Adam Neumann, the co-founder of WeWork and its previous CEO, has had a career trajectory that many have likened to the rise and fall of unicorn fantasies. Andreessen Horowitz, a legendary venture capital firm, has provided the entrepreneur, whose fall from grace has gained global notice, with a financial lifeline.
On Monday, it was announced that Neumann’s new business, Flow, had received the largest single check to date from Andreessen Horowitz. To paraphrase Neumann, “the secretive company is aiming to revolutionise real estate (again),” but instead of commercial properties (which WeWork focused on), he is looking into revamping rental properties. The New York Times reports that Horowitz has written a check for more than $350 million, giving the as-yet unlaunched business a valuation of more than $1 billion. (Andreessen Horowitz denied further comment, and Flow didn’t immediately reply to a request for comment.) How the deal is structured in terms of stock financing vs debt financing is not made apparent.
Early-stage investors, whose job it is to back eccentric founders with high possibilities of success, have a wide range of opinions despite the lack of information. Even though Neumann’s second chance is being given at a time when women and people of colour are having a harder time than ever getting startup money, some would argue that this is precisely what the venture asset class is for.
Is past performance the only factor?
Neumann’s performance at WeWork is subjectively evaluated in different ways by different people. The company’s culture has been under a lot of scrutinies recently. While Neumann may have blown investor money on frivolous endeavours like a wave pool and kegs of beer for the office staff and his wife’s vanity school project, he wasn’t on the hook for the company’s demise before its long-awaited first public offering.
Under Neumann’s leadership, the firm’s value dropped from a high of $47 billion to a low of around $8 billion. Due in part to his financial irresponsibility, WeWork had to lay off thousands of workers in 2019, and his investors ultimately forced him out as CEO. They still compensated him handsomely for his departure, though, with an exit package valued at over $1 billion.
WeWork’s unsuccessful IPO was analysed in retrospect with a focus on the most outlandish aspects of his vision, such as his intention to “elevate the world’s consciousness” and his reporting of “community-adjusted EBITDA.”
Late in 2021, the business made its public debut through a SPAC, but at a significantly reduced valuation and with far less excitement than had been expected. Rare Breed Ventures founder McKeever Conwell told TechCrunch that even though his organisation invests in seed and pre-seed firms, its investors reaped rewards from their first funding of WeWork.
To paraphrase, “At the end of the day, Adam is a white person who established a firm and received a multibillion-dollar value. Was there some sort of deceit involved? Sure. That he screwed up somehow? Sure. However, “what I think people forget is that if you were an early investor, which we weren’t, you still got rewarded,” Conwell added.
Conwell explained that a firm like a16z would be willing to put their faith in Neumann because of his track record of establishing a multibillion-dollar real estate business, which is something that VCs place a lot of importance on during the seed stage.
If we study the lives of great tech startup founders, we find that many of their most significant achievements didn’t happen right away. Conwell put it this way: “It’s like their third, fourth, or fifth company [that succeeds].
Conwell tweeted that asset allocators put a lot of money into “safe” investments when things are bad because of human nature. As he pointed out, it appears that a16z is making that very calculation with its bet on Neumann.
“Firms like Andreessen are only going to be focusing on a narrow pocket [of prospects] where they know they can generate money… This document serves as a strategy guide. As a tried-and-true strategy, it’s a product they can confidently provide to financiers. The same script is always used. Even if they don’t modify it, we’ll still win,” Conwell added.
Redesigning the rental housing sector is not a novel concept. Common is a co-living company that manages a portfolio of apartments and residences and has raised over $100 million in venture funding. Ironically, the company now runs one of WeWork’s old WeLives, its dormitory-style alternative to apartment rentals.
Former CEO and co-founder Brad Hargreaves told TechCrunch in an e-mail, “whatever you think of Neumann, WeWork was inventive and created the sector.”
Hargreaves stated, “I believe we are going to see more ‘asset-heavy’ venture partnerships arise.” “VCs” (if they can still be called that) “have plenty of capital to deploy,” and “major transformation in some industries” won’t come from “light-touch software innovation,” Hargreaves argued.
While doing so, Hargreaves gave the impression that Neumman’s new arrangement is quite lucrative. About Greystar’s recent purchase of Alliance Residential for $200 million, he remarked that the size of the check is “hell of a preference stack to layer over this kind of organisation.” Alliance Residential has ownership over 110,000 apartment units. Despite owning 1.5 billion units and dozens of trademarks, FSV, which provides property management services, is only valued at $6 billion. Although it is unclear what proportion of the cheque would be borrowed money and what would be equity financing, he believes the deal is unlikely to be structured like a standard venture agreement.
“This is one of the biggest, most renowned organisations out there and I just cannot understand,” Brodock told TechCrunch. “It’s as if somebody got up and thought, ‘How many boxes can I tick that take us backwards?'”
Scroobious’s founder, Allison Byers, cited a muted wrath as the driving force behind her platform’s mission to diversify startups and make entrepreneurs more venture backable.
There’s a feeling of resigned resignation and a hint of powerlessness. Alternatively, “it’s like the pain we’ve all endured is so commonplace at this point that it no longer has the same impact,” she added in a Twitter direct message to TechCrunch. Those who have only recently become aware of the structural problems with VC funding may find this shocking, but we’ve been dealing with it for decades.
According to Byers, “I can’t let it overtake my day [because] I’ve got my typical load of female founder crap to do.”