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WeWork shows why some venture capitalists are in a world of make-believe

Until recently the image of an entrepreneur was of a thrifty workaholic toiling away in a garage. Then came the “founder”, as epitomised by the flowing-haired Adam Neumann of WeWork, an office-subleasing firm dressed up as a tech giant. More emperor than entrepreneur, he wanted not merely to start a business but “elevate the world’s consciousness”. He sought limitless funds. He broke norms. And he generated losses as fast as he raised revenues.


He was not unique. Like other charismatic founders, such as Travis Kalanick, co-creator of Uber, a ride-hailing service, he tripped over his own billion-dollar ego. On September 24th Mr Neumann was ousted as chief executive of WeWork’s parent company, by his board, including his backers at SoftBank, the Japanese group, and its $100bn Vision Fund, which together own 29% of its shares. Days earlier the company’s initial public offering (ipo) was postponed because of weak demand for its shares and the Wall Street Journal reported that he smoked pot on private jets. He will be replaced by two co-chief executives.


In such cases, attention invariably focuses on the founders’ hubris. Their rise and fall is the stuff of bestsellers. But it is the venture-capital industry that helps spin the invisible yarn that creates the legends. Some of its biggest names, such as SoftBank, have been peddling valuations of companies like WeWork that border on the absurd. In their competition to fund the biggest deals, they have been in thrall to founders’ excesses, rather than providing sober adult supervision. Good, then, that exposure to the dowdy stockmarket is at last knocking sense into Silicon Valley’s moneymen (for they are mostly male).


The folly begins with a sound idea. Startups need scale to become global champions. Thanks to the internet, ideas spread quickly. Because of network effects, the more people use a service, the better it gets. The fastest-growing firms, like WeWork and Uber, “blitzscale”, meaning they attempt to disrupt a whole industry before anyone can stop them, raising fortunes to acquire users. The pioneers of this, such as Facebook in America and Tencent in China, have become so valuable that everyone wants to emulate their success. At its height this year, WeWork was valued at $47bn, a staggering amount for a company which last year lost $1.9bn on revenues of $1.8bn. That is more than ten times the market capitalisation of iwg, a rival with bigger sales—and a profit to boot.

屈直的举动每一每一源自于听起来不错的设法主意。守业公司须要范围效应来成为举世冠军。有了互联网,设法主意流传患上很快。由于网络效应,应用某项供职的人越多,那项供职便会越好。那些倏地增多的公司如 WeWork 以及Uber在闪电扩大,象征着在其他人阻遏他们曩昔,他们可以大概大概碎裂摧毁全部行业,




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When venture capitalists jostle with each other to write cheques of $100m or more on a daily basis, it goes to a founder’s head. As is now common in Silicon Valley, Mr Neumann demanded more power for himself and his heirs via supervoting rights. He engaged in potential conflicts of interest, listed in the firm’s ipo prospectus. The mountain of venture money available, including from mutual funds, enabled his firm to stay private for nine years, almost three times longer than the average tech startup in 2001. It entrenched bad habits.

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