WeWork: Silicon Valley’s Most Delusional Company

WeWork never committed accounting fraud on the scale of Enron or WorldCom. What makes it worth examining is what it shows about how a company can lose $1.9 billion in a single year, file a prospectus describing itself as a physical social network that elevates the world’s consciousness, and still come within weeks of a $47 billion IPO. This is what happens when the money is large enough that the lying becomes institutional — when everyone in the ecosystem needs the number to be real.

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How Adam Neumann Turned a Real Estate Business Into a Tech Story

Adam Neumann was born in Israel and arrived in New York in 2001. He founded WeWork in 2010 with his business partner Miguel McKelvey, leasing floors of office buildings and subdividing them into coworking spaces that small companies and freelancers could rent by the desk or by the month. The idea was good. Flexible office space was genuinely in demand. The early business made sense.

What went wrong was a combination of Neumann’s ambition, SoftBank’s money, and a valuation methodology that bore no relationship to the underlying economics of real estate.

Why Was a Real Estate Company Valued Like a Tech Company?

WeWork signed long-term leases — often 15 years — and rented space to members on month-to-month terms. The company had fixed, long-term obligations and variable, short-term revenue: in an economic downturn, members cancel their memberships while landlords do not cancel their leases. As of 2019, WeWork’s long-term lease obligations totaled approximately $47 billion against 2018 revenue of $1.8 billion, against which it lost $1.9 billion.^1^ The company had raised approximately $12.8 billion in venture funding, with SoftBank’s Vision Fund as the primary backer at roughly $10.3 billion.

That valuation required believing that WeWork was a technology company, not a real estate company. Technology companies command high multiples because software scales cheaply. WeWork’s costs scaled with its revenue — more locations meant more leases, more build-outs, more employees. The technology framing was marketing, not economics.

What the Prospectus Actually Said

When WeWork filed its S-1 prospectus with the SEC in August 2019, the document became an event not for what it revealed but for what it claimed.^1^ The prospectus described WeWork’s mission as elevating the world’s consciousness. It introduced a metric called “community-adjusted EBITDA” that excluded lease costs, marketing costs, general and administrative expenses, and stock-based compensation — essentially, most expenses — to produce a profitability figure that bore no relationship to standard financial analysis. It disclosed that Neumann had trademarked the word “We” and then sold the trademark to WeWork for $5.9 million, returning the money only after public outrage.

The prospectus also disclosed that Neumann owned buildings WeWork leased from him, that he had borrowed against his WeWork shares at enormous scale, and that the corporate governance structure gave him ten votes per share versus one vote for other shareholders — meaning he could not be removed by investors.

Institutional investors who read the prospectus declined to invest. The IPO was postponed in September 2019 and then abandoned. Within weeks, WeWork was running out of cash and Neumann was forced out as CEO in a negotiated exit that paid him approximately $185 million in consulting fees and allowed SoftBank to buy back his shares at a premium. WeWork went public in 2021 through a SPAC at a $9 billion valuation — an 80% decline from its 2019 peak — and filed for bankruptcy in November 2023.

Who Paid While Neumann Left With $185 Million

SoftBank lost approximately $14 billion on WeWork. Masayoshi Son described the investment as an example of “bad judgment” during a 2020 earnings call. The Vision Fund’s institutional investors — including Saudi Arabia’s Public Investment Fund and the Abu Dhabi Investment Authority — absorbed proportional losses.

WeWork’s employees were more directly affected. The company laid off approximately 2,400 workers — roughly 19% of its global workforce — in November 2019, even as Neumann walked away with his exit package.^2^ Workers who had received equity compensation as part of their total pay found it worthless. WeWork had also terminated hundreds of cleaning, security, and maintenance contractors before the IPO announcement — reportedly to improve financial metrics — and these workers received no severance.

WeWork’s story is about the venture capital ecosystem’s willingness to suspend ordinary analysis when the story is compelling enough and the backer is powerful enough. SoftBank’s investment validated WeWork’s valuation, and WeWork’s valuation made other investors reluctant to question it. Investment banks competed aggressively for the IPO business, which meant producing optimistic projections. Everyone with a seat at the table had a fee to collect. The people without seats — the employees, the contractors, the smaller investors who would have bought shares in the IPO — were the ones left holding the bag when the story ended.

This dynamic — in which the most vulnerable participants in a financial deal absorb the losses of the most powerful participants’ mistakes — runs through FTX, Theranos, and every other case in this series. The mechanism differs. The outcome doesn’t.

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Sources:

1. WeWork Companies Inc. Form S-1 Registration Statement. Securities and Exchange Commission, August 14, 2019.
2. Brown, Eliot. The Cult of We: WeWork, Adam Neumann, and the Great Startup Delusion. Crown, 2021.
3. Son, Masayoshi. FY2019 Q4 Results Presentation. SoftBank Group Corp., May 18, 2020.
4. Konrad, Alex. “WeWork Cuts 2,400 Jobs.” Forbes, November 21, 2019.