Partha Chakraborty-
Avocados, engagement rings, practice of taking bath every day. “Investigative Comedian” Adam Conover is proud to have ruined everything in pursuit of truth behind perception for his TV show “Adam Ruins Everything”. “President of the World” candidate Adam Neumann on the other hand may have ruined it for Vision Fund, not to mention tens of thousands of workers of We. In his quest to “redefine work”, he might just have done enough to put the kibosh on the idea of a Visionary, at least for some time.
Adam Neumann could have been just another reality-bending, norms-defying, hard-partying, and smooth-talking entrepreneur-cum-visionary-overlord-wannabe. After a few unremarkable attempts he hit the jackpot with WeWork, aka We, a co-working-space initiative with cofounder Miguel McKelvey. Theirs was not the first to invent the concept, but theirs was the first to really catch fire.
What set We apart was founders’ vision. Adam, CEO and dreamer-in-chief, not only wanted to disrupt commercial real estate leasing, he wanted to “reinvent work”. Drab floors of commercial wasteland reincarnated as bright colorful play-work spaces where, arguably, play was as important as work, if not more. Feel good slogans, supply of beer on tap, coffee and gourmet treats and other intangibles gave a “member” feeling of being immersed in something big, something happening and important. We was on to something, a typical member would be a solo, or a small team, eking out their own niche in the world, they needed to feel part of a bigger self that in no way limited their own aspirations or identity.
If Adam behaved too much like a corporate Messiah, most members forgave him, willingly. First, inside each of them is a smaller Avatar of same ego – each bet their own livelihood for a bigger cause, or hoped to do so soon. Second, bigger than life persona was complemented by a very successful 24X7 PR campaign, reinforcing the cult of Adam that members signed on to unwittingly. Transgressions were just foibles, a feature inside the bigger feeling of Hallelujah – if Adam wanted to live indefinitely, be “President of the World” and the first trillionaire, it only added to his mystic. On paper at least, We did deliver on his story of growth at all cost, his vision was still alive and kicking.
When you grow too fast, and break too many things, you start to believe such is the norm for posterity; that bravado, arrogance even, can bring you down. We is a poster child of such irrational exuberance. Even if We changed the game significantly, business still remained old-fashioned commercial leasing. To justify spending so much on buildouts, We signed on for long-term leases. For their desired client profile, only short-term leases could work – thereby making We was earn, at best, spread between long term lease obligations and short-term rental of workspaces. On top, addiction to breakneck speed of growth added self-inflicted wounds, including, erratic CEO behavior, unconventional accounting, questionable business practices, and, accusations of self-dealing by the cabal at the top.
Adam was empowered by an emissary from the land of the Rising Sun. Masayoshi Son, born of Korean immigrants in Japan after the War, is a shining example of Phoenix like qualities of rebirth. Completely self-made, he was an early investor in Alibaba of China, and remains a prolific player in venture capital, primarily in technology and telecommunications globally. Most recently his Vision Fund, with USD 100 Billion, is the most important single player in VC industry, 10% of all VC funds invested in 2018 came from Vision. USD 12 Billion of capital inflow into We came from Vision and other Son entities.
When you are a baby, it is perfectly acceptable, adorable and cute to be caught with hands in a cookie jar. When you are aiming for a listing valuation of USD 60 Billion, it is required that you have learned to behave long back. Long story short, We’s brief attempt to list was plagued by revelations in mandatory SEC filing, scandals and accusations that seemed to come out of woodwork, leaving both We and Vision Fund red-faced. We was forced to withdraw in less than a month, replaced Adam as CEO and curtailed his control drastically, among others.
Primary reason of listing was to unlock a line of credit, on top of cash IPO itself was supposed to generate. We is hemorrhaging USD 700 Million cash a quarter, a number reduced somewhat by firing 25% of its workforce after IPO debacle, has 47 Billion of lease obligations and no more than USD 2 Billion in annual revenue as is. Last whispered valuation of USD 15 Billion looks too rosy, a bankruptcy is not out of question. Whoever bails We out with fresh capital will most surely ask for total control to start with, thereby making them less appealing to Adam and Vision Fund which has over 35% equity. Adam is personally liable for USD 500 million line of credit which was supposed to be repaid after IPO, anybody’s guess what happens next. Dreams of Vision Fund 2, timed to follow presumed spectacular success of We IPO, is in doldrums. Vision Fund itself needs to make USD 2.8 Billion in coupon payments each year, just to stay afloat. This year they scraped by with a new line of credit, next year it is questionable. Vision Fund’s business plan of 10-12 IPO’s every year is to be tested henceforth; many of their publicly traded holdings are under water from last valuation. Even with We IPO, if and when later this year, Vision Fund’s streak of 29% annualized return is broken, leaving Son “embarrassed” as he admitted recently.
Son will live well and spring back after the saga, he lost 70 Billion in the dot-com bubble only to emerge stronger and better because of it. Adam will spend some time dealing with questions of impropriety, especially if We folds, but he is to be comforted by the hundreds of millions he already earned by selling his holdings. Vision Fund will also live on, even if Fund 2 never materializes, it is too big to fail. Even We employees will eventually come back though chances are they might rampage through We corridors for the last bottle of Don Julio 1942 tequila, Adam’s panacea, before exit.
Bigger question is – what happens to that Vision thing? If creative thinking can bring fresh air to a warren of shuttered offices, if bright paint and clever positioning can make commercial real-estate leasing seem sexier than shuffled muslin, if someone can make the idea of ‘belonging even as a solo player’ so value added to our ordinary existence, why can they not be called a Visionary? If son of a Korean immigrant to Japan post War can rise up, through sheer grit and panache of an underrated swashbuckler, to become the single most important player in venture capital, would he not be icon of self-made Vision?
Both of them are flawed in their own way, and each will face consequence. “President of the World” candidate Adam Neumann may have ruined it for tens of thousands of workers of We, the firm itself and his backers, including Vision Fund. Masa-an may have been too forgiving not to rein Adam in early on, and he will pay price in loss of face, period of underperformance in the Vision Fund, and, possible loss of Fund 2. All well deserved. If there is any criminal wrongdoing, am sure will be thoroughly researched and answered for.
Adam Neumann just might just have done enough to put the kibosh on the idea of a Visionary, at least for some time. Let the spell be a temporary, otherwise we will lose what it means to be an entrepreneurial change agent, a true disruptor, and, a true engine of growth for the economy.
[Partha Chakraborty, Ph.D., CFA is an entrepreneur in Blockchain and Wealth Management in US and India. Dr. Chakraborty spent two decades in all parts of the Investment Management value chain globally; he lives in Southern California with his family. All opinions are of the Author alone, and do not necessarily represent that of any organization he may be part of. The author alone is responsible for any error or omission.]
