We're gonna start this episode with a threat. The threat comes from Adam Newman, the CEO of We Work, and he was talking to Jamie Hodari, a guy who runs a smaller rival coworking space called Industrious. The two CEOs were considering doing a deal together. This was in and to talk it out, Adam invited Jamie to spend the day with him. They were going to fly to Atlanta to tour each other's offices, and Adam wanted to fly Jamie out on a private jet. I got the calendar invite from his assistant, and the plane was leaving from the Hampton's and I explained that I don't live in the Hampton's. I live very far from the Hamptons in in Brooklyn, and I was just going to fly down commercially and meet them there and we'd still have the whole day in Atlanta. And and she explained that Mr Newman insists that you come out, So I had to take a like two hour ruber ride or something, you know, to get to this six am takeoff. And that definitely felt like a bit of a flex. So they're on this private jet and at one point Adam pulled Jamie aside for a private conversation maybe an hour in he asked to sort of sit away from everyone else and talk one on one, and he said, look, I respect what you guys do. I think you seem like a good guy, and as a result, I want to give you a heads up that you know if if coming out of the next few weeks things don't go the way we work, would like them too, I think, he said, you know, I have two hundred people waiting for a push of a button for me, and their job is going to be to bury your business. And what that will mean is that we're going to give all of your customers a year free, and the ones that don't leave, we'll give two years free, and the ones that don't leave, we'll give three years free. Until you don't have a single customer left, and you will have lost the business that you spent the last five years building. Uh. That's intense. Jamie didn't know what to think. He says. He felt a little scared, but he didn't know how seriously to take this threat because what Adam was describing would have been such an expensive move. In short, I didn't really believe him because what he described again would would mean, they were almost by definition, losing a lot of money on those customers. He said, well, you know you should believe me, and and you're going to see that I'm not bluffing. You're listening to Foundering. I'm your host, Ellen Hewitt, and this week we're talking about money. How We Work was able to raise money and some of the surprising things the company did with the cash, and whether having money lots of money affected We Work's ability to see straight from the moment the company was founded in We Work had money to spend, not because it was turning a pro fit. In fact, it lost money more and more every year. At its peak, we were lost almost two billion dollars in one year. We Worked got its money from investors, large mutual funds and investment banks and venture capitalists, including Masa Yoshi Son. He's one of the biggest tech investors out there, and he often preached that when it comes to business, the crazier the better. All these investors wanted to give We Work cash in exchange for owning a slice of the company, which they hoped, over time would become more and more valuable by the way We Work. And a representative for Adam Newman the client to comment on this episode. Now, let's get back to the story of Jamie and Adam on the plane. According to Jamie, Adam made good on his threat in a lot of markets. Customers all of a sudden got bombarded with emails from dozens of different brokers saying, you know, they basically insert ways we work handid off the dirty work to a series of brokers who then went and advocated to our customers that they should be leaving us for we work. And you know, for two three five days, you know, maybe a week, it seemed possible that there was, all of a sudden going to be this just wave of customers exiting Industrious. And it didn't happen. Jamie said, we works attacked, just didn't work. Not that many customers left Industrious. When Jamie thinks back on that moment on the plane, he's struck by adams naked aggression. Even though adams plan didn't work, he was ready to go to such extreme lengths to take down a competitor. Jamie couldn't understand choosing to burn money that way. It felt like we Work could do no wrong. It was growing like mad venture capitalists were falling over themselves to try to get we work to take their investment. And all around Silicon Valley you heard startups talking about how spending lots of money was the way to grow fast, to win against their rivals. Profits came later, Profits weren't sexy. I want to give you a glimpse into how venture capital works, how it turns traditional business sense upside down. With most small businesses, you want to be making a profit. Let's say yourself frozen bananas, and it costs four dollars to make each one. That's the cost of the supplies, paying your employee, and rent for the banana stand. So you'd want to sell the banana for maybe five dollars. The first four dollars covers all your expenses. Then you might have a dollar of profit. Now, let's say you're raising money from venture capitalists for your banana stand. That means something different. You've sold a slice of your business to the VC in exchange for cash. You now have a lot of cash. That's exciting. You can use it immediately to hire more banana sellers, buy more bananas, whatever you want. Vcs want the companies they invest in to grow. They invested in you to become the biggest frozen banana seller in the market. Now you need to sell way more bananas in way more cities than your competitors, and do it first. Instead of opening one banana stand next year, they want you to open ten. Vcs. Care a lot about how many five dollar bananas you can sell, so they may push you to expand to new markets, even if it costs more to hire someone or rent is more expensive. So it now costs you six dollars to make a banana that you still sell for five. You're losing money on each banana you sell. That sounds like a dumb idea, but in this upside down world, it makes sense because you're still growing. You're selling more than you ever did, crowding out the competition and cementing your name as the number one frozen banana seller. We Work knew how to grow. It was growing every year, which means it was doubling its business. We had plenty of demand. We were not signing real estate fast enough. As far as we knew, we were going to keep growing a hundred percent until someone told us to stop. That's Dave Fano. He was we Works chief growth officer until he left in and he saw that the more we Work locations they added, the harder it was to keep growing a percent year after year. It was harder, significantly harder to go from five hundred to a thousand than from a hundred to two hundred, just the amount of moving parts and pieces. Because there's only so much available real estate in a given market, you gotta get bigger blocks of real estate. You can't get four million square feet square feet at a time. You've gotta start to sign leases that are two fifty square feet, and those are more complex negotiations and they take longer. So there's just a lot of things that got exponentially harder as you got bigger, and as you tried to keep doubling to keep growing. We Work was expanding into markets all over the world, even the ones where it seemed like it was losing my me. Here's Jamie again. It was clear that London was a bad market for we Work, and yet they kept doubling down there. So if you don't care if your units make any money, then one thing you can do is at a lot of units in London, then maybe it's okay to rent space at eleven dollars and go sell it for ten over and over. We Work may have been losing money, but they didn't stop the company from dominating the headlines. Adam's profile at the time was huge. He was hanging out with actors, going on TV, doing photo shoots for magazine covers. He was an incredibly visible CEO where his personality became the company's personality. And as his fame grew, so did Adam's vision for we Work. We want to help the world to self actualize themselves. Here's the beauty. We have actually been given a permit from the world, from investors, for our members from the universe to actually have a chance to go and tackle