The VC-fuelled comeback of WeWork founder Adam Neumann

When Adam Neumann was finding out at New York’s Baruch Faculty 20 years in the past, he pitched an thought he referred to as “idea dwelling” to its start-up competitors: a communal twist on condo leases that seemed like a pupil dorm for city professionals.

His professor shortly dismissed it, telling him that no entrepreneur may increase sufficient cash to alter how folks dwell. Neumann dropped out to launch just a few different start-ups (which additionally fizzled) earlier than founding what he dubbed one other form of bodily social community: WeWork, the co-working enterprise whose rise and fall was to change into a byword for start-up hubris.

Neumann’s firm, which introduced beer, pinball and adaptability to the humdrum enterprise of workplace leases, raised a lot cash that by 2016 he was in a position to revive his unique thought. Its WeLive enterprise, he stated, would provide month-to-month leases in condo buildings with pool tables and communal kitchens to a technology that was more and more priced out of America’s huge cities.

WeWork’s valuation soared to $47bn, pumped up by funding from SoftBank, then crashed in 2019 as its heavy spending and Neumann’s erratic behaviour sank its plans to go public. Neumann walked away a billionaire, however his story — retold in books and tv reveals — turned a cautionary story for unicorn-hunting buyers.

Lower than three years later, nonetheless, one of many greatest names in enterprise capital has put $350mn behind Neumann’s newest try to alter the best way we dwell. This week Marc Andreessen, the Netscape co-founder who noticed tech hits from Airbnb to Fb, announced his agency, Andreessen Horowitz, could be investing in Neumann’s new firm, Movement.

Most followers of the WeWork story had been surprised. “As an entrepreneur, [Neumann] presided over a start-up . . . the place there was numerous promotion and comparatively poor execution,” says Roger McNamee, a veteran Silicon Valley investor.

The VC agency’s funding — its largest on document — places a roughly $1bn valuation on Movement, an organization whose most seen presence is a one-page website with a pulsing pastel brand and the phrases “coming 2023”. Jason Calacanis, the tech entrepreneur turned investor, struggled to maintain a straight face when discussing the dimensions of the guess on his podcast. “They’re not launched!” he laughed, placing his head in his fingers.

However the funding shapes a comeback narrative for Neumann that’s marked by the identical hovering ambition that he dropped at WeWork. What he has deliberate, Andreessen stated in a weblog submit saying the funding, is nothing wanting “a direct strike” on a disaster on the coronary heart of the world’s largest asset class: residential property.

Movement profile

In an interview with the Monetary Occasions trailing his plans in March, Neumann outlined that disaster by way of laborious information and human longing.

The US is chronically wanting properties, he stated, and isn’t constructing new ones quick sufficient. Between 2018 and 2020 that scarcity grew from 2.5mn properties to three.8mn, the chief economist at US government-backed mortgage large Freddie Mac estimates. A latest White Home evaluation famous that the variety of new properties inside attain of first-time consumers had fallen by 80 per cent for the reason that Seventies. The Federal Reserve’s efforts to manage inflation by pushing up rates of interest are solely making reasonably priced housing extra scarce.

Because the legal guidelines of provide and demand push home costs up sooner than salaries, Neumann stated, a younger cohort he as soon as named the We Technology “are virtually the R Technology as a result of they should hire”. So Neumann spent a whole bunch of tens of millions of {dollars} shopping for rental condo buildings in cities corresponding to Austin, Miami, and Nashville, whose reputation amongst that demographic has solely grown by way of the pandemic.

Strolling by way of these buildings, he stated, he noticed a “super” alternative to make them extra uplifting for tenants striving for a greater high quality of life: “It felt like there have been higher methods to function the buildings. And it felt like, frankly, there’s room for extra neighborhood.”

An identical mixture of macroeconomics and morale was on Andreessen’s thoughts this week. He fretted in his weblog submit that the nation’s most dynamic cities had been pricing out expertise, however he additionally voiced fears of the loneliness going through folks with little interplay with their neighbours. Solely a seismic shift in how the property trade works may remedy these issues, he argued.

How Movement plans to engineer that shift isn’t but identified. It’s additionally unclear how a lot property it would personal, or how Andreessen’s funding has been structured.

Andreessen wrote of Movement combining “community-driven, experience-centric service with the newest know-how.” This would come with an app on which tenants may make funds and entry facilities and occasions, in keeping with a buddy of Neumann.

