Maureen Farrell10 December 2021

Maureen Farrell on WeWork’s Investments (Podcast)

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Insights & moments

The myth-busts, hot takes, explainers, and tools worth keeping.

Myth Buster· 1

Myth Buster29:53

What “Community-Adjusted EBITDA” Removed from WeWork’s Accounts

WeWork promoted a profitability measure that excluded many of the costs required to create, market, and open its locations. The argument was that mature buildings generated more than they cost and the company could become profitable by stopping growth, but Farrell says that outcome never materialized.

The metric removed substantial expansion-related expenses
Excluded items included build-out, marketing, and opening costs
Management argued existing buildings had positive economics
The measure made a loss-making company appear profitable
The promised profitability did not materialize

“You strip it out and then you're suddenly a profitable Company”
Maureen Farrell · 30:32

“The idea was if we just stopped growing, we could be profitable right now”
Maureen Farrell · 31:15

#accounting#ebitda#profitability#wework#financial metrics

Hot Take· 2

Hot Take12:03

Why Sophisticated Investors Ignored WeWork’s Red Flags

Farrell describes a recurring pattern in which Neumann captivated the senior decision-maker at an investment firm while analysts examining the numbers raised objections. Personal conviction at the top repeatedly overrode evidence showing that WeWork had missed earlier projections.

Investors could compare projections with actual performance
WeWork repeatedly failed to achieve its forecasts
Neumann focused his persuasion on the principal decision-maker
Analysts raised concerns that senior leaders dismissed
Elite institutional reputations did not guarantee rational decisions

“They also saw their projections, and the projections were mythical and they never quite reached them.”
Maureen Farrell · 12:18

“The underlings would look at the numbers, raise all these red flags, point them out, and then the decision maker would say, you know, he's…”
Maureen Farrell · 12:55

#venture capital#due diligence#investing#charisma#wework

Hot Take39:26

The Board That Allowed Neumann’s Self-Dealing

Despite a board filled with prominent financial figures, WeWork tolerated extensive founder enrichment and weak governance. Neumann sold stock early, borrowed against his holdings, lived extravagantly, and engaged in disclosed related-party transactions without effective restraint.

Neumann personally trademarked the word “we” before selling its use to the company
He acquired properties connected to WeWork transactions
He cashed out substantial stock while the company remained private
His conspicuous lifestyle was part of his public allure
Sophisticated directors and investors repeatedly failed to impose limits

“he personally trademarked the word we and then charged the company six million dollars to use it again.”
Barry Ritholtz · 39:39

“he didn't hide, um, the way in which he was living.”
Maureen Farrell · 42:29

#corporate governance#self dealing#boards#founders#wework

Explainer· 5

Explainer05:06

How WeWork Sold a Real-Estate Business as a Tech Company

WeWork’s core model involved taking long-term leases, subdividing the space, and selling shorter-term access at a markup. Adam Neumann framed the company as an in-person social network and attached fashionable technology narratives to it, helping secure valuations unavailable to conventional real-estate operators.

The underlying model was lease arbitrage
Office design and community branding differentiated the product
Neumann repeatedly aligned WeWork with fashionable investment themes
The tech label supported substantially higher valuation multiples

“throughout for the most part, it was this like arbitrage building arbitrage company in terms of getting long term leases and splitting it up”
Maureen Farrell · 08:29

“This was like a social network in person, in real life social network.”
Maureen Farrell · 09:39

#wework#real estate#technology#valuation#branding

Explainer14:56

The Hidden Price of WeWork’s Rapid Growth

WeWork filled attractive offices quickly and demonstrated extraordinary expansion, but it bought that momentum through aggressive and expensive tactics. The company paid elevated brokerage fees, offered competitors’ tenants free rent, and accumulated billions in losses after one early profitable year.

Early customer growth spread virally
Neumann repeatedly achieved expansion targets others considered impossible
WeWork paid roughly double the normal real-estate agent fees
It used free-rent offers to recruit competitors’ tenants
Rapid revenue growth did not produce durable profitability

“They were going to competitors and saying we're going to reach out to your UM tenants and we're gonna offer them free rent for a…”
Maureen Farrell · 16:22

“And then from there they did not and the billions and billions just added up in terms of losses.”
Maureen Farrell · 16:53

#growth#unit economics#wework#profitability#startups

Explainer18:47

Why WeWork Bought Wave Machines and Considered a Salad Chain

WeWork’s acquisition spree combined Neumann’s personal interests with pressure to increase revenue for a proposed SoftBank transaction. Investments ranging from a wave-machine company to discussions with Sweetgreen reflected a top-line-growth obsession rather than a coherent corporate strategy.

