also, they're in the process of opening up about 1,000 units in Saudi Arabia. I'm scratching

[01:08:57] my head at this. I'm kind of going, what are investors thinking? Like, he already did this before.

[01:09:04] He already sold an office rental space as a tech company with no foundation at all.

[01:09:09] And now he's doing it again.

[01:09:10] And now he's doing it again. With again, no tech foundation at all, but selling it as a tech

[01:09:15] company. I'm just scratching my head. I mean, the whole thing that it shows to me is that there's

[01:09:21] this, he's good at creating an environment that creates this, what is a form of fear of missing

[01:09:27] outs.

[01:09:27] Yes.

[01:09:28] Like, that's what people are buying into. That he manages to convince them that I'm onto something

[01:09:33] big here.

[01:09:34] And the mystique and the spirituality, the messianic sort of figure.

[01:09:38] And you kind of think, like, to be able to send it that way, does Newman actually believe

[01:09:43] his own bullshit? That's what I'm wondering. Like, does he actually, I don't think he does

[01:09:47] because he actually, you know, he activated the space. He fabricates an environment to

[01:09:53] entice people in. And also, if he did believe his own bullshit, if he really did believe in

[01:09:58] this whole, oh, we're in this together, we're a community and all that.

[01:10:01] Double down and invest your own money back in.

[01:10:04] I think he has invested some of his own money. But you'd also, if you really believed in

[01:10:08] community and really believe that we're creating a new universe, he would have helped people

[01:10:13] with all the money he made. What about all his employees? Where did community go when

[01:10:17] it all went to shit and he worked all for two billion? And I did research, Keith. And I

[01:10:22] found articles where Alan Newman basically said, well, they took a risk and it didn't

[01:10:26] work out for them. And I feel sorry that it didn't. And you're kind of going, no, they

[01:10:29] didn't take a risk. They bought into your idea of community. And you told them that you're

[01:10:33] all in this together. And you told them that this is a new world order. And you told them

[01:10:37] all this. And yes, you know, your actions speak louder than words, because when it all went

[01:10:42] to shit, you walked away and you didn't give a shit about community. You know? So I found

[01:10:47] it fascinating, but I have a massive dislike for the kind of bullshit he does.

[01:10:53] Yeah, yeah. Yeah.

[01:10:54] You know?

[01:10:56] Hell of a job though.

[01:10:58] Yeah.

[01:10:59] I'm sticking with my assessment that he's an amazing sales guy.

[01:11:02] Oh yeah. He, he obviously is. But you know what? No, I think Steve Jobs is an amazing

[01:11:09] sales guy. Steve Jobs, like Steve Jobs did more than just sell. He, not that he made the

[01:11:14] iPhone, but he pushed people to create this fantastic product and then he sold it brilliantly.

[01:11:19] Yeah.

[01:11:20] Adam Newman built something and sold it as something completely different. So that's why I, no, I

[01:11:28] wouldn't call him an amazing, I'm sticking to my point that he's an amazing bullshitter.

[01:11:32] What a great story. Cool.

[01:11:36] Alrighty. I'll have one for next time.

[01:11:37] We'll agree to disagree. Cool. Alright.

[01:11:39] See you, Keith.

[01:11:40] See you. Good luck.

[01:11:41] Good luck. Bye.