this problem. That's Adam speaking at an all hands meeting in mid You can hear him talking about how big and meaningful we Work is going to be. It's not just work. It's about helping their members in every aspect of their lives to find happiness and to find themselves. That might explain some of the side hustles we Work got into that seemed to have nothing to do with office rental. We Work started planning we Live, which was an experiment in building communal apartments kind of like adult dorms for millennials. We Work at a grand plan of launching thirty locations in a year, but they only ever opened up two. But we Live was just the start. We work with rapidly trying new things, a lot of new things. It was getting a little out of control. Here's Adam at an all hands meeting in we have four hundred and forty two open projects that are in different categories that don't have anything to do with we Work. Our buildings are four well margin. The base of our brands a hell of a number. I'm personally set us on the path of a few projects that were not qualified to do. Doesn't mean they couldn't have been cool. They could have been amazing. We just happened to not be qualified to do. He seemed aware that we Work was losing focus. I want to tell you about some of we worked crazy expenses, expenses that seem to have nothing to do with office space. And here's Jamie recounting the time Adam told him about a recent we Work investment. It was in a company called Wave Garden. Adam asked Jamie if he'd ever heard of it. Jamie said no, and so then he pulled out his phone and he started playing this video he made some phrase about how it makes waves, and I completely misunderstood what he meant. I thought he was talking about some construction technology company that metaphorically was making waves. It was doing big things in its industry. But then the video just kept showing people surfing, and at some point I was like, man, they are really taking this like wave metaphor. Are really far like that they have to explain what they do. And then there was a moment where I was like, oh my god, this isn't a metaphor. They literally make waves. Why are they buying this company? Yep. We Work spent thirteen million dollars to buy almost half of a wave pool company. Later, we Work investor told me the rationale. He said that we Work wanted to build huge corporate campuses and put wave pools in them. But to Jamie the investment was baffling. It's like when people become really wealthy and all of a sudden they think that the McDonald's near the house where they grew up is better than the McDonald's in the city they currently live in, and they have people fly the big Mac over from their hometown McDonald There's something like, I don't know, I guess that's what rich people do, and I guess that's what rich companies do. We worked had so much money they were literally giving it away. They launched a pitch competition called the Creator Awards, where they handed out twenty million dollars in prize money. Hello, Hello, Hello, welcome everyone, Welcome to the eighteen Berlin Create Our Awards. Amazing entrepreneurs pitched their startup ideas on stage to celebrity judges like Ashton Kutcher and p Diddy. We were called the Creator Awards marketing events to help spread the word about their offices. They held them all over the world in places like Tel Aviv, Austin, and Shanghai. When you do something that comes from the heart, when you bring it together with intention, magic happens. If you're a graphic designer and accountant and artists, a singer, or anything in between. Euro creator and euro creator and what does that mean? That means that we're part of something greater than ourselves. And it wasn't just Adam. Other execs also got caught up in the ability to spend freely. Here's Carl Pierre, a community manager in d C. He's describing how he was instructed one night to find a last minute helicopter or private plane for an executive. I had another we Work employee communicates me that an executive needed transportation immediately, ideally helicopter from Washington, d C O a jet to get back to New York City, and no context, just told it was very important. I was calling my friends who are staffers to see if we could pay to borrow, uh, you know, a senator's plane or something crazy. I was going through every channel and it was nuts. At the end of the day, it was almost like midnight, so I'm trying to find this. I had a good lead on a on a on a on a helicopter, and then uh, it turns out that particular we Work executive just needed to get back to a party in New York and that's the only reason why he wanted to leave DC Again midnight, I found a good lead and I was told like, oh, yeah, you know, it looks like the party let's be over anyway, So he's good. Yeah, nearly lost my mind. So Adams executives were willing to spend money in frivolous ways, and at the same time, Adam was stretching the truth about the company's financial position. Here he is at an all hands meeting in twenty six team telling employees that the business was profitable when it really wasn't. As opposed to other companies that you're reading about, we don't have any issues. We don't need to raise any more money. We're in an amazing place where the profitable business that's going to only get better. That's going to help us fulfill our calling and our mission. By shifting this culture, we're gonna be able to not only keep doing these things, but do them pen times better, move very strongly into positive cash flow. No need to rely on raising money, now, need to rely on going public, no need to rely on anything except for ourselves and fulfill our mission farm members, and we're going to do it, all of us together. He says here they have a profitable business. I can't tell if he's being sloppy or misleading when you're saying that we now know that we Work was losing money. In the tape, Adam is telling his employees that we Work doesn't need to rely on raising money for the business to keep growing, but in just a few months he'll turn around and raise four point four billion dollars from a fame as investor, and this decision will change the entire course of we Works trajectory. All of the company's impulses to do things that were more random, more grandiose, more expensive, They're about to be unleashed. We'll be right back. So before the break, we talked about how we Work was about to raise money from a new investor, and apart from Adam, this investor is one of the most important people in the story of We Work, Masa Yoshi's son. To explain who he is and why he's so important, I want to introduce a colleague of mine, Sarah McBride. Here's Sarah. I've been reporting on venture capital for the past few years, so I'm spending a lot of time on we Work's biggest backer, soft Bank, plus the guide behind it. My Sayashi's son, but too many people. He's just known as Massa, like share or Madonna. Massa is a kingmaker in Silicon Valley, one of the most famous investors in the world and one of the spendiest. He founded soft Bank when he was only twenty four years old. It's grown into a giant investment company in Japan. It's huge, it's bigger than Sony or Honda. Even he uses his money to make big bets on others. He's best known for an investment he made in a Chinese internet company called ali Baba. At the time he first invested back in two thousand, Ali Baba was small. Nobody knew it would take off the way it did. Ali Baba was founded by a guy named Jack Ma. He built it into kind of a souped up version of Amazon, tailored for the Chinese market. Now, Ali Baba is one of the most valuable companies anywhere. Jack Ma is an icon. Here's what's so interesting. When Massa talks about his famous big bet, about why he took a leap of faith and invested in jack maa so early. He doesn't talk about how smart jack Ma seemed, or how he'd come up with an original business plan. He talks about his charm, his ability to attract people to follow him. Well. He had no business plan and zero revenue employees, maybe thirty five for the employees. But his eyes was very strong, strong eyes, strong shining eyes. Um I could tell from the way he talked, the way he looked at he has a klisma, he has a leadership. He can bring you know young Chinese people following him. Now, if a young entrepreneur catches Massa's