And for the VCs it has often worked out. If you're fast enough to get something IPOed before the bubble pops, who cares if there's a real business model?
Personally, as somebody who thinks actually delivering value is important, I'm delighted that this era of easy money and massive hype might be ending. Hopefully companies soon will have to be able to actually turn a sustained profit before IPO.
And I don't know about you, but I'm immensely enjoying WeWork's fall. It never made any sense, and since the wheels came off before the IPO, it's not retail investors who are taking the loss here.
I agree with everything else, but I'm not a fan of this modern era of schadenfreude that seems to be ever present on tech sites. Theranos and WeWork were certainly fraudulent enough to laugh at, but it's created this effect of fraud-voyeurism that feels more tabloid than news; more celebrity gossip than business news. It also encourages shallow misunderstandings. Real estate can be a profitable business, and certainly many developers turn a profit by reasonably financing and pricing their offerings. But a lot of people are opining about WeWork being unprofitable. Unprofitability is not the same as an exaggerated market cap.
Still, I hope Theranos and WeWork are good, cautionary tales of the downsides of easy money.
I have spent years having to endure the horseshit from places like Theranos, WeWork, and the entire cryptocurrency industry. I knew it was horseshit. The people spouting it could have known it was horseshit if they had bothered, but they did what was in their short-term interests without regard to harm to others.
I am going to enjoy seeing them get whatever paltry and belated comeuppance that karma visits upon them. If they ever suffer as much pain as they've inflicted, I might change my tune, so feel free to come back to me then. But in the meantime, I will enjoy whatever sense of justice served I can extract.
[1] https://knowyourmeme.com/memes/we-should-improve-society-som...
You can just not read the articles. Your sense of mistreatment seems out of proportion.
It was fairly obvious the musical chairs had stopped, and yet he managed to sell his standing-only-spot at chair-valuation.
SoftBank should be sued by its investors over that farce.
https://nypost.com/2022/08/15/wework-founder-adam-neumann-sc...
WeWork is unprofitable, but mostly because we’ve known for hundreds of years that paying long term liabilities (e.g. leases) with short term funding is a model that quickly goes belly up.
I equally don't like the schadenfreude as you, but I also equally don't like the propping up of ridiculous business models like WeWork and Juiceros of the world that the media does.
Live by the sword, die by the sword.
Publicity giveth, publicity taketh away.
The schadenfreude does not happen in a vaccuum. Silicon Valley is addicted to the Steve Jobs messiah narrative, which is why they constantly deify 'personality' CEOs like Holmes, Neumann, Kalanick, Musk, even out and out frauds like SBF.
You do not see gloating about people getting busted for PPP fraud, because those are anonymous nobodies, that have not had a PR machine behind them pushing Galt-esque tales about their exploits and soapboxing their bizarre ideas about the future of millions, dreamed up from their NYC penthouse bubble.
If you dress someone up as Superman, there will be chuckles when he's found out to be a guy in muscle suit wearing his underwear on the outside.
There's not a lot of clarity about what value they bring to the table (since the companies that pay their salaries are often unprofitable) and it's not always obvious what work they actually do (hence the prevailing meme that no one works at FAANG).
Of course, the reality is that numerically, most tech workers don't work for FAANG or hot startups, but public perceptions are usually colored by the most visible subgroup, which happens to be overpaid startup bros.
forgive the link, i guess the original tiktok was deleted.
The period of exuberance will return wearing different clothes.
It sure does give me a really good and warm fuzzy feeling about the stability of our economy to see VCs repeating the same hyped up exaggerated valuation and bubble that was already done in the 1995-2000 era "dotcom 1.0" boom and bust cycle.
You sound like me in 2001 or shortly thereafter.
I disagree with this characterization of WeWork. Were they extravagantly blowing money on stupid things? Yes. Was the CEO directly enriching himself through his leadership? Yes. However, the business of being a landlord and renting office space is a pedestrian and profitable venture. It’s just not a sexy startup idea worth billions.
The food delivery startups accept payments, take their cut, and pay out to restaurants & drivers. From a purely financial viewpoint they're paying out a lot of money, perfectly normal in VC land. But they are also taking in an absolute mountain of money, and if you squint, can all look quite a bit like top-line revenue. If you then slice open the business operating costs, and look at how much it costs them internally (accounting only for salaries, rents and operating costs) to service a delivery, the per-unit revenue/cost figures are off the charts.
