The arc of WeWork co-founder and former CEO Adam Neumann’s career has felt synonymous with the rise and fall of unicorn dreams. The entrepreneur, whose fall has sparked global interest, has just found a ladder in the form of a check from the well-known venture capital firm Andreessen Horowitz.
Andreessen Horowitz announced Monday that it has written its largest single check to date to Neumann’s new startup, Flow. The stealthy startup is trying to reinvent real estate (again), but instead of commercial properties, which WeWork focused on, Neumann is looking to revolutionize rental properties. Horowitz’s check, which is more than $350 million, values the as-yet-unlaunched company at more than $1 billion, according to The New York Times. (Andreessen Horowitz declined to comment beyond the blog post, and Flow did not immediately respond to a request for comment.) It’s unclear how the deal is structured between equity financing and debt financing.
While details remain scarce, the development has been met with a number of pitches from early-stage investors whose job it is to back atypical founders with a high chance of success. Some say that’s the exact point of the venture asset class, backing bold founders, while others point out that Neumann’s second chance comes as women and founders of color struggle more than ever to raise seed capital .
Is it really about trajectory?
Neumann’s track record at WeWork can be seen differently depending on who you ask. Much has been made of the company’s cultural malaise. Neumann spent investor cash on copious amounts of office booze, a school for his wife’s vanity project, and a wave pool, but when the business finally imploded before his exit in the long-planned stock exchange, Neumann was not the one left with the bag.
The company saw its valuation plummet from $47 billion at its peak to ~$8 billion under Neumann’s tenure. WeWork laid off thousands of employees, in part due to its own fiscal imprudence, and was eventually forced out as CEO by its own investors in 2019. Yet he was still paid handsomely to leave: the his exit package was worth more than $1 billion.
Post-game analysis of WeWork’s failed IPO attempt focused on some of the more far-fetched parts of its vision, from reporting “community-adjusted EBITDA” to announcing its intent of “raising the consciousness of the world”.
But the company finally made its public debut through a SPAC in late 2021, albeit at a much lower valuation and with noticeably less fanfare. Despite the public criticism, WeWork’s early investors still benefited from backing the company, Rare Breed Ventures founder McKeever Conwell, whose firm backs seed and pre-seed companies, told TechCrunch.
“At the end of the day, Adam is a white guy who started a company and got a multi-billion dollar valuation. Now, was there any trickery? Sure. Some things he did wrong? Sure. But I think what people forget is that if you were an early investor, which we weren’t, you still got paid,” Conwell said.
Conwell said that given the weight VCs place on an early-stage founder’s network, it’s understandable why a company like a16z would want to put its trust in a founder like Neumann, at least when it comes to build a multi-million real estate property. business, which he has done before.
“If you look at the history of entrepreneurs, of successful tech founders, a lot of the biggest results of those founders aren’t their first. It’s like their third, fourth, or fifth company. [that succeeds]” said Conwell.
Particularly during tough economic times, as Conwell noted on Twitter, asset allocators tend to pile money into what they consider “safe” investments. That’s exactly what a16z appears to be doing with its Neumann bet, he added.
A reminder that in times of economic recession allocators return to what they consider safer. It’s true that you’d be fired faster for investing in underrepresented founders than for investing in Adam Neumann of WeWork fame. (And with a giant check too)
— MacTheVC.eth (@MacConwell) August 15, 2022
“Companies like Andreessen will only focus on a small pocket [of opportunities] in which they know they know how to make money… It’s a playbook. They know it works, it’s a playbook they can sell to their investors. It’s a playbook that never changes. It doesn’t matter, because if they don’t change it, they’re still winning,” Conwell said.
The vision
In terms of visions, renewing the rental property market is not a unique idea. With more than $100 million in venture capital investment, Common is a co-living company that serves as a property manager for a collection of apartments and houses. Ironically, the startup operates one of the former WeLives, which was WeWork’s take on dormitory-like rental properties.
Co-founder Brad Hargreaves, who stepped down as the company’s CEO less than two weeks ago, told TechCrunch via email that “whatever you think of Neumann, WeWork was innovative and category-defining.”
“I think we’re going to see more ‘asset-heavy’ venture deals,” Hargreaves continued. “VCs (if you can even call them that these days) have a lot of capital to deploy, and it’s clear that the massive shift in some industries won’t happen with light-touch software innovation alone,” said Hargreaves.
At the same time, Hargreaves hinted that Neumman’s new deal is rich. He said the size of the check is “one hell of a pile of preference above this type of company,” noting how Alliance Residential, which owned 110,000 apartments, was bought for $200 million by Greystar. FSV, which provides property management services, is worth just $6 billion and owns 1.5 billion units and dozens of brands. He believes the deal likely won’t be structured like a traditional venture deal, though it’s unclear what percentage of the check would be debt financing versus equity financing.
If a startup is worth $1 billion before it launches a product, it’s probably a scam.
— jason@calacanis.com (@Jason) August 15, 2022
Kate Brodock, CEO of Switch and general partner of the W Fund, called the deal “disgusting.”
“This is one of the biggest, most remarkable companies out there, and I don’t understand it,” Brodock said in an interview with TechCrunch. “That’s like somebody waking up and saying, how many boxes can I check that’s just moving us backwards?”
Allison Byers, the founder of Scroobious, a platform that aims to diversify startups and make founders riskier, described feeling a muted rage.
“There’s this matriculation of acceptance and an almost learned helplessness. Or like the trauma that we’ve all experienced so much that it doesn’t have the same impact anymore,” he told TechCrunch via direct messages on Twitter. “This all seems new and horrifying to those who have opened their eyes to the systemic problems of venture capital funding in the last couple of years, but we’ve been dealing with it forever.”
Byers added: “It’s really a matter of fact and I can’t let it consume my day [because] I have my normal load of founder crap to do.”