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No, yeah, we'll cut this part out. We have a woodpecker happening. I guess the situation. This is the first on a choir. Dan's going to take care of it. I love it. Welcome to season five, episode six of Acquired, the podcast about great technology companies and the stories behind them. I'm Ben Gilbert and I'm the co-founder of Pioneer Square Labs, a startup studio and early stage venture fund in Seattle. I'm David Rosenthal and I'm a general partner at Wave Capital, an early stage venture firm focused on marketplaces based in San Francisco. And we are your hosts. Today, we tell an episode that in our initial season five planning calendar, we had as an IPO episode. And then that was pitifully canceled. And we were just going to tell the crazy story of the antics that got it here. But now it's shaping up to be a tried and true acquisition episode for us. So here on this episode, we will dive into the existential question of if we work, a once $47 billion company can be saved by soft banks, effective acquisition of the company. And we are going to try to accomplish two goals. First, to dive into the history of this company from the very beginning. And second, to try and see the core economic forest through the under-governed trees and understand precisely the position that the business is in today. Listen, Dan's face, during all of this is priceless. If only we were a video podcast. Which brings me to the only appropriate way that we know how to tell this story is with the expert help of Axios' Dan Primack, who has been meticulously and astutely covering this company for several years. Welcome to acquired, Dan. Thanks for having me. Our presenting sponsor for this episode is not a sponsor, but another podcast that we love and want to recommend called the Founders podcast. We have seen dozens of tweets that say something like my favorite podcast is acquired and Founders. So we knew there's a natural fit. We know the host of Founders. Well, David Senra, hi, David. Hey, Ben. Hey, David. Thank you for joining us. Thank you for having me. I like how they group us together. And then they say it's like the best curriculum for Founders and Executives. It really is, we use your show for research a lot. I listened to your episode of the story of Akyo Marina before we did our Sony episodes as incredible primer. You know, he's actually a good example of why people listen to Founders until acquired, because all of history's greatest entrepreneurs and investors they had deep historical knowledge about the work that came before them. So like the founder of Sony, who did he influence? Steve Jobs talked about him over and over again if you do the research to him. But I think this is one of the reasons why people love both of our shows and there's such good compliments. It's unacquired. We focus on company histories. You tell the histories of the individual people. You're the people version of acquired and where the company version of Founders. Listeners, the other fun thing to note is David will hit a topic from a bunch of different angles. So I just listened to an episode on Edwin Land from a biography that David did. David, it was the third, fourth time you've done Polaroid. I've read five biographies of Edwin Land and I think I've made eight episodes of them. Because in my opinion, the greatest entrepreneur to ever do it, my favorite entrepreneur personally is Steve Jobs. And if you go back and listen to like a 20 year old Steve Jobs, he's talking about Edwin Land's my hero. So the reason I did that is because I want to find out like I have my heroes who were their heroes. And the beauty of this is the people may die, but the ideas never do. And so Edwin Land had passed away way before the apex of Apple. But Steve was still able to use those ideas. And now he's gone and we can use those ideas. And so I think what Akkwari is doing, what Founder's trying to do as well, is find the best ideas in history and push them down to generations. Make sure they're not lost history. I love that. Well listeners, go check out the Founders podcast after this episode. You can search for it in any podcast player. Lots of companies that David covers that we have yet to dive into here on acquired. So for more indulgence on companies and founders, go check it out. And now on to we work. All right, on to we work, man. We were thinking about how to frame this and talking with Dan a little bit before. And I think what we decided to go with, which is true, is like this is a tragedy. This is like a Greek tragedy, particularly for thousands of people who by the time people listen, this might have lost their job. I mean, within hours of when we're taping this or a day within when we're taping this. Yeah, it's like, you know, I don't know, the Peloponnesian war or something. Like the outcome is predetermined and the actors are just caught up in forces beyond themselves. Mine