eye, he likes to tell them they remind him of Jack Ma, or that he thinks they'll become the next Jack Ma. The entrepreneurs love it. It's the biggest compliment he could give, and it worked with Adam Newman too. In fact, Adam told Fast Company magazine that he reminded Massa of Jack Ma. In two thousand seventeen, Soft Bank announced an investment fund that would be one hundred billion dollars. It was a huge amount of money, way way bigger than any venture fund, and when Massa began investing this money, it actually changed the way Silicon Valley works. In the old days, successful startups could count on raising tens of millions of dollars depending on how they were doing. Now, venture capitalists were competing with soft Bank to invest in the best companies, so money started flying around hundreds of millions, sometimes even billions of dollars to one startup. And that's exactly what happened to we work. The story itself is pretty crazy. Massa had a meeting with Adam. He told Adam he would spend two hours that we Work, but when he showed up, he said he had only twelve minutes. When it was time to go, he invited Adam to jump into the car with him. Adam pulled out his pitch deck because he wanted a big investment from SoftBank. Massa told him to put it away and took out an iPad. He drafted a rough investment agreement between them. They both signed then and there. That was late two thousand and sixteen. Adam still had a photo of the contract on his phone months later and showed it to a reporter from Forbes. He said it gave him goose bumps. Adam ended up getting a four point four billion dollar investment from soft Bank the next year, with more to come. Here's Adam on seeing BC. It's a real partnership and I think the longer we know each other, the more we can build it to Massa is one of the most visionary investors in the world. He I don't know if you know the story, but his initial decision to invest in We Work took approximately twenty eight minutes, including when he got in left and drove in the car. Startup founders who work with Massa say he loves it when you think really big, he asks what you could do if you had several times more money than you're trying to raise, if funding was no limit. Then he gives you that cash and expects you to deliver. And the crazier you are, the better. He told me that if two equally smart entrepreneurs are duking it out, but one's also a little crazy, the crazy one will win every time. He even described what he called an animal smell between himself and other entrepreneurs. They can smell it, and he can smell it. It's primal, and it seems like Massa felt this connection with Adam. He kept showering money on We Work, but within soft Bank it was a really controversial investment. Some of Massa's lieutenants that they were putting too much money into We Work, and so did some of his investors, that Massa ignored them. He found ways to keep writing we Work checks. That's because he believed that in the future, more and more people would move to coworking exactly We Works business model, and he really believed in Adam. So Massa basically gives Adam as much money as you could spend, and Adam starts spending and he doesn't have to be that careful because there's so much of it. If you talk to people inside We Work, many of them will say that the Soft Bank investment was this turning point. We Work had always been kind of freewheeling, somewhat cookie with lofty ambitions, but after Massa wrote Adam a blank check and told him to be crazier, it felt like every in got dialed up. We Work already had one side business, we Live, but it started branching out even more. It started a fitness boutique called Rise by We, and then there was We Grow. It's an elementary school. Rebecca and Adam have five young children together. Rebecca said in interviews that she couldn't find a school in Manhattan that was good enough for her oldest daughter, so they made their own. Here's Rebecca describing We Grow on a podcast called The School of Greatness. Once a week they get all local farms out they do. They spend one full day a week in nature, farming and just running and being and you know, meditating in nature like farm animals too, or is it just kind of there will be animals There are not currently um but they plant seeds, they harvest their crops, they bring them back to the city, they run a farm stand at We Work, and then they donate all of the proceeds to a nonprofit that they are actually personally involved in and invested in. She sounds like she has a very specific vision for the school. Tuition that We Grow costs forty two dollars a year. The interior was designed by celebrity architect. We Work came up with a way to explain why it was running a school. It said the school's mission was to unleash every human superpowers. It kind of connects to We Worked brand. But I spoke to one employee, Stephen Green. He remembers Adam being a bit more blunt in a speech at a company off site explaining why they started We Grow. So Adam explained that Rebecca had a dream the night before and in that dream, We Work had a school. The next morning, Rebecca told him about the dream, and he said, Okay, we're gonna start school. No marketing analysis, you know, No, We're gonna do some some test groups. And that was simple as that. So on the one hand, you have We Worked, the company branching out into seemingly unrelated businesses. But then there's also Adam's personal extravagance. Says we Worked bought a private jet for sixty million dollars. It was the top of the line gulf Stream G six fifty. Adam took it for business and also on trips to Costa Rica and Hawaii, sometimes to go surfing. At summer camp, employees stayed in tents, but one ex employee described Adam's summer camp lodging as a huge compound up on the hill visible from the valley below. In his office and we Works headquarters, Adam added a secret back room that had a sauna and an ice bath. It became a piece of lore within the office. I never got to see it in person, but an ex employee showed me photos once. The tub had a neon lightning bolt hanging over it, and I also heard a funny story. Someone told me the ice bath messed with the water pressure in the building so much that whenever Adam ran the bath, the office espresso machine stopped working. Meanwhile, we Work kept investing. They acquired a marketing s c O company, a coding school. They invested in a super foods company run by a pro surfer whom Adam admired and befriended. One former executive said that at the time, We Work wanted to compare itself to Amazon, another company that expanded into seemingly disconnected business areas and didn't turn much of a profit. This person didn't want to be named, so here's someone reading what they told me. But of course Adam didn't know what to do with the school, He didn't know what to do with the gym, He didn't know what to do with residential things. We were buying companies for fun. It was just too much. Adam's focus seemed to go further and further Afield get pulled in different directions. As a manager of business, you get, given that amount of money, you can afford to dream very very big. After the soft Bank investment in it seemed like Adam and Rebecca were deciding company policies based on their personal whims, like We Worked infamous meat ban. Sources told me that when Rebecca and Adam announced their employees that we Work would stop serving meat, it came as a surprise to the other company executives. Remember this affects thousands of we Were employees and members worldwide. The communications team had to quickly scramble to figure out a way to frame the decision to the public. They landed on an argument for sustainability, and they said the idea came from Miguel McKelvey, the other co founder. Here's a clip from CBS. We were just released a memo to its six thousand employees saying it won't pay for any meals that include red meat, poultry, or pork. According to Bloomberg, the company's co founder and Miguel mkelby said in the company memo, new research indicates that avoiding meat is one of the biggest things an individual can do to reduce their personal environmental impact, even more than switching to a hybrid car. Just asn't aside here. When most companies make a decision of this scale, they spend months deliberating over it. But my