Why WeWork's Founder is Still Rich - Company Forensics

this growing this company faster than Google or Alibaba or Amazon is not the founder of weor this is actually Jared L but this is the found weor weor is going to make the low side the new silicon Val and he's worth $1.7 billion as we are shooting this video while we work Shares are work filing for last night bankruptcy 11 Banky protection in New Jersey we work is set to file for bankruptcy we were filing for chapter 11 bankruptcy protection aside from the fact that one played the other these two men are more connected that you might think cuz Adam Newman is is the epitome of startup show uh but I think we're great and I think we're preparing for the Road show right now he is the single reason why wework was at some point worth $47 billion and why now it's worth nothing $100 million right before they fil for bankruptcy in November but this hasn't stopped Adam or investors from giving him $315 million more for his newest startup now why do people like Adam get away with this stuff like is he method acting his way to success and why is this character so irresistible to Silicon Valley investors I want to dissect this fake it till you make it culture of startups through the story of perhaps the biggest fake in the history of startups for people outside of this startup Circle ecosystem Silicon Valley can seem a bit like a pony scheme and there's a perfectly good reason for that cuz investors pour millions of dollars into businesses that don't make money they convince others to join series a and series B and if things go as planned the company goes public and then everybody can invest too if you cash out in time you're great and that's kind of how Ponzi schemes work okay I was really nitpicking examples there to make a point but the point is you can you can draw that comparison and Adam Newman is a prime example of why those narratives can be created so here's a quick timeline of wew work just to get ourselves on the same page it's 2010 and in SoHo New York City Adam Newman and Miguel Meli get together to open the first Wei work just a single location at first but they managed to build this Aura this this screen that this was the place to be if you're a startup founder I basically went and got a desk at the first Wei were and they have a Facebook group and I go and I write a post hey I'm looking for a back-end developer blah blah blah blah blah and somebody pops over the screen and he goes are you pe by 2012 we were wasn't just growing it was evolving they raised $17 million in a series a funding from Benchmark capital and then expanded to San Francisco and Los Angeles and it was a hit like entrepreneurs and Freelancers were flocking to these offices every new location is fully booked before it launches before it opens with weit lists and real hype about being part of this EX exciting Community I was actually running my first company back in 2012 currently being incubated in New York City by dream adventures and we hope to raise money by the end of the year we were looking for a lease on like a sub lease on a small office just a couple people and I vividly remember seeing a paper a paper pamphlet of rigus and it was so corporate and so boring I don't want to go work there I want to be surrounded by people like me right and that's what we work was selling by 2014 we work hit a valuation of 1.5 billion after a series defunding of $355 Million by Goldman Sachs and R price and a bunch of other people the point is the buzz is real wework is now in Seattle and Washington DC and Boston by 2016 wework's Global footprint is unmissable 14 new locations and 2 million square ft by the end of the year they launch in London and Berlin and Shanghai beyond that a Series F funding of $700 million already values the company at 10 billion and then a 20 billion valuation coming from SoftBank with their latest round and then 2018 continuing with this aggressive operation Tokyo and S Paulo and Johannesburg the company is a symbol of modern work culture a Titan in the co-working space and then finally in 2019 like the climax of this story softbank's Vision fund pours $3 billion and now values the company at 47 billion 1 million square ft that we work space I don't want to see your death I don't look for companies I look for Founders weor is now in over 100 cities worldwide and it it's a brand synonymous with Innovation and Community the game of venture-backed startups is world domination if you'll become the market leader in an economy you stand to make billions of dollars I'm in the Empire business getting there requires burning through a lot of money very quickly but it's by no means unheard of look at what Amazon has accomplished over the years or you can hate Mark Zuckerberg all you want but MAA is a huge profitable company it's running some of the biggest social media Platforms in the world and for years has created billions of dollars in value for investors and for advertisers not not for teenagers though but the point is that it's an extremely successful business and for many years it didn't make a single dollar which goes against all business logic right for the website to start generating Revenue advertising no old business 101 Theory from from your college professor seems to break with tech startups especially when there's seemingly unlimited money and sometimes there is and Adam was or is still an expert at playing this game it's a mix of the right connections look at everybody who was part of the PayPal Mafia and and and the companies that they started it's a mix of bluffing or faking it to until you make it but it's also a bit on the character like I I've met investors for example who like to run Myers Briggs personality tests on the founders that they plan to invest in because they prefer a certain type of founder Persona and it's no coincidence that well-funded startup characters and well-known startup characters today follows such a predefined and sometimes fake type of persona look at Elizabeth Holmes for example people don't even know inspiring step forward and the character that she played there's also the nerd introvert genius character the one that doesn't really care about money or the showmans build your dreams find yourself and I want you to not be afraid to fail and don't get me wrong like these are truly magnetic personalities and we've seen we've witnessed how even very smart people or at least very wealthy people can fall in love with their personas and their stories and and buy what they're selling