Two of the buildings reportedly purchased by Neumann level to the choices already on provide. One in Nashville advertises a music room for jam classes, a “bark park for pups” and “valet trash pick-up”. One other in Fort Lauderdale, Florida, lets tenants “dwell the life-style [they] deserve” with “rent-by-bedroom” co-living, an out of doors cinema and a “bumpy garden artwork space”.

However Andreessen hinted that Movement might also have a much bigger objective: to rethink a decades-old rent-to-own mannequin that’s purported to make it simpler for tenants to show into owners however that has been plagued with predatory practices.

“You possibly can pay hire for many years and nonetheless personal zero fairness,” Andreessen noticed. The elemental change he thinks is required in housing would require “rethinking your complete worth chain, from the best way buildings are bought and owned to the best way residents work together with their buildings to the best way worth is distributed amongst stakeholders”.

Different start-ups promising to make house possession extra accessible have attracted enterprise cash, with Landis Applied sciences elevating $165mn from Sequoia Capital, Jay Z’s Roc Nation and others final 12 months. Crunchbase estimated in April that 17 rental-related US corporations had raised greater than $1.3bn in enterprise funding over the earlier 9 months.

Time to construct

Even with the promise of a smartphone app, a bricks-and-mortar enterprise like Movement may appear an unlikely precedence for a enterprise capitalist corresponding to Andreessen.

In 2011 he wrote an essay entitled “Why software program is consuming the world” that predicted the triumph of software-based insurgents over most industries’ incumbents. However in 2020 he declared it was “time to construct” issues like housing, colleges and hospitals to “reboot the American dream”.

With the VC world awash with money, the stress to seek out greater and greater bets has escalated, even because the collapse in tech shares forged doubts on personal firm valuations and threatened to choke off the move of recent fundraisings.

On the finish of June, US enterprise capital companies had a document $290bn out there to be invested, in keeping with PitchBook, up practically $60bn from the tip of 2021.

Andreessen Horowitz alone has raised a large $14.1bn this 12 months for funding autos starting from specialist crypto and biotech funds to extra conventional enterprise and development funds. That’s about as a lot because it raised within the earlier seven years mixed, in keeping with information compiled by Crunchbase.

Such numbers make markets as giant as residential lodging extra tempting to VCs. However the outspoken Andreessen, who made his title because the

inventor of the primary internet browser whereas nonetheless a college pupil, is thought for taking huge bets on the boldest concepts.

He had already positioned a smaller wager on the WeWork founder earlier this 12 months, when his agency led a $70mn fundraising for Flowcarbon, a individually managed enterprise launched by Neumann along with his spouse Rebekah, the previous actress as soon as described as his “strategic thought associate”.

Flowcarbon brings carbon credit, the environmental permits corporations purchase to offset their emissions, on to the blockchain. Its first token, backed by a bundle of carbon offsets, is called the Goddess Nature Token.

Andreessen Horowitz seems to have been attracted much less by the New Age branding than by the dimensions of the monetary alternative. “The carbon credit score market may doubtlessly develop to $50bn by 2030, and on-chain carbon credit may help facilitate this actuality,” enthused Arianna Simpson, one of many agency’s common companions, saying its funding.

Classes discovered?

Movement’s mission is “a heavy raise”, Andreessen admitted this week, however he made clear that the dimensions of its ambition is what attracted him. “Solely initiatives with such lofty targets have an opportunity at altering the world,” he stated, and Neumann was the one one that had constructed a “paradigm-changing” world enterprise whereas upending an analogous trade.

WeWork expects to make roughly $3.5bn of revenues this 12 months and cost-conscious new managers try to finish its future of losses. Nevertheless it has closed WeLive, which solely ever opened two shops, and its valuation has fallen beneath $4bn.

Whilst extra numerous entrepreneurs bemoaned the overwhelming sums of VC funding that also move to white, male founders, no matter their previous errors, Andreessen was touting the worth of previous failures.

“We love seeing repeat-founders construct on previous successes by rising from classes discovered,” he wrote. “For Adam, the successes and classes are lots.”

Andreessen isn’t alone in betting on Neumann pulling off a second act. Regardless of his preliminary mockery, Calacanis concluded on his podcast that Movement had probability of succeeding.

“I’m guessing 4 out of 5 enterprise capitalists who would hear this pitch from Adam Neumann at an affordable valuation would make investments,” he stated. “For those who’re a founder and also you’re keen to go huge and be audacious, it counts for greater than your errors.”

Neumann, often the arch salesman, was uncharacteristically quiet this week, nonetheless. That was deliberate, in keeping with one one that spoke to him: “He’s saying, ‘I’ve discovered my lesson: decide me by my actions’.”