The recent rehabilitation of Adam Neumann, the entrepreneur behind WeWork, has been met with widespread amazement.
WeWork, which rents out office space and ‘coworking space’, is arguably the most infamous failure of the so-called tech ‘unicorns’. Its rapid overnight expansion was fueled by large amounts of easy capital. But this was quickly followed by an almighty crash.
So spectacular was the story that Apple TV even adapted it into a show called we crashed (based on a podcast series of the same name), starring method actor Jared Leto as Neumann. WeWork’s troubled finances and Neumann’s personal indulgences were revealed by regulators in August 2019. WeWork had attempted to go public, expecting to be valued at around $65 billion. But instead, the exposure dealt a serious blow to the company. Neumann was bounced back just weeks later, $1.7 billion richer.
Now Neumann, the messiah, is back with a new company, called Flow. Flow promises to do for residential accommodation what WeWork couldn’t do for office workspace, encouraging renting for millennials.
Neumann is backed by venture capital giant Andreessen Horowitz Capital Management. “Adam is a visionary leader who revolutionized the world’s second largest asset class, commercial real estate, by bringing community and brand to an industry where they didn’t exist before,” co-head Marc Andreessen said earlier this month, explaining why he had written Neumann a check for $350 million. The ‘A16Z’ decision, as Andreessen Horowitz Capital Management is known in the tech world, gave Flow an overnight valuation of $1 billion.
But Neumann is not a visionary. There was nothing particularly original about WeWork’s proposal. It was Mark Dixon, an Essex boy whose first business was a burger van in London’s North Circular, who really showed that there was a viable market for rented workspace. Today, Dixon’s Regus rents more space than WeWork did in its heyday. And, unlike WeWork, it has been profitable for years (albeit only after several near-death experiences and many contract battles with owners). WeWork simply packages tenants more tightly than Regus. And foolishly take longer leases. Its main USP is that it offers free beer and workspaces surrounded by bland New Age slogans. This is a curious combination, since frat boys don’t really practice mindfulness and holistic esthetes don’t drink.
However, the charismatic Neumann convinced big investors to back him. He played on their desire to believe that if they bet big, they could win big. He was lucky when Vision Fund was created in 2017, the largest venture capital investment vehicle in history. And this fund was eager to please him where others would not.
The Vision Fund was a nearly $100 billion venture, backed by $45 billion from the Saudi Arabian Public Investment Fund. The rest came from Japanese conglomerate Softbank, whose eccentric chairman and CEO, Masayoshi ‘Masa’ Son, was tasked with spending the money wisely. The mere presence of such large sums created a distortion in the technology market.
Reality was already catching up with Neumann when Son appeared on the scene. But Son indulged in the founder’s megalomania. Son, by then, had already created a brief bubble of astronomical tech valuations, including Uber and a variety of courier services, such as Deliveroo. None of this was sustainable. This month, the Vision Fund posted a $23 billion loss for the quarter, and 2017 investor returns are well below the market average. Low interest rates created a decade in which too much money chased too few good ideas.
So why is Neumann being spoiled again? Narcissism explains many things. In the world of venture capital, decisions are largely driven by fashion and companies get caught up in FOMO, the ‘fear of missing out’.
More importantly, superstar VC investors see themselves as avant-garde, or as prophets and visionaries in their own right. Without a doubt, this is how Son saw himself. And visionaries need promotion. One of A16Z’s partners, Benedict Evans, gave the game away in 2015 when he described the venture capital firm as “a media company that monetizes through venture capital.”
This is a cynical formulation, but it is correct in one important sense: it recognizes the postmodern nature of the market, in which a deal is essentially a consensual hallucination between two parties. WeWork is “worth” what a buyer is willing to pay. Neumann’s new idea have to it will be worth a billion dollars, because Andreessen Horowitz has decreed it so, simply by writing a big check.
Andreessen is in the position of a media mogul who can play a part in the story of any drama his network airs. And A16Z badly needs a hit, and for the narrative around A16Z to change.
After all, A16Z was one of the most prominent promoters of crypto finance instruments like blockchain. In fact, he announced blockchain as the basis of the future technological infrastructure, which he called ‘Web3’. That proposal recently met with great success. After the crypto crash in April, Andreessen himself disappeared from Twitter for weeks.
At the end of the day, venture capitalists are free to indulge in wildly irrational investments, since they are spending other people’s money. And those people are happy to take these risks as they are greedy for profit. But with rising interest rates and other economic clouds on the horizon, this excitable risk appetite is likely to cool. We may also see a dent in investors’ quasi-religious faith in the shamanic ideas of CEOs and venture capitalists. But as the return of Neumann the messiah shows, this will never completely go away.
Andrew Orlowski He is a weekly columnist for the Telegraph. Visit her website here. Follow him on Twitter: @AndrewOrlowski.