How SoftBank bet and lost billions on WeWork

On December 6, 2016, Masayoshi Masa — founder of Japanese investment company SoftBank — was due to visit the headquarters of WeWork in New York City. As usual, he was running late, and his subsequent meeting with president-elect Trump loomed large. The planned two-hour at WeWork tour turned into a 12-minute walk-about. Unabashed, Masa invited WeWork’s founder, Adam Neumann, to join him in the back seat of his SUV for a ride to Trump Tower, 38 blocks north.

Neumann brought along a printout of his vision of a new world of work: cool, high-tech office space with cushions, Pelotons, and plenty of free booze. Masa waved it all aside. Pulling out his iPad, he sketched the outlines of a $4.4 billion investment to be cofinanced by SoftBank and its Vision Fund. Half an hour later, Masa emailed a photo of the digital “napkin contract.” It was a blur of lines laying out a global partnership. The SoftBank investment implied a valuation of $20 billion for WeWork, the same as Hilton Hotels. Only Uber and Airbnb, the new hotshots on the US start-up stage, had done better.

At 38 years of age, Neumann had landed on cloud nine. SoftBank’s fresh injection would help create a real estate giant worth billions. Even better, he’d be worth $1 billion on paper. As his executive team later exchanged hugs and high fives, Mark Schwartz, the ex-Goldman Sachs banker soon to join the WeWork board, issued a note of caution. Masa runs hot and cold, he warned. Right now, he’s running hot on WeWork. Watch out, if he starts running cold.

Masa first spotted Adam Neumann in January 2016, at an event called Startup India in New Delhi. Star billing went to Prime Minister Narendra Modi. But Neumann, a Jesus-like figure standing 6 feet 5 inches tall, with sculpted cheekbones and flowing black hair, stole the show.

For most of his life, Adam Neumann had battled against the odds. He was dyslexic; his doctor parents had divorced when he was 7 years old. He enrolled in the Israeli Naval Academy, graduated officer school, served on a missile boat in Haifa, and then dropped out. That day in Delhi, Neumann talked about India’s spiritual heritage as if he’d spent a lifetime in the subcontinent. Why was everyone talking about raising money, valuations, and the risk of a bubble? “That is not the goal. The goal is finding something that you truly love,” he oozed. 

In the evening, Masa was dining at the home of Indian mogul Sunil Mittal when Neumann waltzed in half an hour late. Ignoring the security guards, he said he’d been searching for the right address. Tempted to give up, he gambled on the biggest house on the block.That was Adam Neumann: apparently sincere, outrageous, bordering on reckless. Like Masa, he operated on a different planet, where everything was possible and money was no big deal, especially if it was someone else’s.

“Masa thought Adam Neumann was the Second Coming [of Christ],” says Jordan Levy, the New York venture investor who’d just left SoftBank. “Elon Musk, Jeff Bezos, and Bill Gates, all rolled into one.”

Masa’s multibillion-dollar pledge to WeWork fitted a pattern of seemingly irrational decisions to invest mind-blowing amounts of money on founders he’d barely spoken to. Such moments are the stuff of venture capital, which employs a high-risk, high-reward model. In industry parlance, it is called a “moon shot.”

But in Masa’s case, deeper psychological forces were at work. His approach to business and life in general was that if he could visualize something, it must be true. But this approach also left him susceptible to fellow dreamers . . . who talked about building business empires and world domination. The closest analogy, a SoftBank colleague says, is Ronald Reagan and his unshakable belief in the “Star Wars” missile defense system.

In the real world, Adam Neumann was little more than a middleman, renting office space wholesale and up-charging for flexible leases, cool design, and the provision of services such as the internet, reception, and mailroom.Neumann sold Wall Street a fantasy of joyous communal living like the kibbutz in Israel with an entrepreneurial twist.

In March 2017, Neumann traveled to Tokyo to celebrate SoftBank’s $4.4 billion investment and divvy up the proceeds: some $3.1 billion for global expansion, with SoftBank using the balance ($1.3 billion) to ac- quire WeWork stock. Neumann . . . stood to gain several hundred million dollars, one of the most lucrative sales of stock by any start-up CEO.

In the late spring of 2017, still hunting for backers to boost the coffers of the Vision Fund, Masa requested a meeting with Warren Buffett, the Sage of Omaha. Investors loved Buffett’s home-spun wisdom, expressed every year in an annual letter to shareholders.

Masa, never good at small talk, went straight to the point. He wanted Berkshire to back his Vision Fund, the lead financing vehicle for SoftBank’s WeWork investment. But Buffett explained that he was an old-school investor who wasn’t interested in debt. “I’m a cash-flow guy,” he explained. SoftBank executive Rajeev Misra quickly grasped that Buffett had no interest in putting money into the Vision Fund. Masa carried on regardless; Buffett was politely diffident. The meeting lasted barely 20 minutes; Masa had flown 6,000 miles for a meeting that ended with a giant zero. Buffett was impressively prescient.