Tuesday 06 Jun 2023
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This article first appeared in Wealth, The Edge Malaysia Weekly on September 26, 2022 - October 2, 2022

Author: Reeves Wiedeman

Two figures have left a lasting impact on the younger generation of entrepreneurs: ­Steve Jobs, co-founder of Apple, and Masayoshi Son, founder of SoftBank Group, who made his fortune from investing in early-day start-ups like Yahoo! and Alibaba. There is no doubt the duo has inspired millions of young people to dream big and go far.

A famous quote of Jobs’ is: “The crazy people who are crazy enough to think they can change the world, are the ones who do.”

However, not all “crazy people” under their influence have changed the world for the better. Elizabeth ­Holmes, founder of biotechnology start-up ­Theranos, was so obsessed with Jobs that she would often don a black turtleneck (Jobs’ favourite attire) for talks and interviews.

Adam Neumann, co-founder of ­WeWork, aspired to replace Jobs in the tech world and became a behemoth in the co-working space after receiving billions in funding from Son. After raising billions from investors, the duo who vowed to change the world were later accused by many of being liars. 

Billion Dollar Loser: The Epic Rise and Spectacular Fall of Adam Neumann and ­WeWork — written by Reeves Wiedeman, now contributing editor for New York Magazine — tells the story of how Neumann, a nobody with a humble family background from Israel, made his way to Silicon Valley largely through personal charm, rhetoric and bold action. 

Compared with Bad Blood: Secrets and Lies in a Silicon Valley Startup, written by John Carreyrou, Wiedeman tells Neumann’s story more from the perspective of an observer, instead of an investigator in the middle of the storm. He interviewed multiple people to piece together the ups and downs of Neumann’s entrepreneurship journey and the controversies surrounding him and WeWork.

Wiedeman analyses various events through the lens of a journalist and points out what went wrong back then, but was not realised or was tolerated by the experts and broader public due to market hype, excitement and the fear of missing out. The stamp of approval by Son, seeing him pour billions of dollars into WeWork, helped project Neumann as a rare visionary in the start-up world, prompting many to trust him. Perhaps, too much.

It is rather interesting to read some comments made by Neumann to the author during their interview. Those comments could be seen as witty and smart, or vague and absurd at best, depending on how you feel about him.

During an interview, Neumann called his company’s online platform the WeOS, a twist on Apple’s IOS, which is quite smart and punny. However, he also said that the company’s mission is “to elevate the world’s consciousness” and “unleash every person’s superpower”, which is lofty and could mean little.

I enjoyed Bad Blood more as Carreyrou shares more first-hand investigative experience in his book and was involved in clashes with Theranos’ lawyers who, at the time, were attempting to silence or intimidate people who were sharing insider information with him. The tense negotiation between Carreyrou and the editors of The Wall Street Journal and Theranos’ high-powered lawyers was dramatic and very relatable to journalists like me. 

Lessons from the book

But one thing I like about Billion Dollar Loser is that the author takes a pause in between events to point out the red flags that investors would have missed or ignored back then. This allows the reader to learn numerous lessons from the book without second-guessing the author’s hidden messages. 

For instance, Wiedeman questions why Neumann kept WeWork private for so long. “He kept the start-up long enough for Son to invest in it in a Series G funding round. Jeff Bezos raised just one Series A round of venture capital before taking Amazon public while Mark Zuckerberg got to a Series E.” Was Neumann afraid of public scrutiny and trying to buy time? True enough, Neumann and WeWork had a hard time preparing for an initial public offering and halted its listing plan in 2019. 

According to the author, the greater fool theory can be more conveniently applied to start-ups and private companies. While these companies have the advantage of being less affected by market price fluctuations, their valuations could be lofty due to illiquidity. A start-up only needs to find one new investor to put in some money at a higher valuation and its overall valuation would be lifted and it would look good in the eyes of the wider public. The newly attained valuation might not be reflective of its actual value.

Venture capitalists (VCs) make investments based on their judgement of the character of start-up founders, especially those whom we call visionaries. However, these judgements could be made based on gut feelings, which can go terribly wrong.

Son invested in Neumann and WeWork as he saw a visionary in him despite objections from his subordinates. He had been right several times in the past, but not this time. Son’s Vision Fund would eventually lose billions on WeWork. The author points out that the conventional wisdom of traditional investors, who are more cautious and emphasise financial numbers and ratios, should not be ignored when investing in start-ups, especially when they grow bigger at the later stage. 

Wiedeman also draws a parallel between WeWork and Theranos. “Both organisations depended on charismatic founders and stratified layers of information that left lower-level employees to hope that, somewhere, an adult was running the numbers. 

“Theranos had no doctors on its board; WeWork had no one from the world of real estate. WeWork employees took comfort in knowing that they provided a tangible service that customers like, not blood tests that never really worked in the first place. But it gives them a creeping dread to watch their counterparts at another high-flying start-up find it increasingly hard to explain what exactly their company did.” 

In fact, it is sobering to see how WeWork, with billions of dollars from Son, expanded into so many different areas unrelated to its core business. It struggled to explain how it operates and the controls put in place when preparing its IPO documents. 

I think Billion Dollar Loser is a nice “sequel” to Bad Blood. One can find similarities between WeWork and Theranos and learn valuable investment lessons from both. I read the book mostly at night after work or over the weekend. It is fluently written and easy to understand. Goodreads, an app for book tracking, recommendations and reviews, gave it a score of 4.1/5 with 9,395 votes (as at July 22).

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