sources told me that this change happened with barely any warning and basically no business rationale. It almost feels like something you do if you wanted the company to be a reflection of yourself, and the company kept making other important decisions for seemingly personal reason. We work decided to raise money from bond investors. They initially said they wanted to raise five hundred million dollars, but at the last minute they switched to seven and two million dollars. That's weird. I remember thinking at the time seven o two seemed like such a random number to pick. I asked, we worked why, and was only able to find out that seven O two was a lucky number for the company. That's a surprising rationale for such a big decision how much debt a company should take on. Later I found out why the number was lucky. Seven O two is what you get when you multiply two numbers eighteen and thirty nine. Eighteen is a good luck number in Judaism. And the day of the bonds were sold it was Adam's birthday. He was turning thirty nine. Now, I want to take a huge step back, a two year step back, and play for you some tape that really knocked me off my feet when I first heard it. It's from back in when we work was growing pretty quickly, but still before things really got amplified by soft banks billions. Here's Adam talking at an all hands meeting, and he's trying to make an important point to his employees about the way we work spend money. What he's saying casts a really unexpected light on everything you've heard in the episode up until now. Now, if you think this company, I would say big, but has a little bit of a spending culture, raise your hand. I think so it does. It does for those of you don't know it does. It definitely does have a spending culture. We didn't used to be this way. We did not used to be this way. We used to fight for every dollar. We did not spend. We never outsourced. We first tried to solve a problem internally and then went to the outside well said hey, we can pay you to bring and sometimes it worked in something as it didn't. But we were really good at watching our cash. He was saying that we work even though it has all this money available to spend, was being way too careless with it. They were spending all over the place without purpose. We've spent this whole episode describing how flashy and indulgent Adam became, especially after soft Bank's investment. But here he is two years earlier, cautioning his employees to be conservative. He told them they were spending too much and that it was going to hurt their profits. He lectured them about how they should be managing the nickel. That meant noticing every time the company was wasting money, even on small things. As an example, he talked about a breakfast spread they ordered every Monday for an executive meeting. In the money. We would get breakfast, some salmon, some eggs, some bagels, some yogurt. And we've done this for a year, We've done some maybe for two years, and truth is not a lot of no one was really eating it. Adam estimated that the company was saving three dollars a week by cutting this breakfast, and he used it as an example for his employees to look for other places to cut costs, even small ones. For example, how many times if you left this room and the lights were on? How many times every time? When I've left this room and I left this room a lot of times at two am? How many times have you seen our buildings with their lights on at two am? Every time? And I love going through our buildings at to am. I was just in two buildings last week, and I want to hear from you. I want to start receiving notes. Lights are on the two o'clock. This is wasting money, This is wasting money. This is not smart. I don't accept this. This is my company. I have equity here. I don't want to be wasteful. I don't want to be wasteful. So because we can do great things with the money. Who is this, Adam Newman? How do you reconcile the atom of who's trying to save on the electricity built with the atom who's flying on a sixty million dollar private jet. What's striking to me is his awareness of we works out of control spending. He knew that it could hurt the company in the long run. So did he just forget his own warning or did he not believe his own message. If we can't ensure as a minimum to bring in more than we spend, that's an easy one. Everybody knows that bring in more than you spend, then all the dreams and all the hopes and everything we're all sitting on is not gonna work as well as we thought. The only thing that can ruin this is if we don't get serious about controlling our bottom line, controlling our expenses, getting very focused and getting very clear. And he's saying that this is their only chance. They can't mess it up, and the universe does not allow waste. So if we show the universe for too long that we're wasteful. It will come back at us ten times fall. Because that's how, at least how I believe the world works, and that's my experience of how the world works. When I think of us, the only thing that scares me is that in ten years, when we look back, we will say that we missed the opportunity, that we did not take this thing to the full strength that we can take it. This tape is a really surprising glimpse into Adam's mind and how it seems like he changed over the years. At We Work. Back in he showed some pretty traditional business sense, but he seemed to have thrown it out the window. Massa once said that the crazy man will always win in a fight against the smart man, and it seems that Adam became the crazy man that Massa wanted him to be. We know now that in the ten years since We Work was founded, it almost never turned a profit. In fact, in the years after Adam warned his company that they have to stop this spending culture, They're spending culture only got spendier and it will keep getting huge. It will become so extravagant, so head scratching that we work will become a symbol of start up excess of CEOs given too much permission. Here's a part of his speech that I found particularly unting. He's talking about other high valuation companies that had raised billions of dollars and then wasted the money. He's using them as a cautionary tale. I know if you guys are reading or not reading, But a lot of our peers who I never actually thought were our peers, but companies with high valuations who raised a lot of money. Some of them been closing down. A lot of them have been firing ten to their employees. I can promise you one thing about all of them. They all had a spending culture. And that spending culture led to lack of processes, lack of control, and at the end of the day, lack of money. And when lack of money comes and the world goes up, that's not a problem. But right now the words doing this, or maybe it's even doing this, well, that's a different story. There are a lot of employees they're now that thought the equity there was worth one price, and now they're being told it's worth another. And now they're doing it down round then let me tell you they're gonna do three more if they're even gonna stay in business, and it's gonna be very difficult. The secret is to take care of it before it becomes a problem. Layoffs down rounds employees thinking that their equity was worth a lot one day, only to find it's worth very little the next. You could play this tape today and say it was about we Work, and it would all be true. Adam was definitely right for what it's worth. We Work did have a spending culture when he was warning against it, it was already in full force. Over the next few years, that spending culture would get more extreme, and all of these disastrous things that Adam is telling his employees are happening to their peers. They're about to hit WE Work in the face very soon. It was like he predicted it years before his company spirals out of control. That's next time on Foundering. Foundering is hosted by me Ellen Hewitt. Sean When is our executive producer. My Aquava is our associate producer. Ray Mondo mixed the show today special thanks to Sarah McBride, Mike Held and Tucker, Joseph, Mark Million, and Bandermain and Alistair Barr are our story editors. Francesca Levi is the head of Bloomberg Podcasts. Be sure to subscribe and if you like our show, leave a review. Most importantly, tell your friends see you next time.

