Froma Harrop: Betting billions on bizarre businesses

Froma Harrop: Betting billions on bizarre businesses

{{featured_button_text}}

What can you say about "sophisticated" investors who would pile billions into a startup whose 40-year-old founder walks the streets of Manhattan barefooted and says his company's mission is to "elevate the world's consciousness"? Did I mention that his enterprise has yet to turn a penny of profit?

We speak of Japan-based SoftBank and other investors who believed in WeWork after swallowing much of its "yoga babble." They thought that its creator-pitchman, Adam Neumann, was touched by the eccentric genius of a Steve Jobs. Why was never clear.

In actuality, WeWork is in the mundane business of subletting office space. You or I could gain control of an office area and divide it into sections to rent it out.

What Neumann did was offer communal seating where freelancers could hug one another over cups of excellent coffee. Popcorn could be ordered as well as meditation sessions. Thus, WeWork became one of Wall Street's storied unicorns. A unicorn is a privately held startup valued at over $1 billion.

Of course, you or I also could have designed hip working spaces and portrayed them as a revolution in 21st-century work-life-whatever. We also could have issued a prospectus that opened, as WeWork's did, with "We dedicate this to the energy of we — greater than any one of us but inside all of us."

Eventually, investors began figuring all this out. And they started fleeing.

The amazing thing, though, is that they took this guy seriously for so long. How could allegedly smart money people put so much faith in an exhibitionist whose history and behavior suggested he is a crackpot, con artist or both? For starters, Neumann had already chalked up a string of business failures — among them a company marketing collapsible high heels.

Then there were his six extravagant homes, some almost next door. They included two superpricy homes in Manhattan, a large farm in the nearby Westchester exurbs, two fancy mansions in the Hamptons and a large estate in California's Marin County. Most of them underwent expensive renovations. Neumann and his wife were said to be recently scouting properties on Kauai island in Hawaii.

The money for all this luxury presumably came from investors believing in his visionary powers. The magic started fading when WeWork attempted to raise billions more by issuing stock to the public. The problem with public offerings is that they require companies to share certain unflattering information heretofore kept secret.

Let's set the scene. Neumann was surfing in the Maldives when the business types in New York were putting together the initial public offering document. Refusing to cut his vacation short to join them, he instead had a lower-level WeWork employee join him in the Maldives to brief him.

The prospectus disclosed the company's ugly losses and its questionable path for making a profit. It also revealed how much of a fortune the founder was siphoning off.

This story happens again and again. Elizabeth Holmes raised hundreds of millions from investors for Theranos without ever having issued an audited financial report. Scott Galloway, a marketing professor at New York University who coined the term "yoga babble," cited the Peloton fitness bicycle phenomenon.

Peloton called itself "an innovation company transforming the lives of people around the world."

"No," said Galloway in response, "You sell exercise equipment."

SoftBank is now bailing out what's left of WeWork. Neumann has been relieved of his duties, although not before arranging a $184 million consulting contract and the right to sell nearly $1 billion of his WeWork shares to SoftBank.

SoftBank's investors are now worried about SoftBank. They would seem to have reason.

Follow Froma Harrop on Twitter @FromaHarrop. She can be reached at fharrop@gmail.com

0
0
0
0
0

Be the first to know

* I understand and agree that registration on or use of this site constitutes agreement to its user agreement and privacy policy.

Related to this story

Most Popular

In today's information age, the average person can empower himself or herself with knowledge like never before. But there is one notable exception: Most Americans have no idea what a health care service costs before they get it. If we expect to lower health care costs, that must change. Companies in every other industry compete for consumers on the basis of cost and quality. Decisions made by ...

  • Updated

You just clicked "place your order" to purchase your item and now you wait for the package to arrive at your door. You're done with a few simple mouse clicks, but the work has just begun at UPS warehouses and distribution centers across the country. Especially during the holiday season. It's no simple task making sure the onslaught of orders get to people's doorsteps on time. To make it happen ...

Once again Iranians have flooded their country's streets to participate in widespread protests sparked by gasoline price hikes, only to be met by a brutal crackdown. But clearly the unrest was about more than the price of gas, reflecting deeper frustration and anger over the general economic malaise caused by a corrupt, repressive government and punishing U.S. sanctions. During the protests, ...

Whenever there is a mass shooting, two questions are repeated in the news and social media: Did the shooter have a history of mental illness? And why weren't warning signs identified earlier? These questions reflect the barriers to better mental health care. Questioning whether the shooter ever had mental illness reinforces the false idea that some people experience mental illness while the ...

We learned last month that three men, incarcerated for 36 years in Maryland, were exonerated of the murder of 14-year-old DeWitt Duckett. This tragic failure of our criminal justice system is a shameful stain on our nation, and the reverberations of this miscarriage of justice will be felt for generations. Though finally free, these men will experience numerous challenges as they reenter their ...

Get up-to-the-minute news sent straight to your device.

Topics

News Alert

Breaking News