The career of WeWork co-founder and former CEO Adam Neumann felt synonymous with the rise and eventual fall of unicorn dreams. The entrepreneur, whose fall from grace has sparked worldwide interest, has just found a ladder in the form of a check from legendary venture capital firm Andreessen Horowitz.
Andreessen Horowitz announced Monday that it has written its largest single check yet in Neumann’s new startup, Flow. The low-profile startup is trying to (re)invent real estate, but instead of commercial real estate, which WeWork focused on, Neumann explores a revolution in rental housing. Horowitz’s check, reportedly over $350 million, values the yet-to-be-launched company at more than $1 billion, according to The New York Times. (Andreessen Horowitz declined to comment outside the blog postand Flow did not immediately respond to the request for comment.) It is unclear how the deal is structured between equity financing or debt financing.
While details remain scarce, the development has attracted a range of opinions from novice investors, whose entire job is to support outliers with a high probability of success. Some say this is exactly the point of the venture asset class — which supports bold founders — while others note that Neumann’s second chance comes as women and founders of color struggle more than ever to get seed capital.
Is it really about the track record?
Neumann’s track record at WeWork can be viewed differently depending on who you ask. Much has been said about the cultural malaise at the company. Neumann spent investor money on large quantities of drinks for the office, a school for his wife’s vanity project and a wave poolbut when the company finally imploded ahead of its long-planned IPO, Neumann wasn’t the one holding 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 because of its own fiscal carelessness, and he was eventually forced out as CEO by his own investors in 2019. However, they still paid him handsomely to leave — his exit package was worth over $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 intention to “raise the world’s consciousness.” to increase”.
But the company eventually made its public debut through a SPAC in late 2021, albeit at a much lower valuation and with significantly less fanfare. Despite the public criticism, early WeWork investors still benefited from the company’s support, McKeever Conwell, founder of Rare Breed Ventures, whose company supports seed and pre-seed companies, told toptecheasy.com.
“Eventually, Adam is a white man who started a company and got a multibillion dollar valuation. Now, was there a trick in that? 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 a founder’s network in the seed stage, it’s understandable why a company like a16z would want to put their trust in a founder like Neumann, at least when it comes to building a multi-billion dollar real estate business – something he’s done before.
“If we look at the histories of entrepreneurs, of successful technology founders, the greatest achievements of many of these founders are not their first thing. It’s like their third, or fourth, or fifth act [that succeeds]’ said Conwell.
Especially in tough economic times, like Conwell noticed 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 bet on Neumann, he added.
“Companies like Andreessen will only focus on a small budget” [of opportunities] where they know they know how to make money… It’s a playbook. They know it works, it’s a playbook that they can sell to their investors. It’s a script they never change. It doesn’t matter because if they don’t change it, they still win,” said Conwell.
In terms of visions, renovating the rental property market is not a unique idea. With over $100 million in venture capital investments, Common is a co-living company that plays property manager for a range of apartments and homes. The startup ironically operates one of the former WeLives, WeWork’s dorm-style take on rental properties.
Co-founder Brad Hargreaves, who stepped down as chief executive of the company less than two weeks ago, told toptecheasy.com via email that “whatever you think of Neumann, WeWork was innovative and defined the category.”
“I think we’re going to see more asset-heavy venture deals happen,” Hargreaves continued. “VCs (if you can even call them that these days) have plenty of capital to bet, and it’s clear that huge changes in some industries won’t come from light software innovation alone,” Hargreaves said.
At the same time, Hargreaves hinted that Neumman’s new deal is rich. He said the check’s size “is a great pile to put over these types of businesses,” noting how Alliance Residential, which owned 110,000 apartment units, was bought by Greystar for $200 million. FSV, which offers real estate management services, is valued at just $6 billion and owns 1.5 billion units and dozens of brands. He thinks it’s likely the deal isn’t structured like a traditional venture deal, though it’s unclear what percentage of the check would be debt financing versus equity financing.
Kate Brodock, Switch CEO and general partner at the W Fund, called the deal “awful.”
“This is one of the biggest, most notable companies out there and I just can’t understand it,” Brodock said in an interview with toptecheasy.com. “This is like someone woke up and they said, how many boxes can I check that just move us backwards?”
Allison Byers, the founder of Scroobious, a platform that aims to diversify startups and recoup founders more, described a muted anger.
“There is an undertone of acceptance and almost learned helplessness. Or like a trauma we’ve all been through so many times that it just doesn’t have the same impact anymore,” she told toptecheasy.com via Twitter DMs. “This all seems new and horrifying to those who have opened their eyes to the systemic problems of VC funding in recent years, but we’ve been dealing with them forever.”
Byers added: “It’s really just a fact and I can’t let it consume my day [because] I have my normal load of female founders to do.”