We're gonna start this episode with a threat. The threat comes from Adam Newman, the CEO of We Work, and he was talking to Jamie Hodari, a guy who runs a smaller rival coworking space called Industrious. The two CEOs were considering doing a deal together. This was in and to talk it out, Adam invited Jamie to spend the day with him. They were going to fly to Atlanta to tour each other's offices, and Adam wanted to fly Jamie out on a private jet. I got the calendar invite from his assistant, and the plane was leaving from the Hampton's and I explained that I don't live in the Hampton's. I live very far from the Hamptons in in Brooklyn, and I was just going to fly down commercially and meet them there and we'd still have the whole day in Atlanta. And and she explained that Mr Newman insists that you come out, So I had to take a like two hour ruber ride or something, you know, to get to this six am takeoff. And that definitely felt like a bit of a flex. So they're on this private jet and at one point Adam pulled Jamie aside for a private conversation maybe an hour in he asked to sort of sit away from everyone else and talk one on one, and he said, look, I respect what you guys do. I think you seem like a good guy, and as a result, I want to give you a heads up that you know if if coming out of the next few weeks things don't go the way we work, would like them too, I think, he said, you know, I have two hundred people waiting for a push of a button for me, and their job is going to be to bury your business. And what that will mean is that we're going to give all of your customers a year free, and the ones that don't leave, we'll give two years free, and the ones that don't leave, we'll give three years free. Until you don't have a single customer left, and you will have lost the business that you spent the last five years building. Uh. That's intense. Jamie didn't know what to think. He says. He felt a little scared, but he didn't know how seriously to take this threat because what Adam was describing would have been such an expensive move. In short, I didn't really believe him because what he described again would would mean, they were almost by definition, losing a lot of money on those customers. He said, well, you know you should believe me, and and you're going to see that I'm not bluffing. You're listening to Foundering. I'm your host, Ellen Hewitt, and this week we're talking about money. How We Work was able to raise money and some of the surprising things the company did with the cash, and whether having money lots of money affected We Work's ability to see straight from the moment the company was founded in We Work had money to spend, not because it was turning a pro fit. In fact, it lost money more and more every year. At its peak, we were lost almost two billion dollars in one year. We Worked got its money from investors, large mutual funds and investment banks and venture capitalists, including Masa Yoshi Son. He's one of the biggest tech investors out there, and he often preached that when it comes to business, the crazier the better. All these investors wanted to give We Work cash in exchange for owning a slice of the company, which they hoped, over time would become more and more valuable by the way We Work. And a representative for Adam Newman the client to comment on this episode. Now, let's get back to the story of Jamie and Adam on the plane. According to Jamie, Adam made good on his threat in a lot of markets. Customers all of a sudden got bombarded with emails from dozens of different brokers saying, you know, they basically insert ways we work handid off the dirty work to a series of brokers who then went and advocated to our customers that they should be leaving us for we work. And you know, for two three five days, you know, maybe a week, it seemed possible that there was, all of a sudden going to be this just wave of customers exiting Industrious. And it didn't happen. Jamie said, we works attacked, just didn't work. Not that many customers left Industrious. When Jamie thinks back on that moment on the plane, he's struck by adams naked aggression. Even though adams plan didn't work, he was ready to go to such extreme lengths to take down a competitor. Jamie couldn't understand choosing to burn money that way. It felt like we Work could do no wrong. It was growing like mad venture capitalists were falling over themselves to try to get we work to take their investment. And all around Silicon Valley you heard startups talking about how spending lots of money was the way to grow fast, to win against their rivals. Profits came later, Profits weren't sexy. I want to give you a glimpse into how venture capital works, how it turns traditional business sense upside down. With most small businesses, you want to be making a profit. Let's say yourself frozen bananas, and it costs four dollars to make each one. That's the cost of the supplies, paying your employee, and rent for the banana stand. So you'd want to sell the banana for maybe five dollars. The first four dollars covers all your expenses. Then you might have a dollar of profit. Now, let's say you're raising money from venture capitalists for your banana stand. That means something different. You've sold a slice of your business to the VC in exchange for cash. You now have a lot of cash. That's exciting. You can use it immediately to hire more banana sellers, buy more bananas, whatever you want. Vcs want the companies they invest in to grow. They invested in you to become the biggest frozen banana seller in the market. Now you need to sell way more bananas in way more cities than your competitors, and do it first. Instead of opening one banana stand next year, they want you to open ten. Vcs. Care a lot about how many five dollar bananas you can sell, so they may push you to expand to new markets, even if it costs more to hire someone or rent is more expensive. So it now costs you six dollars to make a banana that you still sell for five. You're losing money on each banana you sell. That sounds like a dumb idea, but in this upside down world, it makes sense because you're still growing. You're selling more than you ever did, crowding out the competition and cementing your name as the number one frozen banana seller. We Work knew how to grow. It was growing every year, which means it was doubling its business. We had plenty of demand. We were not signing real estate fast enough. As far as we knew, we were going to keep growing a hundred percent until someone told us to stop. That's Dave Fano. He was we Works chief growth officer until he left in and he saw that the more we Work locations they added, the harder it was to keep growing a percent year after year. It was harder, significantly harder to go from five hundred to a thousand than from a hundred to two hundred, just the amount of moving parts and pieces. Because there's only so much available real estate in a given market, you gotta get bigger blocks of real estate. You can't get four million square feet square feet at a time. You've gotta start to sign leases that are two fifty square feet, and those are more complex negotiations and they take longer. So there's just a lot of things that got exponentially harder as you got bigger, and as you tried to keep doubling to keep growing. We Work was expanding into markets all over the world, even the ones where it seemed like it was losing my me. Here's Jamie again. It was clear that London was a bad market for we Work, and yet they kept doubling down there. So if you don't care if your units make any money, then one thing you can do is at a lot of units in London, then maybe it's okay to rent space at eleven dollars and go sell it for ten over and over. We Work may have been losing money, but they didn't stop the company from dominating the headlines. Adam's profile at the time was huge. He was hanging out with actors, going on TV, doing photo shoots for magazine covers. He was an incredibly visible CEO where his personality became the company's personality. And as his fame grew, so did Adam's vision for we Work. We want to help the world to self actualize themselves. Here's the beauty. We have actually been given a permit from the world, from investors, for our members from the universe to actually have a chance to go and tackle