By Holly Porter
Adam Neumann has long been a controversial figure within venture capital, best known for co-founding commercial real estate company WeWork. WeWork first received venture capital attention in 2012, when it secured $6.85 million in one round. The company grew from 2012-2019, with a height valuation of $47 billion in January 2019. Key investors during this time include Japanese conglomerate SoftBank, Benchmark Capital and JP Morgan’s private equity funds. Per the company’s November 2019 S-1 filing (the registration form American companies must file with the Securities and Exchange Commission prior an IPO), Softbank had invested $17 billion and Benchmark Capital and JPMorgan owned 33 million and 18.5 million Class A shares respectively.
However, WeWork was marred with controversy throughout 2018. In spite of its high valuation, the company suffered major losses. In 2018, the company lost $1.6 billion on $1.8 billon in revenue, and in the first 6 months alone of 2019, WeWork saw losses up 25% year-on-year. Furthermore, investors lost confidence in Chief Executive Adam Neumann. One key factor in this was Neumann’s unethical conduct by cashing out $700 million in stock options before the IPO, then using this funding to purchase new builds to lease back to WeWork. The company had also been structured to give Neumann questionable tax advantages. Secondly, Neumann’s position within the company became clearer. His total holdings of 2.5 million Class A shares, 112.5 million Class B shares and all of the Class C shares meant he held a majority of the voting rights and, under SEC rules, defined WeWork as a ‘controlled company’.
As a result, plans to float shares on the stock market imploded, the IPO was pulled and Adam Neumann stepped down as Chief Executive in September 2019. The company did subsequently go public on the NYSE in November 2021, at which point it was valued at $9 billion.
WeWork suffered throughout Covid-19 and currently has a market value of around $4 billion, a far cry from its peak $47 billion valuation, and with losses incurred by many of its investors. SoftBank leads the pack, with $17 billion still to recover, including a $5 billion bolster the conglomerate issued to WeWork during Adam Neumann’s ousting.
When it was revealed earlier this month that Neumann had received a $350 million investment from venture capital firm Andreessen Horowitz, it is no surprise that many within the industry were shocked at his resurgence. Here are a few key points which may be relevant at interview.
Adam Neumann’s new company, ‘Flow’ has pledged to transform the residential real estate market. Published details are limited but investor Marc Andreessen has commented that ‘Flow’ seeks to address a key concern for renters: owning zero in equity after paying rent for decades. Flow may therefore provide a rent to own scheme for its tenants.
There has been great outrage over Neumann’s ‘second chance’, particularly when set against wider discussions about venture capital’s lack of diversity. In 2021, venture capital enjoyed a record year with $330 billion of funding in the US. However, only 2% of this figure went to female-founded teams. The trend has continued, with only 1.9% of US venture capital received by female founders in 2022 so far.
Similarly, in Q2 of 2022, black-founded start-ups received less in aggregate than Adam Neumann received in a single agreement with Marc Andreessen – $324 million vs $350 million.
The opposing argument is that many entrepreneurs, who have demonstrated that they can run a successful business go on to run other successful businesses, an idea often termed ‘cult of the founder’. Notable examples include Elon Musk, who was involved with PayPal in its early stages before going onto found Tesla, Jeff Bezos who launched zShops as a competitor to eBay before founding Amazon, and Reid Hoffman who created SocialNet prior to LinkedIn.
In between leaving WeWork and founding his new company Flow, Neumann had been involved with a number of other projects. One of which was his large investment in real estate start-up ‘Alfred’, comprising of a $20 million injection in October 2020 and a second unknown investment in 2022. Between the two dates, Neumann’s power on the board was diluted and his attempt to acquire Alfred blocked by a new funding round. It has been suggested that Flow was set up as a response. The two have similar business models as start-ups working to establish communal living in residential buildings.
With investment of $350 million from venture capital firm Andreessen Horowitz and a valuation of $1 billion, Flow is now Alfred’s greatest competitor.
Talking Points: How would you address these questions in an interview? What other challenges do venture capital firms face over the next few years’?
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