[DebtDeflation]

> Mr. Neumann, who has purchased more than 3,000 apartment units in Miami, Fort Lauderdale, Atlanta and Nashville, aims to rethink the rental housing market by creating a branded product with consistent service and community features. Flow will own and operate the properties Mr. Neumann had bought and also offer its services to new developments and other third parties. Exact details of the business plan could not be learned.

> In the case of Flow, the business is effectively a service that landlords can team up with for their properties, somewhat similar to the way an owner of a hotel might contract with a branded hotel chain to operate the property.

In other words, a Property Management Company. There are literally thousands of them out there. This is an industry that has existed forever. It's also largely non-scalable. But he's going to somehow remake the industry by offering consistent branding like paint colors, deco schemes, and coffee service. Why exactly is a tech-focused VC interested in this?

[pclmulqdq]

Thinking about this from a good faith perspective, I would assume the VC wants to get some exposure to the property market while still pretending to be a "VC" fund. Alternatively, this might be a bailout of sorts after Adam Neumann's crypto-based carbon trading platform went bust (along with $70 million from AH).

It's hard to look at this from a charitable perspective, though. Adam Neumann is basically Elizabeth Holmes, so I don't know why people keep giving him money.

[rzwitserloot]

From time to time you see the entire executive body of a large firm, or sometimes even _all_ executive bodies from all firms in a certain market segment, do something that makes you go: Hmm. Odd. Sure seems like they are oblivious morons from where I'm standing and I don't think I'm judging based on hindsight either.

I usually assume that I must be missing something. But AH is making it real, real hard to figure this one out. What in the fuck has crept into your brain if you think this is a good idea?

SV VCs love saying that it is about the person/team and their experience more than the idea. Okay. It's Adam Neumann, so, swing a dead cat anywhere on the planet and you'll hit someone more capable than that clown.

The idea is also rather basic. So, what happened here? How's this good for AH? Some sort of harebrained scheme where by _them_ giving Adam Neumann money, it means AN can plausibly be called 'a successful businessperson', and thus it makes AH not look like a bunch of fucking idiots who got conned?

Talk about throwing good money after bad.

[mamonster]

I mean you can say all you want but basically a lot of the VCs that interacted with him have no problem publicly stating that he is the best salesman they ever saw.

Money that he lost in WeWork is not coming back, but the sales talent is still there. Taking "a water under the bridge" approach isn't unreasonable if AH is genuinely convinced he is that good at selling shit to people.

[pclmulqdq]

I guess the way to convince a VC that you are a good salesperson is to sell products in a large competitive market (office space, ride sharing) subsidized with their cash. Being able to sell VC-subsidized real-estate isn't exactly a test of your sales skill. That was the value proposition of WeWork over Regis or other competitors: they offered higher quality spaces for less money because they could afford to do it at a loss. You don't need any skill to gain market share by taking a loss in a competitive market.

He is very good at selling VCs on investments, but honestly, it seems like that has more to do with having a big vision that you can promise them and not having the moral scruples to evaluate whether that vision is feasible. We see this with Elon Musk on his series N or O for SpaceX, and it looks like Adam Neumann is next.

[mamonster]

You are misrepresenting what WeWork was and wasn't. The way you put it above makes it seem like WeWork business model had no positive unit economics at any scale and only survived through VC injection. That is absolutely not true.

WeWork's value proposition in the beginning was that Neumann(or the designer he hired) legitimately knew how to redesign/refurbish what was essentially a lackluster, old office building and make it seem like a great office. That part of WeWork was legitimate and Regus did not know how to do that(Regus still doesn't do that, at least in Europe). Now their big problem of having long term obligations with essentially short term cashflows was still a problem, but the unit economics at that stage were positive.

What set everything on fire was the fact that when they were injected with enormous amount of capital they essentially ran out of bad real estate in the markets they were in(this was the case in New York) and started going into the deluxe office buildings, where a WeWork facelift wouldn't do anything.

I can't remember the exact talk, but I saw a talk recently by some VCs that basically made the very interesting point that in certain businesses too much capital that has to be invested will eventually destroy the unit economics, and the 2 examples were Lyft and WeWork.

But yeah, the idea that WeWork didn't at some point have a legitimately differentiated, valuable offer that wasn't due to VC subsidies is not true.

[pclmulqdq]

What I mean to say is that WeWork does have positive unit economics, but that the net present value of the cash flows from their investments in buildings would never be anywhere near the amount of the initial investment (on a risk adjusted basis) used to generate those cash flows.