Adam's biggest piece of startup theater was his capacity to position wework as this incredible tech company and it was wework was a tech company right I mean they had an R&D team and a very cool app and iPads and beer at the office we were raised money at Tech startup valuations because it was positioned as a tech startup Adam Newman understood that he had to frame the company as a tech startup in order to get away with what he was doing investors bought the story and honestly us entrepreneurs did as well where where do you want to work as a Founder on an office that was built by your peers for your peers or on some corporate building with key cards and carpets and non Artisan coffee but speaking of valuations maybe this is a good time to explain how those work explainer [Applause] time traditionally and legally as for tax purposes a business valuation is a thing that you need to do that looks at company's assets against its liabilities and then it takes in market conditions and Industry and intellectual property the company owns and puts a price on this package a 409a evaluation is a long and boring report definitely not my favorite part of what we do but sometimes startups need it and we oblige but when a startup raises money from investors 49a evaluations are usually worthless let's take weworks series a round for example that was a $17 million round closed on April of 2012 and it valued the company at $97 million this this means that the new round of investors is getting about 17.5% of the business in exchange for the cash that they invested now if you want to geek about those metrics a little bit more what effectively happens here on a transaction like this is that the company is issuing new shares the company's pre-money valuation plus the capital makes the company's post money valuation in this case assuming wework had issued 15 million shares to date this transaction would mean 3 million and some shares addition Al that get created at a price per share of $533 by the way this is all a screen cap over our cap table template it's a free download if you ever need it for your own cap table I just link drop the link below now the question is was this business worth $100 million at this point it only had one location which was a lease they didn't even owe the building and then as a contract a lease is an expense it's a liability it's not an asset and then the only assets that this company owned were the furniture some laptops and that's it I mean they did have hundreds of startups on this subscription and a weit list which maybe generated a few million dollar in Revenue per year but definitely not a $100 million in Revenue so how is this company worth so much starter valuations are mostly based on what might happened instead of what the company is today because if this company realizes its potential and becomes the market leader then the company should be acquired or become a publicly traded company Facebook's series a investors for example they paid about $6 per share and then when the company went public it was worth six times that today those same Shares are worth 60 times what those investors originally paid so the business of venture capital is about multiplying these Investments if all you do is collect a small percentage of the profits that correspond to you every year it's going to take years to recover any investment a lot of risk a lot of capital and slow payback usually don't mixed together it's much more exciting if the company scales really fast gets acquired or goes public in a few years and then you can cash out of those shares so that you can reinvest that money and do it all over again and that is in a nutshell The Venture Capital game and wework played it really well cuz up to this point the only people invested in wework had been through Adam's web of Enchantment private investors that he had probably pitched himself now as they prepare to go public and they released their S1 filing which is a public disclosure on the company status that you have to do when you're going to be listed in the stock exchange the world had a chance for the first time to look at what wework was a very inefficient expensive non-te real estate company burning through millions of dollars with no chance of turning a profit ever and we work went from the most exciting IPO of the year to becoming the laughing stock of the tech world the amount of losses that the company is notching the amount of cash that it's burning through overinflated too much money thrown in and look what happened to we were holy cani got from 47 billion to less than 10 this is a disaster for something working we don't want that deal I wish they would just go away we crash portrays that episode in the story almost as comedy but honestly it wasn't too far from the truth their reaction after the S1 document went public was so bad that it forced the company to cancel the IPO plans and it forced Adam to leave the company and then all of these investors hoping for a Payday would have to wait pray cross their fingers not to mention employees who also had stock options and who were waiting for that payday it's more than I made last year after taxes we did an IPO last year dude but Adam's Fortune was different than everybody else's the public disclosure revealed some really shady things for example he had trademarked the word we and then he had sold it to his own company for $6 million in shares while Adam's net worth was made up of mostly wew work shares he had used those shares as leverage to get loans from Banks about $432 Million worth of loans and then he used part of those loans to buy off his buildings and then Le them out to Wei word that's textbook conflict of interest and if the investors wanted to recover any credibility some Market interest for the company some of the 20 billion that they had poured into Adam they had to get rid of him that did not come cheap cuz as part of his exit Adam got $185 million payment for a non-computer agreement $106 million for a settlement payment an extension on those $430 million loaned and when the company finally went public in 2021 SoftBank was contractually obligated to buying half of his shares $480 million and they did Bloomberg estimated that Adam received $770 million in cash by the time we work went public in 2021 and he still held another $700 million in weor stock granted this might have been worth what 20 billion at some point but I mean it still turned him into a billionaire I don't want to be a billionaire I want to be a trillionaire we don't know