deal they’d planned was off. Neumann was stunned and upset, and
still desperate for cash. He managed to negotiate a revised $2 billion
deal. Still feeling pressure for more capital, Neumann made another
fateful move. On December 28, 2018, he filed confidential documents
registering We Work for an initial public offering.
Neither man knew it at that moment, but the move started a death
clock ticking. On August 14, 2019, We Work, which had rebranded as
the We Company, released its IPO prospectus, a public documentation
of the company’s history of questionable management decisions and
its poor financial state. Five weeks later, battered by the markets, bad
press, and mounting pressure from inside the company, Neumann
postponed the offering; a week later, he resigned as CEO. In a little over
one month, he’d gone from preparing to celebrate a $65 billion IPO to
being ousted from a company teetering on the brink.
The fallout from We’s collapse has been brutal. With cash running out, it has scrambled to secure new financing. It is laying off
thousands of employees, who bought into Neumann’s promise of
higher purpose and even higher stock options. For them, Neumann
is an archvillain. While they send out résumés, he is walking away
with up to $1.7 billion, part of a final deal he negotiated with Son in
late October 2019 to step off the board and cede his control over the
company. Son, still atop SoftBank, has the most to lose now. He has to
turn We around and justify putting $18.5 billion into the company. He
is also in the midst of trying to raise a fresh $108 billion to invest in
new startups. But potential partners and investors are questioning
his judgment: How could Son have been so wrong about Neumann?
The implosion of We is about more than bad billionaire behavior.
It has exposed the innards of a deeply flawed system, one that im-
pacts billions of people around the world. Venture investing—once a
bit player in global financial markets—is now the major force behind
the companies and technology reshaping nearly every aspect of hu-
man existence. It impacts how we work, move, live. It causes investors
to push founders to grow their companies at breathtaking speeds,
dominate markets, snuff out competitors. Entrepreneurs, boosted by
money, adulation, and skyrocketing valuations, have willingly com-
plied. Amazon, Apple, Facebook, and Google set the standards and
pace for how to win market share, at all costs, even at the expense of
human rights, democracy, privacy, and fairness. At We, Son’s money
and backing enabled Neumann’s worst instincts to flourish. One We
executive recounts a meeting where Neumann openly discussed build-
ing We into a “monopoly.” When the executive pointed out that the
word implied unfair, potentially illegal, business practices, Neumann
shrugged and said that in the future he would call it something else.
In reporting this story, I spent hours talking to dozens of executives and insiders at
both We and SoftBank, many of whom asked
not to be named for fear of retaliation from the
two companies involved. I also interviewed
Neumann on the record twice before his
IPO plans were publicly announced. Stories
shared with me by those who lived through
We’s rise and fall paint an indelible portrait
of a charismatic but flawed man, his powerful
benefactor, and how their strange, complicated relationship ended in shambles.
PLEASE SMILE AT STRANGERS
“He saw me speak onstage,” Neumann told
me one morning last winter, recounting his
thought you knew
in startups is wrong
THESE VC TRUISMS HAVE NOT
AGED WELL—AND EXPLAIN THE
MINDSET THAT PRODUCED WEWORK. “Founders first” “Software is eating the world”
The food-delivery service used customer
tips to subsidize its
own payments to contract drivers. Questions persist as to the
viability of the business model, especially
if its workers are
classified as employees, as a California
law attempts to do,
starting in 2020.
This setup overcorrects the previous norm of replacing founders after raising a Series A funding round. Subsequent “innovations” gave
founders super-voting control as a matter of
course and let them sell shares during funding
rounds with no effect on their power.
Young founder-CEOs should not be replaced
by professional managers or lose board
control, because they’re uniquely suited to run
companies in the internet and mobile era.
Markets such as real estate have different economics than, say, media and communications;
having an app does not mean that you can
produce high margins like a software company
or deserve a tech-company valuation.
Businesses and industries are increasingly
being run on software delivered via the internet.