is one actor who gets a lot of money. And I guess gets an island of the Peloponnesian life. Yeah, right. Those grandchildren, I'm sure. Which Greek mythological character is Adam Newman? Well, was there a Greek mythological character who just got to walk away with all the riches and leave all the responsibility behind? I don't remember that. There was usually a moral in the story. So I'm there. Listeners, we sit here on Thursday, October 24th in the morning, 10 a.m. Eastern time. So you get a sense of where we are in this currently developing tragedy. Yeah, indeed. Well, all right, let's dive into act one, the rise of we work. And to talk about we work, you obviously have to talk about the protagonist, question mark of this Adam Newman. Who is Adam Newman? Self-styled hero. Self-styled hero. So Adam, as many folks probably know, he was born in Israel. He's Israeli. His parents were both doctors. His parents divorced when he was seven. And he ended up living in 13 places over the next 15 years. Which is actually pretty crazy. And probably a lot of that goes into the ethos behind we work, including in the US. He spent a few years living in the US, then came back to Israel. And he spent a number of years living on a Kabuts in Israel, which is like a rural sort of communist farm. He was dyslexic, I presume is dyslexic. But nonetheless, quite smart, he tested into the Israeli Navy Academy, Naval Academy growing up. He came an officer and he served in a kind of elite unit in the Israeli Navy for five years. After that, he moves back to the US to New York to live with his little sister, Adi, who was actually misteen Israel. No way. Yeah, totally. And she was a model in New York. And Adam, I guess, had always wanted to come back to the US and to New York. They lived together in the city. And he went to business school at Baruch College. And his goal was getting out of the army just like many folks in Israel wanted to become an entrepreneur, wanted to start a company. And so I think this was probably while he was in business school or shortly afterwards, he has his first great startup idea, perhaps inspired by his fashion model sister, collapsible women's heels. I forgot about that. Yeah, pretty amazing. I actually couldn't find the name of the company, Dan. Do you remember? I don't remember it. No, and it's killing me now. No, but that's exactly what it was. Yeah, it was. I mean, like amazing. That unfortunately didn't work for reasons that are lost to history. But undaunted, Adam goes on and he starts his next company. The next company is called Crawlers with a K. And Crawlers, this is true. Now remember, I mean, folks, listeners probably have some image of Adam right now. He actually does have five children now. At the time, he had no children. And Crawlers was a baby clothing company and the unique insight innovation that they had, this is maybe gonna pressage we work here, is they had the technological advance of built-in knee pads in pants. So that as your children were crawling around on the floor, they were falling on the floor. Or falling on the floor, dating like speed to death, like this is a real problem. It sounds like a creamer thing. But it's also, it's a little bit New York. Like you think of the ear, both of those. Like collapsible heels, you know, baby clothes. Like you think of New York in that time from an entrepreneurial sense. It wasn't, you know, there was all this complaint, you know, there's not much tech, quote unquote, tech coming out of New York, but a lot, whether you wanna call it fashion, a parallel consumer product. I mean, that's also the Warby Parker ear, et cetera. That's totally what was being made. Yeah, we should set the timeframe here. This is mid-2000s when all this is going on. So just pre-financial crash. And yeah, tech in New York was like, there was Union Square ventures there. But there was media, media, in ad tech, media and ad tech, some of them had done well or was rising. Was, I mean, I guess it was four square round yet, probably. But he got so much publicity. I mean, he was one of those earlier, maybe it wasn't around. It wasn't really New York companies. New York tech companies. Maybe Etsy was, but like these were not, people weren't building like real tech companies in New York. Well, we will continue on that, whether we work his or not, yeah. Yeah. So it's right around this time, while Adam is trying to make crawlers work that he goes to a party and he went to lots of parties. In fact, he goes to a party at his own apartment. And as we're doing the research here, I don't know if you saw this or remember this. I guess Adam had a habit this must have been summertime of in the parties that he would throw in his apartment. He would just walk around without a shirt on. I don't know, although there's a photo of him from like two weeks ago walking down New York street without a shoes on, which is insane and Manhattan, but was. Yeah, so