this problem. That's Adam speaking at an all hands meeting in mid You can hear him talking about how big and meaningful we Work is going to be. It's not just work. It's about helping their members in every aspect of their lives to find happiness and to find themselves. That might explain some of the side hustles we Work got into that seemed to have nothing to do with office rental. We Work started planning we Live, which was an experiment in building communal apartments kind of like adult dorms for millennials. We Work at a grand plan of launching thirty locations in a year, but they only ever opened up two. But we Live was just the start. We work with rapidly trying new things, a lot of new things. It was getting a little out of control. Here's Adam at an all hands meeting in we have four hundred and forty two open projects that are in different categories that don't have anything to do with we Work. Our buildings are four well margin. The base of our brands a hell of a number. I'm personally set us on the path of a few projects that were not qualified to do. Doesn't mean they couldn't have been cool. They could have been amazing. We just happened to not be qualified to do. He seemed aware that we Work was losing focus. I want to tell you about some of we worked crazy expenses, expenses that seem to have nothing to do with office space. And here's Jamie recounting the time Adam told him about a recent we Work investment. It was in a company called Wave Garden. Adam asked Jamie if he'd ever heard of it. Jamie said no, and so then he pulled out his phone and he started playing this video he made some phrase about how it makes waves, and I completely misunderstood what he meant. I thought he was talking about some construction technology company that metaphorically was making waves. It was doing big things in its industry. But then the video just kept showing people surfing, and at some point I was like, man, they are really taking this like wave metaphor. Are really far like that they have to explain what they do. And then there was a moment where I was like, oh my god, this isn't a metaphor. They literally make waves. Why are they buying this company? Yep. We Work spent thirteen million dollars to buy almost half of a wave pool company. Later, we Work investor told me the rationale. He said that we Work wanted to build huge corporate campuses and put wave pools in them. But to Jamie the investment was baffling. It's like when people become really wealthy and all of a sudden they think that the McDonald's near the house where they grew up is better than the McDonald's in the city they currently live in, and they have people fly the big Mac over from their hometown McDonald There's something like, I don't know, I guess that's what rich people do, and I guess that's what rich companies do. We worked had so much money they were literally giving it away. They launched a pitch competition called the Creator Awards, where they handed out twenty million dollars in prize money. Hello, Hello, Hello, welcome everyone, Welcome to the eighteen Berlin Create Our Awards. Amazing entrepreneurs pitched their startup ideas on stage to celebrity judges like Ashton Kutcher and p Diddy. We were called the Creator Awards marketing events to help spread the word about their offices. They held them all over the world in places like Tel Aviv, Austin, and Shanghai. When you do something that comes from the heart, when you bring it together with intention, magic happens. If you're a graphic designer and accountant and artists, a singer, or anything in between. Euro creator and euro creator and what does that mean? That means that we're part of something greater than ourselves. And it wasn't just Adam. Other execs also got caught up in the ability to spend freely. Here's Carl Pierre, a community manager in d C. He's describing how he was instructed one night to find a last minute helicopter or private plane for an executive. I had another we Work employee communicates me that an executive needed transportation immediately, ideally helicopter from Washington, d C O a jet to get back to New York City, and no context, just told it was very important. I was calling my friends who are staffers to see if we could pay to borrow, uh, you know, a senator's plane or something crazy. I was going through every channel and it was nuts. At the end of the day, it was almost like midnight, so I'm trying to find this. I had a good lead on a on a on a on a helicopter, and then uh, it turns out that particular we Work executive just needed to get back to a party in New York and that's the only reason why he wanted to leave DC Again midnight, I found a good lead and I was told like, oh, yeah, you know, it looks like the party let's be over anyway, So he's good. Yeah, nearly lost my mind. So Adams executives were willing to spend money in frivolous ways, and at the same time, Adam was stretching the truth about the company's financial position. Here he is at an all hands meeting in twenty six team telling employees that the business was profitable when it really wasn't. As opposed to other companies that you're reading about, we don't have any issues. We don't need to raise any more money. We're in an amazing place where the profitable business that's going to only get better. That's going to help us fulfill our calling and our mission. By shifting this culture, we're gonna be able to not only keep doing these things, but do them pen times better, move very strongly into positive cash flow. No need to rely on raising money, now, need to rely on going public, no need to rely on anything except for ourselves and fulfill our mission farm members, and we're going to do it, all of us together. He says here they have a profitable business. I can't tell if he's being sloppy or misleading when you're saying that we now know that we Work was losing money. In the tape, Adam is telling his employees that we Work doesn't need to rely on raising money for the business to keep growing, but in just a few months he'll turn around and raise four point four billion dollars from a fame as investor, and this decision will change the entire course of we Works trajectory. All of the company's impulses to do things that were more random, more grandiose, more expensive, They're about to be unleashed. We'll be right back. So before the break, we talked about how we Work was about to raise money from a new investor, and apart from Adam, this investor is one of the most important people in the story of We Work, Masa Yoshi's son. To explain who he is and why he's so important, I want to introduce a colleague of mine, Sarah McBride. Here's Sarah. I've been reporting on venture capital for the past few years, so I'm spending a lot of time on we Work's biggest backer, soft Bank, plus the guide behind it. My Sayashi's son, but too many people. He's just known as Massa, like share or Madonna. Massa is a kingmaker in Silicon Valley, one of the most famous investors in the world and one of the spendiest. He founded soft Bank when he was only twenty four years old. It's grown into a giant investment company in Japan. It's huge, it's bigger than Sony or Honda. Even he uses his money to make big bets on others. He's best known for an investment he made in a Chinese internet company called ali Baba. At the time he first invested back in two thousand, Ali Baba was small. Nobody knew it would take off the way it did. Ali Baba was founded by a guy named Jack Ma. He built it into kind of a souped up version of Amazon, tailored for the Chinese market. Now, Ali Baba is one of the most valuable companies anywhere. Jack Ma is an icon. Here's what's so interesting. When Massa talks about his famous big bet, about why he took a leap of faith and invested in jack maa so early. He doesn't talk about how smart jack Ma seemed, or how he'd come up with an original business plan. He talks about his charm, his ability to attract people to follow him. Well. He had no business plan and zero revenue employees, maybe thirty five for the employees. But his eyes was very strong, strong eyes, strong shining eyes. Um I could tell from the way he talked, the way he looked at he has a klisma, he has a leadership. He can bring you know young Chinese people following him. Now, if a young entrepreneur catches Massa's