Some investments reflected Neumann’s hobbies and friendships
The board generally approved his unconventional proposals
A proposed SoftBank deal depended heavily on revenue growth
Acquisitions became a shortcut for adding top-line revenue
Strategic fit and profitability became secondary considerations

“it was the world was Adam Newman's playground, and he loved surfing”
Maureen Farrell · 19:16

“We have money, and let's just grow our top line. Who cares about anything else.”
Maureen Farrell · 20:45

#acquisitions#revenue growth#softbank#strategy#wework

Explainer36:35

How WeWork’s S-1 Broke Neumann’s Spell

Private investors had been persuaded through meetings, narratives, and selective attention, but the IPO filing forced standardized public disclosure. Once readers could inspect the losses and governance problems directly, public scrutiny rapidly dismantled the valuation story.

WeWork repeatedly found private capital despite its cash burn
The S-1 imposed standardized disclosure rules
The filing exposed revenue, losses, and governance concerns together
Public readers scrutinized the document line by line
The IPO collapsed after the disclosures met broad market scrutiny

“There's no slight of hand in S one filing.”
Maureen Farrell · 37:49

“he captivated the the quote unquote smart money, and then the minute this was all made public, everything was there.”
Maureen Farrell · 38:38

#ipo#s1#disclosure#corporate governance#wework

Explainer46:58

How Founder Control Produced Neumann’s Golden Parachute

After the IPO failed, WeWork faced a near-term cash crisis, but Neumann’s super-voting shares prevented a straightforward removal. SoftBank paid heavily to secure his surrender of control, refinance obligations, and complete a rescue quickly, leaving him wealthy despite the company’s collapse.

WeWork was approaching bankruptcy after canceling the IPO
Neumann’s super-voting shares preserved his control
SoftBank needed him to relinquish those voting rights
Urgency weakened SoftBank’s negotiating position
The exit package illustrated the cost of excessive founder power

“as part of the negotiations to get Adam Newman to give up his super voting shares, these potent shares that would have let him continue…”
Maureen Farrell · 47:41

“They blinked first. They gave Adam a lot”
Maureen Farrell · 49:25

#founder control#golden parachute#softbank#governance#wework

Story· 2

Story20:55

How the Neumanns Turned a Family School into a WeWork Venture

Rebekah Neumann wanted a school tailored to her children and turned that preference into WeWork’s education initiative. Although she recruited talented teachers with an ambitious vision, the project reportedly deteriorated into intensely personal management and fixation on details such as rug colors.

The school originated from dissatisfaction with existing education options
WeWork positioned it as a new frontier for the company
A sweeping educational vision attracted accomplished teachers
Personal preferences shaped operational decisions
Corporate resources and family life became deeply entangled

“Essentially, she wanted a school for her children, and she wanted very specific things in that school.”
Maureen Farrell · 22:47

“And it just really devolved so quickly.”
Maureen Farrell · 23:38

#wegrow#education#governance#rebehah neumann#wework

Story33:49

Inside WeWork’s Mandatory, Million-Dollar Summer Camps

Neumann recreated the American summer-camp experience he had missed by building increasingly extravagant company gatherings. Thousands of employees were flown to large events featuring celebrity performers, abundant alcohol, drugs in circulation, and mandatory participation.

The retreats began at a family summer camp in upstate New York
Events expanded internationally as WeWork grew
Thousands of employees were flown in
Celebrity performers received enormous fees
Attendance and some drinking rituals were treated as mandatory

“Literally they started at um his wife's families. Um had a summer camp and upstate New York that's where they started.”
Maureen Farrell · 34:23

“And it was also mandatory to come to these events.”
Maureen Farrell · 35:46

#company culture#leadership#wework#offsites#workplace

Takeaway· 2

Takeaway42:50

Why Markets Forgot WeWork’s Lessons Within Months

WeWork briefly made investors wary of fast-growing, unprofitable companies, and even SoftBank emphasized profitability after the collapse. Pandemic-era monetary and fiscal stimulus soon flooded markets with capital, reviving enthusiasm for companies valued largely on future potential.

The failed IPO temporarily changed investor attitudes
SoftBank publicly shifted its rhetoric toward profitability
The pandemic and monetary stimulus increased available capital
Speculative companies again attracted high valuations
The restraint inspired by WeWork proved short-lived

“It felt like it changed everything for a few months.”
Maureen Farrell · 44:33

“How quickly were the lessons of we work forgotten? Incredibly quickly?”
Barry Ritholtz · 44:25

#markets#venture capital#liquidity#softbank#investor behavior

Takeaway56:35

Farrell’s Biggest Lesson: Business Is Profoundly Irrational

Farrell says reporting the WeWork story overturned her assumption that prestigious investors and business leaders behave rationally. Relationships, instinct, admiration, and social affinity can override formal analysis even inside institutions celebrated for their sophistication.

Institutional prestige does not ensure disciplined analysis
Senior leaders may disregard their own analysts’ work
Personal relationships influence major capital decisions
Admiration for charismatic founders can override evidence
Business behavior is often less rational than outsiders assume

“I think the level of irrationality in business, of just relationships of people sort of um not necessarily making rational decisions and just going with…”
Maureen Farrell · 57:04

“I think it's just so much less rational than you think it would be.”
Maureen Farrell · 57:19

#decision making#investing#irrationality#business psychology#leadership