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Adam Neumann almost got away with it.
For years, he convinced private investors that WeWork, a company that leases space from landlords, renovates it, slices it up into offices, and rents them out at a premium, was worth more than every other office-rental company. It was Neumann’s charisma, conviction, and unfettered ambition—he has spoken about WeWork Mars, running for president of the world, and becoming the first trillionaire—that built WeWork into one of the world’s most valuable startups, with operations spanning 111 cities in 29 countries, and that garnered more than $10 billion from its most enthusiastic investor, Softbank.
Then, in August, WeWork filed for an initial public offering, and in doing so exposed the curious and troubling inner workings of the company, which rebranded earlier this year as The We Company, or We.
Some, like the $900 million WeWork lost in the first half of 2019 and the outsized control co-founder Neumann wielded, were par for the course for a buzzy private technology company these days. Others, like rampant self-dealing—Neumann owned several properties he leased back to the company, received personal loans and a credit line secured by his WeWork stock, and sold the trademark to “We” to the company for $5.9 million when it rebranded—shocked even jaded startup observers.
Then there was Neumann’s very un-CEO-like conduct: smoking marijuana on a transatlantic private jet flight, handing out trays of tequila shots after mass layoffs, and making impulsive, sweeping decisions, like a company-wide ban on meat, with little to no rationale.
Last week, WeWork shelved its IPO after reports that the company’s valuation could fall as low as $10 billion, a drastic plunge from its last private valuation of $47 billion. But the drama peaked yesterday, when WeWork said Neumann was stepping down as CEO, effective immediately. Neumann will stay on as non-executive chairman of the board, while two top internal executives—Artie Minson and Sebastian Gunningham—become co-CEOs.
Neumann has lost more than a title. The Wall Street Journal reported he is also ceding majority control of the company, with his voting power slashed to 3 votes per share, down from 10. (His voting rights were previously reduced to 10 votes per share from 20 in WeWork’s initial IPO filing.) He has lost the backing of Softbank, which in the end turned on him faster than Littlefinger betrayed Ned Stark. He may even have lost a $500 million line of credit, provided by the banks underwriting WeWork’s IPO and secured by his own shares.
The stunning rise and fall of Neumann echoes the trajectory of Travis Kalanick, the brash Uber co-founder who built a multibillion-dollar company and then was pushed out by his board in 2017, amid multiple sexual harassment scandals and federal probes into the company’s conduct. Once the full extent of mismanagement at Uber and WeWork became clear, investors and the public were quick to turn against both Kalanick and Neumann. But before it all came out—the scandals, the self-dealing, the wildly inappropriate conduct—those same investors embraced the co-founders for their vision and audacity.
Arrogance, ambition, blatant disregard for the rules, a fondness for “pissing people off”—these things cost Kalanick his job. They also made Uber great. Boldness, grandiosity, zeal, and ambition bordering on megalomania convinced many people to invest in Neumann’s WeWork, and also, eventually, that he had to be removed from it.
Venture capitalists, the gatekeepers to success in Silicon Valley, often talk about investing in people not ideas. In recent years, as financing has flowed to a select group of startups in ever-bigger rounds at ever-greater valuations, the cult of the founder has grown as well. More power, more money, more unshakeable certainty in their own right to total control over their company. WeWork is the logical endpoint of this: Silicon Valley’s great unicorn bubble. Neumann’s wildest ambitions found a fellow traveler at Softbank, whose enigmatic CEO Masayoshi Son showered him with cash and told him to make WeWork “ten times bigger than your original plan.” (Yes, WeWork is based in New York, but it is infused with the Silicon Valley ethos, and backed by many of the same investors.)
Neumann became inseparable from WeWork, not only in his financial dealings with the company but in the minds of his investors and himself. “WeWork is me, I am WeWork,” he said in May. WeWork said the same in its IPO filing, albeit in more restrained, lawyerly language. “Our future success depends in large part on the continued service of Adam Neumann, our Co-Founder and Chief Executive Officer, which cannot be ensured or guaranteed,” the company wrote. “Adam has been key to setting our vision, strategic direction and execution priorities… If Adam does not continue to serve as our Chief Executive Officer, it could have a material adverse effect on our business.”
As I said before: Whatever you think of Neumann’s conduct—savvy salesmanship, inspiring bravado, tone-deaf ignorance, blind faith—it makes perfect sense in a world where WeWork is me, I am WeWork. In the system set up by Silicon Valley and reinforced by its most powerful investors, Neumann and WeWork were the ultimate synergy, mysteriously increasing each other’s value. Neumann set the vision, collected the checks, preached the gospel. He went to great lengths to arrange things—power, money, connections—in his own favor. And why wouldn’t he? There were no barriers to his behavior, or interest in setting them up. So long as the company grew and its valuation rose, he was winning.
New York City was the first city in the world to set a pay floor for ride-hail drivers; Seattle could be the second. Seattle mayor Jenny Durkan last week unveiled an aptly named “Fare Share” plan to have Uber and Lyft drivers earn the local $16 hourly minimum wage, plus benefits and expenses, by July 1, 2020.
Seattle is drawing inspiration from New York City and the work done by economists James Parrott and Michael Reich. A report (pdf) commissioned last year by New York City’s taxi regulator found 85% of drivers earned less than $17.22 an hour, a figure designed to represent the local $15 hourly minimum plus expense reimbursement. The report also concluded that “for the 60 percent-plus of all New York City drivers who are full-time drivers—and who provide 80 percent of all rides—work hours are not flexible.” So much for that!
