The WeWork Con


Posted by Ed 53 days ago
The $47 billion WeWork implosion is proof that the rich are the biggest suckers of all.
During the so-called golden age of The Simpsons, the town of Springfield had three distinct faces, each of which is a beautifully complex and ambivalent take on populism. Most ugly and misanthropic is Springfield the Mob, a suspicious, bloodthirsty hoard of angry villagers driven collectively and primarily by their own conformity, rage, and libidinal cruelty.
This is the Springfield that drives snakes into the center of town just to beat them to death for sport, or that gets swept into vicious sanctimony by media sensationalism to stalk and pillory an innocent man.

More social and humanist is Springfield the Good, a more or less righteous town of merciful egalitarians who unionize and strike to fight capitalists, or even march as one toward certain death rather than sacrifice a single member of their community (not even the most obnoxious one).

The most narratively rich iteration, though, is Springfield the Suckers. These are bumpkins, rubes, marks. They are impulsive fools, and all it takes is one charismatic huckster like Lyle Lanley (voiced by the late, great Phil Hartman) for them to invest in a costly (and deadly) monorail. In the classic episode “Marge vs. the Monorail,” Sucker Springfield is a cautionary tale against the dangers of unchecked populism as much as it is a warning against scams, but are the raucous masses really the easiest marks for would-be scammers?

In the recent spate of high-profile American scams, it’s the ultra-wealthy who have been most easily (and egregiously) swindled, and often by the most obvious of swindlers. There was Elizabeth Holmes, a bellowing weirdo and genuine monster who bilked millionaires and billionaires like the Waltons, Betsy DeVos, Carlos Slim, and Rupert Murdoch into investing in her company, Theranos.
In 2015, she was celebrated as the youngest “self-made” woman billionaire (girl power!), just before a Wall Street Journal exposé revealed that her blood-testing “technology” was medically impossible, and that it very well could have endangered lives with false results.

Then there was Billy McFarland, who got a boatload of money from the likes of fashion executive Carola Jain, wife of Credit Suisse managing director Robert Jain, and then got a bevy of fashion models like Bella Hadid, Kendall Jenner, and Emily Ratajkowski to promote his disastrous Fyre Festival on Instagram.

Most morally defensible was phony heiress Anna Delvey, who managed to achieve near-folk-hero status, mainly because she lived large, tipped well, and refused to apologize during her trial (a woman after my own heart). Also, almost poetically, she only ripped off the stupid and wealthy to fund the sort of high-concept “private club” that only makes sense to rich socialites.

WeWork, though . . . WeWork has to be the biggest, dumbest scam in American history. 


Ed 53 days ago

Ed 53 days ago
The Rise and Fall of WeWork
Employees look back on a wild ride in Unicornland. 

Ed 52 days ago
See Who Gets Exposed When You Pull the WeWork Thread
Japan’s megabanks have tied their fate to Masayoshi Son. His $9.5 billion rescue package for the struggling unicorn makes them mighty nervous.
In Japan, Masayoshi Son is revered. So much so that banks line up to fund his spending sprees, even though lending to SoftBank Group Corp. is already pushing their limits. But the $9.5 billion bailout package Son has put together for WeWork may have been the last straw.

There are already signs of trouble. Part of that rescue was supposed to be a $3 billion tender offer for WeWork stock, which SoftBank is now trying to shrink without much success. Part of the thinking was to limit the payout WeWork founder Adam Neumann gets, as resentment builds among employees who are facing massive job cuts, Bloomberg News reported last week.

Yet it’s equally possible that SoftBank is having a tough time with financing. Mitsubishi UFJ Financial Group Inc., Japan’s biggest bank, is likely to turn down Son’s request for a 300 billion yen ($2.8 billion) loan, the Financial Times reported. 

Ed 52 days ago
Is Soft Bank a Self-Funding Ponzi Scheme?
The success of Vision Fund depends on bidding up valuations of unicorns then dumping them onto public markets in the form of IPOs.
That's how the fund and SoftBank make money.
And the big question: What if everyone has finally figured out that Son's SoftBank and Vision Fund are just a self-funding Ponzi scheme that relies on IPOs to cash out. It's only when the IPO market shuts, as what happened with WeWork, the scheme unravels. 

Ed 32 days ago

What Really Went Wrong at WeWork


There is a standard story of WeWork, one that I frequently tell around here, that goes like this: Certain investors, particularly nontraditional venture investors like SoftBank Group Corp.’s Vision Fund, love to invest in fast-growing money-losing companies.

Rapid customer growth is the main thing they want, and if that growth comes by losing money on every sale, well, that’s something to figure out later. The growth is the important thing; once you’ve achieved world domination by selling the product at a loss, you can find ways to make money from your large and locked-in customer base.
Some big investors in private companies believe something like this, and they set the price in private markets, but the big investors in public companies don’t especially believe it, and they set the price in public markets.
And when the fast-growing money bonfires try to go public, either it’s a disappointment (Uber), or it’s a disaster (WeWork). WeWork reached a $47 billion valuation on private-investor optimism, and then crashed into public-investor skepticism.

This weekend the Wall Street Journal had a big story on WeWork that suggests an alternate view of the company, one that goes something like this:

  1. Private investors really like fast-growing companies that also make money, for fairly straightforward reasons; and
  2. WeWork was a fast-growing company that lost money; but
  3. WeWork just told investors that it made money.


I’m oversimplifying a little. You can’t just tell investors that you make money when you don’t. (I mean, you can, but it is frowned upon.) But you can get strangely close.
“We made money last year” is either true or not.
“We expect to make money next year” is a forward-looking statement and gives you some wiggle room.
“We are in the process of making money this year” is … eh, look, I don’t recommend messing around with this, but WeWork sure did:

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