That doesn't mean WeWork has a bad product (they have a great product due to the capital available to spend) or bad unit economics (most of those investments are probably decently cash flow positive), it just means it's a bad business.

This is a case where "unit economics" doesn't tell the full story.

[rogerkirkness]

VCs I've met feel Adam Neumann is one of the best at pitching of anyone they have ever met or are aware of, like the GOAT of fundraising. That has massive value, and in theory you could insulate them from operational things that need budgets.

[specialist]

I worked at a startup that had a GOAT level sales person. We understood we needed this person to succeed, enterprise sales to a nascent market segment required a lot of persuasion and tenacity.

Unfortunately, sales dominated orgs lead to terrible technical and operational challenges. (Whereas Neumann's efforts are dominated by fund raising.)

Like our sales GOAT, I imagine Neumann is similarly unfamiliar with objective reality. And otherwise unteachable.

I kinda get it. For Neumann's part, he's wildly successful, awash in cash. And has somehow avoided the consequences of his terrible decisions.

Another example of Failing Upwards.

[pclmulqdq]

In theory, theory and practice are the same. In practice, the people making the pitch have never been insulated from operations or technology. Either their egos get too big for a split to work or they actually start to believe their own bull. This is a fantasy that has never happened before, and while it would be nice, it is not real.

[xhevahir]

Yes. "Believing their own bull" is the whole secret of Neumann's or Holmes' salesmanship.

[elp]

> Adam Neumann is basically Elizabeth Holmes.

That made me laugh. The similarities are there down to the strange quirks meant to make them both seem more interesting. Elizabeth has her husky voice and turtlenecks and Neumann has that barefoot in New York thing.

In both cases the early insiders made out that like bandits and I'm assuming that's exactly why they are getting checks now. Everyone is well aware this is nonsense but they are all hoping to offload on greater fools coughretail cough.

I would expect them to also acquire a couple other property companies for massive valuations that will turn out to also be worthless.

Definitely popcorn worthy.

[chadash]

> Adam Neumann is basically Elizabeth Holmes...

With one big difference. I've worked in a WeWork. I know many people who have. The product is real and it did fundamentally change the idea of coworking (you ever heard of Regus before WeWork came along?). And I'd work at a WeWork again. It was a great experience.

[wil421]

When I did catering 15+ years ago I went to a quite a few coworking offices. It was nothing new then. Some were sterile offices and others were like WeWork and had a bartender/helpers doing things. The 2 places I remember are still around while the WeWork signs have been removed and offices closed.

[pwinnski]

> you ever heard of Regus before WeWork came along?

Yes? Maybe I'm just old, but I remember them in the 1990s.

Pre-crash articles[0] suggest that WeWork introduced "community" to coworking spaces, which... okay. I guess time will tell whether that fundamentally changed the idea of coworking.

It's no big new discovery that people by and large prefer new things to old things. If WeWork had lasted long enough to become an old thing before imploding, perhaps we would have seen that the difference was mostly that. Or perhaps something actually new did happen, in which case it might now be lost under the clouds of grift and fraud.

0. https://www.forbes.com/sites/forbestechcouncil/2019/06/14/ho...

[thematrixturtle]

Not sure why you're getting downvoted. WeWork is a real business with a real business model that's been making real money, especially now that many companies are downsizing their office space because of COVID. Yes, Neumann is a clown who blew a lot of VC cash on weird shit and made out like a bandit before the party ended, but unlike Theranos, the customers of WeWork did receive exactly what they paid for: flexible office space.

[pclmulqdq]

If you start a business that spends $22 billion and then starts to bring in a few hundred million a year, that's not a great business. That is a bad business.

[pclmulqdq]

Elizabeth Holmes was not convicted of defrauding patients, only of defrauding investors. Adam Neumann has done much the same to his investors.

I would work at a WeWork too. WeWork spaces are great, especially when you compare them to competitors, who didn't burn massive piles of VC cash to make their spaces nice and rent them to me at a loss. That has nothing to do with Adam Neumann, only the money he extracted from investors under false pretenses.

[andreareina]

Nah Neumann was 100% up-front about WeWork, including the self-dealing.

[CPLX]

I will preface this by saying I am not a fan of this guy, like at all. I would never want to be in business with him.

