Help me understand how this is a coherent argument. I could see making the argument that investors share some of the blame for what the CEO did. How could they have more of the blame?
Obviously Adam deserves the blame for what he did, but if you interpret "this mess" as referring more to the scale of the company in it's current state than specifically the actions of the CEO, then the investors deserve more of the blame. If WeWork didn't have access to all of softbank's capital, there's no chance that WeWork would be trying to do a multi-billion-dollar IPO, and if they weren't trying to do a multi-billion-dollar IPO it wouldn't be much of a problem.
A CEO trying to run a small little nothing company in a weird way isn't a big deal. It's only a problem because of the scale.
I could argue it either way. But I think it's reasonable to suggest that there will always be people who are scammers (or so oblivious that it amounts to the same thing). We've only heard of Adam Neumann because investors gave him billions. SoftBank in particular gave $10+ billion [1], and I understand that's really just Masayoshi Son making those decisions. So I think it's reasonable to give him a lot of the blame for empowering somebody whose business plan appears to have been surprisingly close to that of the Underpants Gnomes [2].
This is the fundamental conundrum. Softbank has invested a total of $10.65B for a 29% stake in a company that (if valued like the commercial real estate firm it actually is instead of the tech unicorn that it isn't) is probably worth $5-6B if we're being generous. Further complicating matters, We is posting losses and burning cash at an incredible rate and will need additional financing in the very near future. It only makes sense for Softbank to continue to prop We up if they believe they can dump it on a greater fool in the very near future, which is looking less and less likely by the day.
WeWorks next finance round was supposed to be $4Bn IPO money + $6Bn loans contingent on the IPO succeeding. Another SoftBank-sized mountain of cash, which is now looks unlikely they’ll get. It’s interesting that it’s the same amount. Maybe this was SoftBank’s planned exit?
Because they decided to invest and never demanded oversight or questioned his voting power with each new term sheet they handed to him?
The point of the board is in part to keep the CEO in check. They had many opportunities to do so well before weeks before the now shelved IPO roadshow.
Yeah, but all that would have been fine if he’d acted responsibly. Obviously giving him that much power is a dangerous game to play, but it doesn’t absolve him of responsibility for his behavior. Ultimately he — not the investors — is the one who built this sandcastle on partying, self-dealing and a cult of personality.
One of the things about blame is that it’s never zero sum, and in this case there’s more than enough to go around.
So what you’re saying is: if someone doesn’t prevent you from doing something, they should shoulder more of the blame than you do for actually doing the thing?
It's a matter of perspective. Your general example sounds like it's from the perspective of WeWork's CEO, who is obviously responsible for his decisions.
But what about the perspective of SoftBank's shareholders? If they're unhappy about this, they ought to be unhappy with the dealmakers at SoftBank for creating a situation where SoftBank is exposed to volatility of this kind.
Take an extreme example. If a VC decided to invest $1b in a lemonade stand run by a 7 year old and the whole thing falls apart, then yes I would blame the VC for not conducting proper due diligence and enabling someone who neither had the right business for $1b or was the right leader to execute on that business in the first place.
>> Yeah, but all that would have been fine if he’d acted responsibly
This is what people say when they give the executive branch of the United States unchecked power to unilaterally do things and sidestep the legislative and judicial branches. Presidents don't always do that sort of thing, and neither do CEOs or.... normal people.
In reality, it is a very good product with slim margins. The reason it is losing so much money is because it is expanding quickly to show that it is a "high growth" Unicorn company.
It isn't that it's a scam, it just puts it is a non-tech/non-SaaS category. Every founder/CEO wants to tell a huge growth story. If private investors are buying that then it's just that they miscalculated, but not defrauded.
There are lots of good businesses that operate on thin margins. They're good businesses, which is why you can divest them to investors who want to run a good business. What they're not are businesses that should trade at anything close to software revenue multiples.
No not really. Again, they lose billions right now because it costs a lot to build out new buildings. Then as a building matures they recoup these costs through the memberships. The more mature offices are profitable. It just isn’t necessarily tech/VC level profits.