if he sold any of that any of those shares but we do know he committed $350 million of his money to his new company along with another $350 million investment from Andre and horns this $350 million check to Adam Newman is the single largest check that they've written and it values this new company at over $1 billion in a world where the one place is is the new solution where work and living has been integrated Flo has only two choices compete or partner forget 409 a like this valuation is a pipe dream because this company is it's nothing at least today it's it's nothing the thing was announced over a year ago it it was said that it was going to disrupt real estate in the US we've heard that before over a year later all we know is what's on the landing page which is this so again why why does he get away with it so I I met an incredible Underdog founder um last week the underdog founder if you will adrio went from selling guavas in his native Dominican Republic to selling his company to MasterCard last year um it was an incredible story of of resilience Against All Odds very captivating and very relatable in in many ways but Adam on the other hand I'm going to need to increase our personal line of credit not by much just a bit to give us a little breathing R started his first company with a $500,000 loan from his sister and it's much harder to relate to that kind of money just to get started whatever mix of variables family money connections Ivy League schools under your belt the color of your skin your immigration status raising money is very tough but it seems to come easy to the atoms of the world despite everything there are some statistics in his favor starting for example with the fact that he's a repeat founder Founders who have started a company before take less than half the time to their first VC round compared to firsttime Founders 80% of unicorns had at least one co-founder who had started a previous business and repeat Founders have access to more Capital quicker and better valuations than newbie Founders regardless of how their previous businesses did that's the important part that's the important part because Adam Newman created billions of dollars in value and it seems that being able to do that is worth something it's worth more than the fact that they also destroyed the that value or in case of Wei work maybe that value didn't really exist in the first place also investors seem to ignore the terms in which these Founders leave their companies Travis Kaling for example the founder Uber has already raised $850 million for his Cloud kitchen startup even though he was ousted from Uber very unceremoniously not too far from Adam they blame everything email for card good luck and this is a shitty catch22 situation to be in as a Founder because how can you be a repeat founder if you can't even get started the first time how can you get started the first time if you don't have $500,000 to borrow from your friends and family it's easy to get stuck in that narrative especially as a minority founder but what is the point of just feeling sorry for yourself yes the truth is US minority Founders or or immigrant Founders we have to play a little bit of catchup but let's not forget the other half there's an intangible aspect to Adam's Persona we're not here by mistake an aspect that doesn't get computed in the numbers the showman are we starting yeah we'll just start and then I'll get a fish okay you got you get he's not in your picture the game of raising round after round of funding the game of making people think that your company is worth multiples of what it should be the game of always be selling the game of method acting this startup founder Persona the Infectious personality hold on make a path make a path we're all going to sing together now are you ready or the nerdy genius or or the Unicorn founder Persona everybody scream for most companies for most Ventures The Gatekeepers of the capital that you need to build your business are people who play by those rules people who see hundreds of Founders and thousands of pitch decks every month and remember that if you're raising Venture Capital this investor that you're talking to is one of dozens of investors that you'll need to convince in the future every investor judges you by your capacity to convince not only them but the next run of investors and the next run of employees that will have to quit their jobs and come join you in your company and your vision and your pipe dream and don't get me wrong like this is not this is not about being dishonest or disingenuous it's not about lying about your metrics or hiding your data it's living and breathing this idea that your company will succeed even though sometimes you can't really convince yourself that it will as a Founder you sometimes have to wear this mask you have to carry this weight the millions of dollars and the dozens of people that have placed this weight on your shoulders to carry out to the destination that you promised them and it's brutal and it's exhausting but it is part of the startup game and and Adam played it so well he created this cult I say we you say work we we around this personality for employees for investors it's a cult that allowed him to run weor unchecked and to abuse his power as CEO but capitalism seems to have rewarded him rather than punishing him and so don't be Adam but understand that if you want to operate in the VC world you do need to take a few notes from Adam's character and if you want to stay on top of a funding rounds and Trends and new Adams coming to the spotlight you should subscribe to our startup club newsletter it's 100% free and also if you enjoyed this video you should watch our video on the real story of how Mark Zuckerberg screwed his best PR we do this full dive into the numbers and the shares and the contract where Mark outplayed ated water Saverin which is so much not like it happened in the movie we'll see you guys next [Music] week

Channel: Slidebean

Views: 424,688

Keywords: slidebean, company forensics, millennials decoded, tech nomad, wework, wework fail, wework startup, startups, startups 101, startup fail, wework founder, Adam Newmann, Newmann, founder wework, wework series, wework explained, wework bankrupt, bankruptcy startup, slidebean forensics, caya, caya ceo, caya ceo slidebean, wework story, what happened to wework, is wework broke, wework fraud, we crash, wecrash, we crash series, wecrash series

Id: Ro4KM2vJDkY

Length: 19min 47sec (1187 seconds)

Published: Sun Dec 17 2023