The Parrott-Reich solution was simple and elegant. It created a formula for paying drivers that builds in expense reimbursement and adjusts by utilization, or the share of every hour that a driver is working rather than waiting for a fare. By accounting for utilization, the formula also imposed a natural cap on the number of drivers companies like Uber put on the road. Oversupplying drivers lowers the utilization rate, which, per the formula, increases the wage cost to the company. People at Uber admitted in private that the solution was so clever, it was hard to fight.
New York has since muddied the waters. In August, and at the urging of mayor Bill de Blasio—who has always seemed more interested in running for president and punishing Uber for publicly humiliating him with DE BLASIO MODE in 2015 than, say, being mayor, crafting smart transit policy, or fixing the subway—the city extended a hard cap on for-hire vehicles (arguably unnecessary, because the Parrott-Reich formula did the same thing in a dynamic manner) and enacted a new cap on cruising time (ditto).
Like De Blasio, the new policies are impressively unpopular. They are unpopular with drivers, who say a vehicle cap exposes them to predatory auto lenders. They are unpopular with ride-hail companies, for obvious reasons. Uber and Lyft have started locking drivers out of their apps during periods of low demand, to the outrage and protests of drivers. Uber last week sued the city over the cruising cap, which it called an “arbitrary rule” with a “flawed economic model.”
Anyway, back in Seattle, Durkan wants to conduct an independent study of hourly work and expenses for Uber and Lyft drivers, completed by March 31, 2020, to figure out the best benefits and expense reimbursement scheme. Her proposal also includes a $0.51 per ride charge on Uber and Lyft to fund local housing and transit projects, and a “resolution center” for ride-hail drivers.
Whether the pay model designed for New York City would translate to Seattle is an open question. New York is a tightly regulated market where the vast majority of ride-hail drivers are immigrants who work full time, and many buy or lease a car just to start working. That makes it the exception, not the norm, for the ride-hail market, whose drivers typically already own their vehicles and work part-time hours. Seattle is also significantly less dense than New York City, making a utilization approach harder from a practical standpoint. Seattle has six months to figure it out.
Imagine you took a job at a tech startup and got paid mostly in equity, and then against all odds that startup became successful and a Big Deal and you realized that one day your equity would be worth a lot and you would be Very Rich. And so you waited loyally, while the startup became more famous and more successful, for the day it would head to the public markets and you could cash out. But then years went by and the startup didn’t go public, and you started to wonder if it ever would, and then you realized maybe the startup was serious when it said it had an “infinite time horizon,” even though your equity had a very finite time horizon and was set to expire in less than a year. You might panic. Or write a strongly worded letter:
Last summer, several Airbnb employees wrote a letter to the online room-rental start-up’s founders.
On behalf of more than a dozen employees, they pleaded to be able to sell their Airbnb stock options. Because Airbnb is privately held, its shares cannot be easily traded or cashed in. So the employees also asked that the company go public, a move that would let them freely sell their shares, said five people who saw or were briefed on the document and were not authorized to speak publicly…
…The discontent has been exacerbated because Airbnb, which has been valued at $31 billion, doled out two tranches of employee equity that are set to start expiring in November 2020 and in mid-2021; those shares will become worthless if the company is not trading publicly by then, they said.
Part of the problem for paper-rich Airbnb employees with stock options is the taxes they have to pay when they exercise their shares. Gabriel Cole, a former employee in Airbnb’s food department, told the New York Times he spent his life savings on buying his stock after leaving Airbnb in 2015, which came with a $180,000 tax bill. Uber had a similar problem, with employees taking on debt to hang onto shares they couldn’t actually sell until the company went public. Airbnb said in a single-sentence press release on Sept. 19 that it intends to go public in 2020.
Celebrity-favorite Postmates raised $225 million at a $2.4 billion valuation to, I guess, keep the lights on ahead of an IPO rumored to be “imminent.” Postmates has now raised nearly $1 billion to date to deliver insane amounts of food to the likes of Post Malone ($8,000 worth of Popeyes biscuits at Coachella), John Legend ($700 worth of sushi), and Kylie Jenner (more than $10,000 in total orders, including a bottle of Don Julio Añejo 1942 Tequila—also a favorite of Adam Neumann—and an order with just a bottle of Smartwater and a single carrot).
Postmates has leaned into the celebrity strategy. It has a YouTube series with Martha Stewart and pays influencers like Jenner to share their orders. But, as Forbes put it, Postmates “needs to win over everyone else.” The company has just four business days left in September to make good on its reported plan to unveil its IPO filing this month. The filing should shine more light on Postmates’ financials, including whether it has ever turned a profit. I would love if it also included some good celebrity-adjusted financial metrics, like EBAJ (earnings before all Jenners).
This time last year.
Airbnb wants hosts to get equity
Economists figured out the best way for Uber to say sorry (I forgot last week)
WeWork austerity plans. Why WeWork Needs Cash. Artie Minson: WeWork’s Numbers Man. Softbank pressuring execs to take on loans to invest in Vision Fund. Inside Softbank’s CEO-fest. Background-check startup Checkr valued at $2.2 billion. Clutter buys The Storage Fox to expand on-demand storage platform. Kitchen United raises $40 million for ghost kitchen network. Kapten wants to dethrone Uber in London. Travis Kalanick invested in Indian shared kitchens company. Lyft launches redesigned dockless scooters in San Diego. Lime and Bird pull scooters from downtown Phoenix. Scooter injuries pile up in Santa Monica. Uber, but for organizing ride-hail drivers. Uber gets two more months in London. Oyo turns to AI for vacation rentals. Google contractors vote to unionize in Pittsburgh. Blackstone’s new growth equity fund is open for business. Why I’m Deleting Delivery Apps From My Phone. What if Uber isn’t a tech company?
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