eye, he likes to tell them they remind him of Jack Ma, or that he thinks they'll become the next Jack Ma. The entrepreneurs love it. It's the biggest compliment he could give, and it worked with Adam Newman too. In fact, Adam told Fast Company magazine that he reminded Massa of Jack Ma. In two thousand seventeen, Soft Bank announced an investment fund that would be one hundred billion dollars. It was a huge amount of money, way way bigger than any venture fund, and when Massa began investing this money, it actually changed the way Silicon Valley works. In the old days, successful startups could count on raising tens of millions of dollars depending on how they were doing. Now, venture capitalists were competing with soft Bank to invest in the best companies, so money started flying around hundreds of millions, sometimes even billions of dollars to one startup. And that's exactly what happened to we work. The story itself is pretty crazy. Massa had a meeting with Adam. He told Adam he would spend two hours that we Work, but when he showed up, he said he had only twelve minutes. When it was time to go, he invited Adam to jump into the car with him. Adam pulled out his pitch deck because he wanted a big investment from SoftBank. Massa told him to put it away and took out an iPad. He drafted a rough investment agreement between them. They both signed then and there. That was late two thousand and sixteen. Adam still had a photo of the contract on his phone months later and showed it to a reporter from Forbes. He said it gave him goose bumps. Adam ended up getting a four point four billion dollar investment from soft Bank the next year, with more to come. Here's Adam on seeing BC. It's a real partnership and I think the longer we know each other, the more we can build it to Massa is one of the most visionary investors in the world. He I don't know if you know the story, but his initial decision to invest in We Work took approximately twenty eight minutes, including when he got in left and drove in the car. Startup founders who work with Massa say he loves it when you think really big, he asks what you could do if you had several times more money than you're trying to raise, if funding was no limit. Then he gives you that cash and expects you to deliver. And the crazier you are, the better. He told me that if two equally smart entrepreneurs are duking it out, but one's also a little crazy, the crazy one will win every time. He even described what he called an animal smell between himself and other entrepreneurs. They can smell it, and he can smell it. It's primal, and it seems like Massa felt this connection with Adam. He kept showering money on We Work, but within soft Bank it was a really controversial investment. Some of Massa's lieutenants that they were putting too much money into We Work, and so did some of his investors, that Massa ignored them. He found ways to keep writing we Work checks. That's because he believed that in the future, more and more people would move to coworking exactly We Works business model, and he really believed in Adam. So Massa basically gives Adam as much money as you could spend, and Adam starts spending and he doesn't have to be that careful because there's so much of it. If you talk to people inside We Work, many of them will say that the Soft Bank investment was this turning point. We Work had always been kind of freewheeling, somewhat cookie with lofty ambitions, but after Massa wrote Adam a blank check and told him to be crazier, it felt like every in got dialed up. We Work already had one side business, we Live, but it started branching out even more. It started a fitness boutique called Rise by We, and then there was We Grow. It's an elementary school. Rebecca and Adam have five young children together. Rebecca said in interviews that she couldn't find a school in Manhattan that was good enough for her oldest daughter, so they made their own. Here's Rebecca describing We Grow on a podcast called The School of Greatness. Once a week they get all local farms out they do. They spend one full day a week in nature, farming and just running and being and you know, meditating in nature like farm animals too, or is it just kind of there will be animals There are not currently um but they plant seeds, they harvest their crops, they bring them back to the city, they run a farm stand at We Work, and then they donate all of the proceeds to a nonprofit that they are actually personally involved in and invested in. She sounds like she has a very specific vision for the school. Tuition that We Grow costs forty two dollars a year. The interior was designed by celebrity architect. We Work came up with a way to explain why it was running a school. It said the school's mission was to unleash every human superpowers. It kind of connects to We Worked brand. But I spoke to one employee, Stephen Green. He remembers Adam being a bit more blunt in a speech at a company off site explaining why they started We Grow. So Adam explained that Rebecca had a dream the night before and in that dream, We Work had a school. The next morning, Rebecca told him about the dream, and he said, Okay, we're gonna start school. No marketing analysis, you know, No, We're gonna do some some test groups. And that was simple as that. So on the one hand, you have We Worked, the company branching out into seemingly unrelated businesses. But then there's also Adam's personal extravagance. Says we Worked bought a private jet for sixty million dollars. It was the top of the line gulf Stream G six fifty. Adam took it for business and also on trips to Costa Rica and Hawaii, sometimes to go surfing. At summer camp, employees stayed in tents, but one ex employee described Adam's summer camp lodging as a huge compound up on the hill visible from the valley below. In his office and we Works headquarters, Adam added a secret back room that had a sauna and an ice bath. It became a piece of lore within the office. I never got to see it in person, but an ex employee showed me photos once. The tub had a neon lightning bolt hanging over it, and I also heard a funny story. Someone told me the ice bath messed with the water pressure in the building so much that whenever Adam ran the bath, the office espresso machine stopped working. Meanwhile, we Work kept investing. They acquired a marketing s c O company, a coding school. They invested in a super foods company run by a pro surfer whom Adam admired and befriended. One former executive said that at the time, We Work wanted to compare itself to Amazon, another company that expanded into seemingly disconnected business areas and didn't turn much of a profit. This person didn't want to be named, so here's someone reading what they told me. But of course Adam didn't know what to do with the school, He didn't know what to do with the gym, He didn't know what to do with residential things. We were buying companies for fun. It was just too much. Adam's focus seemed to go further and further Afield get pulled in different directions. As a manager of business, you get, given that amount of money, you can afford to dream very very big. After the soft Bank investment in it seemed like Adam and Rebecca were deciding company policies based on their personal whims, like We Worked infamous meat ban. Sources told me that when Rebecca and Adam announced their employees that we Work would stop serving meat, it came as a surprise to the other company executives. Remember this affects thousands of we Were employees and members worldwide. The communications team had to quickly scramble to figure out a way to frame the decision to the public. They landed on an argument for sustainability, and they said the idea came from Miguel McKelvey, the other co founder. Here's a clip from CBS. We were just released a memo to its six thousand employees saying it won't pay for any meals that include red meat, poultry, or pork. According to Bloomberg, the company's co founder and Miguel mkelby said in the company memo, new research indicates that avoiding meat is one of the biggest things an individual can do to reduce their personal environmental impact, even more than switching to a hybrid car. Just asn't aside here. When most companies make a decision of this scale, they spend months deliberating over it. But my