The Ethics of WeWork

This week Fred Wilson wrote a very timely post on Hair on a Deal.

In his post, he discusses the current challenges facing WeWork and their IPO.

Today, the Wall Street Journal wrote an article ‘This Is Not the Way Everybody Behaves.’ How Adam Neumann’s Over-the-Top Style Built WeWork.  I almost feel like the writer had access to my draft blog post.

When I think of WeWork, I think of Adam Neumann, a founder who has been amazing at articulating a vision, but unfortunately, he also has a broken moral and ethical compass.  And here’s why:

(1)  the WeWork has raised a total of $12.8 billion –  a staggering amount of capital considering Facebook only raised $2.8 billion prior to their IPO.

(2) with the exception of some secondary offerings, he has returned ZERO to his investors while personally cashing out over $700 million.

(3) he has used the company to fund his own personal interest and hobbies unrelated to his core business such as Laird Superfood, Wavegardens surfing wave-pool, a private elementary school and the purchase of a $60 million Gulfstream G650 for travel.

(4) there are countless disclosures of conflicts of interest, with Neumann selling the trademark “we” back to the company, signing leases with buildings he has partial ownership, and other entanglements with family members.

(5) WeWork uses a multi-class share structure, giving the CEO unchecked control.

And then on top of it all, Neumann raised money from Softbank at a $47 billion valuation and is now struggling to IPO in the $15-$18 billion range.

All this for a company that doesn’t own or make anything – especially not a profit.

The problem here is that somehow this behavior has been tolerated.  And I think it really shines a light on what I never want to see entrepreneurs do.

In fact, a friend from a very large real estate family told me that he thinks WeWork is essentially Neumann’s legal Ponzi scheme. He essentially negotiates long term liabilities with property owners at extremely discounted rates.  Then he puts a little paint, glass, and furniture and rents them to startups and companies who don’t want the responsibility or commitment of a real lease.  Then WeWork does this over and over and in most cases multiple locations in the same city with incentives for members to move to new locations.  The landlords have a long term receivable but really no protection if WeWork walks out and goes to another location.  And Neumann has convinced investors that this is a transformative model – although, beyond some brand recognition for the WeWork name, there is nothing unique or defensible.  There is revenue but no profit.  Oh, and did I mention the guy at the top has walked away with $700 million and flys around on a private jet that investors paid for.

This isn’t right.  Entrepreneurs should not aspire to this.

I hope someone holds Adam Neumann accountable.

The Ethics of WeWork

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