Physical retail intake, and virtual goods unit production costs. What's not to drool over?
It was an interesting point - and being thoroughly cynical, likely based in reality.
In a recession a real commercial landlord has existing tenants on long-term leases, limiting their downside. But WeWork's big selling poing was flexibility, so even if the pandemic hadn't happened I think the next recession would have wrecked them. And that's before we get to how it was basically a giant bet against remote work.
I put that as the CEO self dealing. He purchased buildings and rented them out to WeWork. Had WeWork purchased the buildings themselves, the model would have been on far firmer footing. Again, I agree there was too much glamorous spending and living in the limelight, but landlords can obviously turn a profit if they keep the expenses reasonable.
While they'd avoid having to pay rent in empty units, they'd still not any leases
WeWork was not operated in a way to succeed. I am only taking issue with the notion that the core business model (renting real estate) is flawed. Had there been a willingness for modest, organic expansion and not jet-fueled-VC-hypergrowth, the company could have succeeded.
Right, but that’s what Adam Neumann did for himself, then made WeWork his tenant.
Neumann is collecting the rent. WeWork is paying rent.
He took the profitable part out of the company and gave it to himself (for a subset of properties, at least).
That’s the scandal.
Matt Levine had a great theory on this. It basically boiled down to:
"If I wanted to short the VC market how would I do it?"...and basically point to what Adam Neumann did:
I can’t quite say that Neumann improved the allocation of capital, but there are certain parallels. Neumann too … look, here I am speculating, and I don’t mean to speak for Neumann’s subjective experience of his WeWork career, but from the outside, in hindsight, objectively, one could describe it like this: He spotted a bubble in venture-subsidized fast-growing money-losing capital-intensive low-margin tech-adjacent companies, noticed in particular that SoftBank seemed to be on the long side of that bubble, and set himself up to profit on the other side—by raising money for his own ultra-unicorn, by setting up the governance of that unicorn in a maximally self-interested way, and by selling and margining a bunch of his personal shares. 6 When investors like SoftBank were frenziedly buying unicorn stock, he was frenziedly selling it. He set himself up to profit from the collapse of the unicorn bubble, and accelerated that collapse. Lessons were learned, and he taught them. Now he’s rich.
https://www.bloomberg.com/opinion/articles/2019-10-23/how-do...
If you actually believed that your employer had a promising business opportunity, the rational thing to do is to raise capital and compete with them, not go work for them. This is why salaried employment is a market for lemons, and a fair bit has been written about this in economic literature.
All of these businesse can easily be profitable. Shared offices have been a thing forever and easily turn handsome profits. As do cab companies, courier companies, restaurants...
What isn't possible is turning in enough profits to justify the mammoth valuations.
Holmes is in jail, SBF probably on his way, but that Adam Neuman, for what it worth, is apparently not accused in any fraud. He's "just" a failed founder that costed his investors $$$, not unlike many, many others.
They'll invest in a series of companies, as those companies are failing, they'll buy them out with one of their successful companies (possibly a later stage investment, cheaper in a less costly market) then the once successful company also can't survive.
On paper, it looks like they have 3-4 successes to balance out their one failure. For their personal portfolio, it's also great too, and helps them raise more money.
If they're really successful, they'll oust the CEO of one of the once successful but in down market companies, really boost their shares; and if lucky that investment will exit.
Amazing to see how efficiently some of the biggest grifters exploited this dynamic to funnel money straight from investors and into their own personal net worth, while building businesses that couldn't have possibly been profitable. It didn't matter, though, because they needed the sense of scale and growth to continue grifting investors.
WeWork, Theranos, and FTX are widely known examples. Two of those founders acted criminally and have been arrested. Neumann was shockingly good at perform open-book grifts that benefited himself, but investors looked the other way.
One of my favorite stories from this era is Pipe, a fintech company with a business model that didn't really make sense to anyone familiar with their industry. They raised hundreds of millions at multi-billion dollar valuations, then the entire founding team of 3 people just stepped down: https://techcrunch.com/2022/11/22/pipes-founding-team-steppi...
They're trying to spin it as a narrative about being 0-1 builders, but it's hard to take them seriously when 3 people are stepping down simultaneously right after getting a huge bump to their personal wealth. Raising money was their goal, building a perception of a successful business was only useful as far as it supported transfers from investors to their bank accounts. Would be fun to see how much they sold in secondaries.