The spectacular implosion of the WeWork initial public offering (IPO) in the United States has forced a hard-eyed look not only at that company but the entire technology capital ecosystem. Critics note again that the WeWork story is another case of hype and attitude overwhelming hard work and accomplishments, where enthusiasm swamped evidence. Subject to scrutiny, WeWork succumbed to reality, its founder and chief executive was forced from office and the most glaring abuses of the IPO rectified. But, it is worth remembering, ultimately, the system worked.

WeWork was founded in 2010 by Adam Neumann and Miguel McKelvey as an “eco-friendly coworking space.” Neumann proved to be a dynamic and engrossing entrepreneur: From a single shared office in the SoHo district of New York City, he turned WeWork into a global behemoth that operates in 111 cities around the world, has over 525,000 members and more than 12,000 employees. It is the largest private office tenant in Manhattan, the second-largest in London (second only to the British government) and the fourth-largest in San Francisco. Within a year of entering the Japanese market, it had opened 11 locations across the country and anticipates tripling that number by the end of 2019. Real estate investors have noted the impact of WeWork, pushing up land and office building prices in parts of Tokyo.

Neumann sold the company as the future of work. It leased buildings and prepared them for sublet to individual tenants — small business, startups and freelancers — who could not afford permanent office space. But WeWork is more than just an office: It is an experience, offering everything from professional training to personal relaxation, with all the accoutrements of daily work and life (coffee, yoga) thrown in. Neumann liked to say that WeWork sought to “elevate the world’s consciousness.”

Initially, investors were intrigued. Softbank’s Masayoshi Son provided more than $10 billion in funds, calling WeWork “his next Alibaba” — a reference to a $20 million investment that paid back $50 billion when it went public. As WeWork began preparations to go public, initial valuations reached $47 billion.

The prospectus for that offering was eye-opening and deflating. The company was a huge landlord, but that created sobering operating expenses — $50 billion in lease commitments — and no guarantee of revenue from armies of freelancers that could not afford long-term commitments of their own. The figures were not reassuring: WeWork’s revenue increased to $1.8 billion in 2018, but the company lost $1.6 billion that year. According to projections, WeWork needed $3 billion in cash to get through 2019. Despite $12 billion in investments, it had never reported a profit.

In addition to financial issues, there was the problem of Neumann himself. The prospectus noted that he ensured his continued control of the company through a special class of shares and the power to fire the board of directors; he had used some of his WeWork stock to secure a $500 million personal loan; he owned four buildings that WeWork was paying him to lease; and he was paid nearly $6 million for the trademark “We,” which the company had recently adopted. (Those funds were returned after the resulting uproar). In addition, there were tales of adolescent behavior that raised questions about his judgment. Hanging over it all, however, was a board that did not rein him in.

The furor that greeted the prospectus prompted the shelving of the IPO, the slowing of expansion plans, the prospect of layoffs of as much as one-third of the company’s workforce and Neumann’s decision to step down and his replacement by two co-CEOs.

The WeWork failure is not unique. It follows similarly lackluster IPOs by ride-sharing companies Uber and Lyft, and that of Peloton, the stationary bicycle manufacturer that considers itself a technology platform as well. Neumann is another “bad-boy founder” like Travis Kalanick, who was forced to step down as head of Uber after reports surfaced of his abusive behavior. Yet for all the flaws in WeWork’s ambitions, the system worked. Public scrutiny laid bare the gap between WeWork’s aims and its reality. WeWork is, despite the hype, a real estate arbitrage, and should be valued accordingly.

The experience also raises questions about Son and his investment strategy. The Alibaba bet cemented his reputation as a bold and far-sighted investor: He speaks of a 300-year plan. Doubts are now emerging about his second Vision Fund, which is working to raise another $100 billion for disruptive investments. WeWork is the most recent flameout of his big bets: If a reworked IPO only fetches $10 billion as some analysts anticipate, Son will lose money on the deal. To be a success, Son does not need every investment to be “another Alibaba” but he must be able to see through the hype. He may have been seduced by Neumann, but the market was not.

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