With that said it doesn’t actually seem as crazy as everyone is making out. It’s worth starting with the premise that WeWork is actually a pretty great product. Making office space flexible is in fact something that needed doing and yes some people were banging around on the edges of it but it used to be kind of miserable and now it’s different. I’m a current WeWork member and I use it constantly when I travel and it’s just a pretty well thought out and executed product that fills a need.

The same issue still exists in the rental market. Getting an apartment is also a bit of a nightmare. Yes property managers exist but if I could go through some kind of centralized process or membership and then live in Miami for 4 months and then Los Angeles for 4 months or whatever I could see a lot of value in that.

The proposition here seems pretty straightforward. Again I think the guy is a bullshit artist but it’s not like it’s impossible to see how this could be a favorable investment.

[pclmulqdq]

WeWork is a great product because it is a subsidized offering in a competitive market. The piles of VC cash that were thrown into WeWork spaces are things that Regus and other competitors cannot do, because they have to make money.

Competing with WeWork in office space is like competing with Saudi Arabia in oil production: the Saudis have slave labor keeping oil prices down, and WeWork has VC cash keeping their office prices down. However, this doesn't mean that WeWork will ever turn the corner to repay investors the billions they have lost on it.

[mbg721]

This feels like online businesses around 2000, where people have identified the problem and know the tech they can use to solve it, but the companies trying to do it aren't the ones that can make the business side stick.

[notahacker]

Feels more like a classic late 2010s bubble "tech" business.

A business model that's been around for years, is minimally affected by tech, the guy proposing to build a "tech company" out of it is a self-dealing conman and the VC's exit strategy is presumably to achieve rapid growth by selling below cost price before offloading to greater fools who think the advantage over incumbents is a tech moat, not VCs underwriting losses

[mbg721]

Being in the business of extracting oil from snakes is one way to fail, but that doesn't mean there isn't a viable market there.

[CPLX]

Exactly. I was around back then too. It is pretty hard to make a user experience seamless and there’s a lot of industries where the user experience is needlessly complex and inflexible. The fact that it hasn’t been fixed yet doesn’t really prove it’s impossible.

The rental apartment market is just obviously one of those industries.

[lnxg33k1]

I mean but how is it practically different from airbnb?

[CPLX]

Because Airbnb is not a platform for long term rentals.

They’re trying of course but it’s a different product.

[onlyrealcuzzo]

Importantly, it seems the consensus is that Neumann ran WeWork pretty terribly, and also bordered on scammy the way he bought buildings himself and then leased then to WeWork.

The interesting thing about VC investors is that they don't seem to care at all if a company can actually succeed. All they seem to care about is if the person their investing in can raise a larger round - which, somehow, Neumann probably can without problem.

[pwinnski]

There were tons of other REITs when WeWork launched, and most of those didn't burn more than $10B on fraud.

Neumann will brand these apartments, and enough people will feel excited to be living in a "Flow" apartment to fill them up (it's not like the US has enough spare housing to let that many apartments sit empty at even unreasonable prices), and Neumann will convince a lot of people that he's doing something different than every other property management company out there, while people at competing property management companies scratch their heads and think no, he isn't.

Then it will come crashing down as everybody slowly realizes that Neumann has been lining his own pockets and that in the end, this is just another property management company, worth no more than the properties they hold.

There might be another movie or miniseries about the process, too. Because apparently people can't get enough of being conned by Neumann.

[popcorncowboy]

Haha, I'm only laughing because if you swap "Property Management Company" with "Managed Office Space" in your sentence you could have been talking about WeWork.

[DebtDeflation]

Didn't AN's wife have a side project in the WeWork days focused on residential? I know she had one focused on schools.

Just looked it up. She did. It was called WeLive. The school one was WeGrow.

[TradingPlaces]

> Why exactly is a tech-focused VC interested in this?

My strong suspicion is that this involves tokenized rent payments on a blockchain, and that a16z is looking to make their money back on the tokens. Never underestimate is cynicism of a16z.

Keep in mind that a16z participated in A-series on the Neumann Flowcarbon tokenized carbon credit scheme just in May. That is already dead

https://businesscloud.co.uk/news/in-crypto-adam-neumanns-flo...

[TradingPlaces]

Yup.

https://www.forbes.com/sites/davidjeans/2022/08/17/adam-neum...

[rwmj]

Regus had been doing managed offices since at least the 1990s but that didn't stop his previous business from attracting vast amounts of money.

[nradov]

Flow will probably also have an app where residents can pay their rent, and complain that the dishwasher is broken. So there's the tech focus.