The fall of Adam Neumann is the logical endpoint of Silicon Valley’s unicorn bubble

Image: AP Photo/Mark Lennihan
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Adam Neumann almost got away with it.

For years, he convinced private investors that WeWork, a company that leases space from landlords, renovates it, slices it up into offices, and rents them out at a premium, was worth more than every other office-rental company. It was Neumann’s charisma, conviction, and unfettered ambition—he has spoken about WeWork Mars, running for president of the world, and becoming the first trillionaire—that built WeWork into one of the world’s most valuable startups, with operations spanning 111 cities in 29 countries.

Then, in August, WeWork filed for an initial public offering, and in doing so exposed a raft of curious and troubling details about the inner workings of the company, which rebranded earlier this year as The We Company, or We.

Some, like the $900 million WeWork lost in the first half of 2019 and the outsized control co-founder Neumann wielded, were par for the course for a buzzy private technology company these days. Others, like rampant self-dealing—Neumann owned several properties he leased back to the company, received personal loans and a credit line secured by his WeWork stock, and sold the trademark to “We” to the company for $5.9 million when it rebranded—shocked even jaded startup observers.

Further reporting revealed Neumann’s very un-CEO-like conduct: how he smoked marijuana on a transatlantic private jet flight, handed out trays of tequila shots after mass layoffs, and made impulsive, sweeping decisions like a company-wide ban on meat with little to no rationale.

Last week, WeWork shelved its IPO after reports that the company’s valuation could fall as low as $10 billion, a dramatic plunge from its last private valuation of $47 billion. But the final blow came today, when WeWork said Neumann was stepping down as CEO, effective immediately. Neumann will stay on as non-executive chairman of the board, while two top internal executives—Artie Minson and Sebastian Gunningham—become co-CEOs.

“While our business has never been stronger, in recent weeks, the scrutiny directed toward me has become a significant distraction, and I have decided that it is in the best interest of the company to step down as chief executive,” Neumann said in a statement.

Neumann has lost more than a title. The Wall Street Journal reported  that he is also ceding majority control of the company, with his voting power slashed to 3 votes per share, down from 10. (His voting rights were previously reduced to 10 votes per share from 20 in WeWork’s initial IPO filing.) He has lost the backing of Softbank, WeWork’s biggest cheerleader and investor, which began calling for his ouster over the weekend. He may even have lost a $500 million line of credit, provided by the banks underwriting WeWork’s IPO and secured by his own shares.

Travis 2.0

The stunning rise and fall of Neumann echoes the trajectory of Travis Kalanick, the brash co-founder of Uber who built a multibillion-dollar company and then was pushed out by his board in 2017, amid multiple sexual harassment scandals and federal probes into the company’s conduct. Once the full extent of mismanagement at Uber and WeWork became clear, investors and the public were quick to turn against both Kalanick and Neumann. But before it all came out—the scandals, the self-dealing, the wildly inappropriate conduct—those same investors embraced the co-founders for their vision and audacity.

Arrogance, ambition, a blatant disregard for the rules, and fondness for “pissing people off” cost Kalanick his job. It also made Uber great. Boldness, grandiosity, zeal, and ambition bordering on megalomania convinced many people to invest in Neumann’s WeWork, and also, eventually, that he had to be removed from it.

Venture capitalists, the gatekeepers to success in Silicon Valley, often talk about investing in people not ideas. In recent years, as financing has flowed to a select group of startups in ever-bigger rounds at ever-greater valuations, the cult of the founder has grown as well. More power, more money, more unshakeable certainty in their own right to total control over their company. WeWork is the logical endpoint of this: Silicon Valley’s great unicorn bubble. Neumann’s wildest ambitions found a fellow traveler at Softbank, whose enigmatic CEO Masayoshi Son showered him with cash and told him to make WeWork “ten times bigger than your original plan.” (Yes, WeWork is based in New York and not technically part of Silicon Valley—but its rise directly follows a Silicon Valley playbook and involves many of the same principal actors.)

Neumann became inseparable from WeWork, not only in his financial dealings with the company but in the minds of his investors and himself. “WeWork is me, I am WeWork,” he said in May. WeWork said the same in its IPO filing, albeit in more restrained, lawyerly language. “Our future success depends in large part on the continued service of Adam Neumann, our Co-Founder and Chief Executive Officer, which cannot be ensured or guaranteed,” the company wrote. “Adam has been key to setting our vision, strategic direction and execution priorities… If Adam does not continue to serve as our Chief Executive Officer, it could have a material adverse effect on our business.” WeWork is in that future now.

Whatever you think of Neumann’s conduct—savvy salesmanship, inspiring bravado, tone-deaf ignorance, blind faith—it makes perfect sense in a world where WeWork is me, I am WeWork. In the system set up by Silicon Valley and reinforced by its most powerful investors, Neumann and WeWork were the ultimate synergy, mysteriously increasing each other’s value. Neumann set the vision, collected the checks, preached the gospel. He went to great lengths to arrange things—power, money, connections—in his own favor. And why wouldn’t he? There were no barriers to his behavior, or interest in setting them up. So long as the company grew and its valuation rose, he was winning.