sources told me that this change happened with barely any warning and basically no business rationale. It almost feels like something you do if you wanted the company to be a reflection of yourself, and the company kept making other important decisions for seemingly personal reason. We work decided to raise money from bond investors. They initially said they wanted to raise five hundred million dollars, but at the last minute they switched to seven and two million dollars. That's weird. I remember thinking at the time seven o two seemed like such a random number to pick. I asked, we worked why, and was only able to find out that seven O two was a lucky number for the company. That's a surprising rationale for such a big decision how much debt a company should take on. Later I found out why the number was lucky. Seven O two is what you get when you multiply two numbers eighteen and thirty nine. Eighteen is a good luck number in Judaism. And the day of the bonds were sold it was Adam's birthday. He was turning thirty nine. Now, I want to take a huge step back, a two year step back, and play for you some tape that really knocked me off my feet when I first heard it. It's from back in when we work was growing pretty quickly, but still before things really got amplified by soft banks billions. Here's Adam talking at an all hands meeting, and he's trying to make an important point to his employees about the way we work spend money. What he's saying casts a really unexpected light on everything you've heard in the episode up until now. Now, if you think this company, I would say big, but has a little bit of a spending culture, raise your hand. I think so it does. It does for those of you don't know it does. It definitely does have a spending culture. We didn't used to be this way. We did not used to be this way. We used to fight for every dollar. We did not spend. We never outsourced. We first tried to solve a problem internally and then went to the outside well said hey, we can pay you to bring and sometimes it worked in something as it didn't. But we were really good at watching our cash. He was saying that we work even though it has all this money available to spend, was being way too careless with it. They were spending all over the place without purpose. We've spent this whole episode describing how flashy and indulgent Adam became, especially after soft Bank's investment. But here he is two years earlier, cautioning his employees to be conservative. He told them they were spending too much and that it was going to hurt their profits. He lectured them about how they should be managing the nickel. That meant noticing every time the company was wasting money, even on small things. As an example, he talked about a breakfast spread they ordered every Monday for an executive meeting. In the money. We would get breakfast, some salmon, some eggs, some bagels, some yogurt. And we've done this for a year, We've done some maybe for two years, and truth is not a lot of no one was really eating it. Adam estimated that the company was saving three dollars a week by cutting this breakfast, and he used it as an example for his employees to look for other places to cut costs, even small ones. For example, how many times if you left this room and the lights were on? How many times every time? When I've left this room and I left this room a lot of times at two am? How many times have you seen our buildings with their lights on at two am? Every time? And I love going through our buildings at to am. I was just in two buildings last week, and I want to hear from you. I want to start receiving notes. Lights are on the two o'clock. This is wasting money, This is wasting money. This is not smart. I don't accept this. This is my company. I have equity here. I don't want to be wasteful. I don't want to be wasteful. So because we can do great things with the money. Who is this, Adam Newman? How do you reconcile the atom of who's trying to save on the electricity built with the atom who's flying on a sixty million dollar private jet. What's striking to me is his awareness of we works out of control spending. He knew that it could hurt the company in the long run. So did he just forget his own warning or did he not believe his own message. If we can't ensure as a minimum to bring in more than we spend, that's an easy one. Everybody knows that bring in more than you spend, then all the dreams and all the hopes and everything we're all sitting on is not gonna work as well as we thought. The only thing that can ruin this is if we don't get serious about controlling our bottom line, controlling our expenses, getting very focused and getting very clear. And he's saying that this is their only chance. They can't mess it up, and the universe does not allow waste. So if we show the universe for too long that we're wasteful. It will come back at us ten times fall. Because that's how, at least how I believe the world works, and that's my experience of how the world works. When I think of us, the only thing that scares me is that in ten years, when we look back, we will say that we missed the opportunity, that we did not take this thing to the full strength that we can take it. This tape is a really surprising glimpse into Adam's mind and how it seems like he changed over the years. At We Work. Back in he showed some pretty traditional business sense, but he seemed to have thrown it out the window. Massa once said that the crazy man will always win in a fight against the smart man, and it seems that Adam became the crazy man that Massa wanted him to be. We know now that in the ten years since We Work was founded, it almost never turned a profit. In fact, in the years after Adam warned his company that they have to stop this spending culture, They're spending culture only got spendier and it will keep getting huge. It will become so extravagant, so head scratching that we work will become a symbol of start up excess of CEOs given too much permission. Here's a part of his speech that I found particularly unting. He's talking about other high valuation companies that had raised billions of dollars and then wasted the money. He's using them as a cautionary tale. I know if you guys are reading or not reading, But a lot of our peers who I never actually thought were our peers, but companies with high valuations who raised a lot of money. Some of them been closing down. A lot of them have been firing ten to their employees. I can promise you one thing about all of them. They all had a spending culture. And that spending culture led to lack of processes, lack of control, and at the end of the day, lack of money. And when lack of money comes and the world goes up, that's not a problem. But right now the words doing this, or maybe it's even doing this, well, that's a different story. There are a lot of employees they're now that thought the equity there was worth one price, and now they're being told it's worth another. And now they're doing it down round then let me tell you they're gonna do three more if they're even gonna stay in business, and it's gonna be very difficult. The secret is to take care of it before it becomes a problem. Layoffs down rounds employees thinking that their equity was worth a lot one day, only to find it's worth very little the next. You could play this tape today and say it was about we Work, and it would all be true. Adam was definitely right for what it's worth. We Work did have a spending culture when he was warning against it, it was already in full force. Over the next few years, that spending culture would get more extreme, and all of these disastrous things that Adam is telling his employees are happening to their peers. They're about to hit WE Work in the face very soon. It was like he predicted it years before his company spirals out of control. That's next time on Foundering. Foundering is hosted by me Ellen Hewitt. Sean When is our executive producer. My Aquava is our associate producer. Ray Mondo mixed the show today special thanks to Sarah McBride, Mike Held and Tucker, Joseph, Mark Million, and Bandermain and Alistair Barr are our story editors. Francesca Levi is the head of Bloomberg Podcasts. Be sure to subscribe and if you like our show, leave a review. Most importantly, tell your friends see you next time.