WeWork, FTX & Color-Changing Flags.
I admit, I have a bit of a love-hate relationship with WeWork. For years, I maintained an office at one WeWork location or another. Several of my closest friends, I met at a WeWork. Clients, too. For many startups, WeWork represented a significant value-add: finding office space is an often daunting task, and WeWork made it easy, and cheap. But underneath all the “move fast and break stuff” startup ethos, WeWork moved fast and broke, well, itself.
For many of us, watching WeWork’s slide into an impending (at the time of this writing) bankruptcy filing has been like watching a slow-moving car crash from which we simply could not avert our eyes. I distinguish WeWork from companies like FTX here, in the sense that with FTX, things were (to the casual observer) *fine* in October 2022, and then *not fine* in November. FTX was pretty sudden. WeWork was not.
Remember the “community adjusted EBITDA” metric? That was back in…2018, and the first (and failed) IPO would soon follow. On the heels of that barely mitigated disaster, WeWork was taken over by its largest investor, Softbank. And then came the hilarious charts, which seemed like a prank until we realized they…weren’t. But of course, the charts were for the turnaround of an investment that’d been sketched out on an iPad in a moving car—a truly 21st century “back of the envelope.” The trouble is, that investment was for $3.4 billion. And if you think that that’s crazy, you’re right; it is absolutely crazy. But then again, so was Masayoshi Son’s advice to Adam Neumann at the closing of said investment: “you and [WeWork co-founder] Miguel [McKelvey] are not crazy enough.”
I’m not a venture capitalist—I’m just a dumb boring lawyer—but maybe “be more crazy” isn’t the advice you want to give a founder whose leadership style was best described as “tequila-infused,” and who’d apparently scream at people for asking him to turn his music down. Right, that’s the guy who isn’t crazy enough. And of course, when things came tumbling down the first time (back in 2019), Masayoshi Son reflected, “I overestimated Adam’s good side, which I should have known better. And his negative side, in many cases, I turned a blind eye, especially when it comes to governance.” Whoops!
But here’s the thing: VC investors overlook big red flags in founders all the time. And sure, some red flags are worse than others. But what’s perhaps most uncomfortable to think about is that investors might be willing to overlook bigger red flags for founders with bigger ideas. Want to do something mildly valuable? No room for error. Want to take over commercial real estate in every major city in the world? Sure, be absolutely nuts! (Alternatively, want to do blood testing in a shoe box? How about creating a massive offshore crypto platform? Go nuts, guys! Go nuts.) The trend becomes problematic, though, once people start to associate being “nuts” with having the potential to execute on a big idea. Put another way, the problem occurs when red flags stop looking so red, and start looking a little green.
One of the best examples I can think of here is Sam Bankman-Fried of FTX, who was apparently playing video games while in a videoconference pitch meeting with investors at Sequoia (a prominent VC firm). Now, I’m not sure if you’ve ever been in a Zoom—or a Google Meet, or whatever—with someone who’s doing something else while being in that meeting, but it is pretty obvious. Nevertheless, the results of the Sequoia meeting were resounding praise for Bankman-Fried. “It was one of those your-hair-is-blown-back type of meetings,” said one Sequoia partner. Others: “I LOVE THIS FOUNDER,” and “I am a 10 out of 10.” Sequoia went on to post a full-on profile on SBF on its website (which it’s since taken down, but the internet never forgets), and it includes how SBF was absolutely playing video games during that meeting.
Now, if you’re a big-time VC looking to put together a real showcase piece on your prized founder, you’d probably take care to omit the red flags, particularly the glaring ones. And yet, that bit about the video games during the meeting made it in. Why? I think, to Sequoia, the behavior would have been a red flag in many (if not most) other cases, but, in the context of trying to revolutionize the entire financial services industry, Sam Bankman-Fried’s red-flag behavior was actually interpreted as green-flag behavior. The sheer scale and ambition of what he was trying to accomplish turned his actual behavioral problem into a perceived indicator of his potential for success. And that, to me, is the actual problem here.
When you break it down into simple parts, ambition and scale shouldn’t turn red flags into green ones. But, for the VC industry, it far too often does.
Weird Turkey Stuff.
The FBI has been investigating allegations that Eric Adams’ mayoral campaign had received illegal donations from Turkey (the country; this is not a coup against Thanksgiving). This seems kind of…random? But, digging into it a bit, there’s a lot of weird connections between Turkey and NYC’s mayor.
There was a flag raising ceremony for Turkey in Lower Manhattan recently, at which Adams boasted that he’s been to Turkey the most times out of all the mayors NYC’s ever had. Weird…flex?
But it goes deeper and weirder: alleged “straw” donations from employees of an NYC construction firm; more of the same but from employees of a private, Turkish-owned non-profit university in DC, which were then returned; and even a cameo in a Turkish movie.
But it’s not Eric Adams at the center of the FBI’s investigation, at least not yet. For now, investigators are focused on Adams’ head of fundraising, Brianna Suggs. Adams raised a few eyebrows when he appointed Suggs as lead fundraiser for his campaign; at the time, 2 years ago, she was only 23 years old. Now, sure, Suggs might be some prodigy at raising money; the 2021 Adams campaign did spend $18 million on its way to victory. Nevertheless, it’s not as though campaign finance in the United States is simple; it’s an incredibly highly regulated activity. And while it isn’t right to presume, simply on the basis of age, that it’s too much for a 23-year-old to handle, I think it’s more than fair to say that campaign finance is an area where professional experience isn’t so easily trumped by youthful exuberance.
Nevertheless, this story is still in early days, and there’s a lot we don’t know. Maybe there’s nothing here but some good old fashioned camaraderie between New York City’s mayor and the government of a whole separate country in the Middle East—one whose relations with the United States have become rather complicated as of late. Maybe there’s more to it than that. All I can say now is that if the Turkish think that Eric Adams will wind up being the next Obama (and therefore it’s smart to buy influence with him now), man oh man are they sorely mistaken.