it was like within two hours of the board asking him a CEO. It's possible they took a shoes. We don't know. So Adam is shirtless at this party and a guest, a friend of a friend shows up and meets Adam in the elevator going up to the apartment. And that man's name is Miguel McElvie. Now Adam, I don't think we've mentioned yet, is six foot five. Miguel is six foot eight. So maybe they were like the only people who could see each other in the elevator. And Miguel had a similarly interesting background. So he grew up not in Israel, not on a kibbutz, but in Oregon on a hippie commune. Wait, both we work founders have their origin stories from coming in. And it's absolutely when we get further along, it absolutely makes sense when you think about what we work tried to become. Yeah. Wow. Yeah. So Miguel was born to a single mother, lived in this collective of five single mothers and their children. He had four sisters, we're not biological sisters, but this commune was 10 people, five mothers, five children. Later there was a little brother that came into the picture about 10 years later, but that was how he grew up in this collectivist, rural commune outside of Eugene, Oregon. He ends up, he was very smart though, is very smart. Goes to Colorado College for University, spends a couple years there, then ends up transferring back home to the University of Oregon, just in Eugene. He does two things there, one he plays basketball. And he's six eight, you can't wait. And Oregon is like a pretty good basketball. Oh yeah. He was like legit. And two, he studies architecture, and he gets his architecture degree. So this is all starting to come together here, and it's going to come together even more. He graduates, and in true, you know, sort of free spirit fashion, he moves to Tokyo after graduation. And because he has a friend over there, he's like, hey, you should just come like hang out in Tokyo. So he goes, remember, a soft bank is going to add into the picture here in a little bit. And in Tokyo, he starts his first company, a company called English Baby, which amazingly still exists today. We'll link to this in the show notes. Yeah. Did it emerge with crawlers? No. No, no, no. So Miguel was a co-founder, he was not the CEO. The company ended up moving, spent a couple years in Tokyo, ended up moving back to Portland, Oregon. So it's still based in Portland. And English Baby is best described as like, my space plus dualingo. So this is again, like early to mid-term. That's a good idea. Yeah, it's probably not a bad idea. I think they were inspired by like, do you guys remember growing up like this concept of you would be like, your schools would help you become pen pals with students in foreign countries? I think that's what kind of inspired that. They wanted to do that on the internet. So like learn, help foreign students learn English, with friends in other countries. Yeah, so the tagline, which is still there on the website today, the motto of the company is learn English, find friends. It's cool. Kind of amazing. So after that Miguel works on that for a couple years. And then he's like, you know, I have this architecture degree. I should use it. I also, he's also kind of always had this dream. He talks about this. He was on how I built this podcast. He always had this dream to kind of move to New York. So he just picks up, moves to New York. And he joins a smaller architecture firm in Dumbo in Brooklyn. And this is, there are two architects there. And he was working as a draftsman for these two architects. And they had one major contract, which was the build out of the American Imperial retail stores all across the country. So Miguel gets drafted in as a draft from the basically, this was when the, you know, era of American Imperial, they were just rolling out in a huge way, kind of like we work with, all across the country, open up all these stores, all with the same aesthetic that would come to sort of inspire we work here. To bring it full circle just before flying out to do this episode, I walked past the empty space in Seattle, where the American Imperial store used to be. And was more recently filled by Glossier's pop up, which is just like to bring it the most full circle. Oh my God. Are you, are you, are you implying there might be some empty we work spaces soon? No. I don't know. Um, so it is this man that walks into the elevator and meets Adam at this party in, this probably would have been like 2007, maybe two, that early 2008 in New York. And they get to talking at the party. And Adam, it turns out, is looking for office space for his burgeoning, hyper growth company crawlers and is talking to Miguel. And Miguel is like, oh yeah, like I'm an architect, like I like, you know, I'm in, uh, I'm doing all this commercial space. And Adam wants to wait eight years. My company, the company I'm working for is going to collapse. It'll be storefronts everywhere, everywhere, everywhere. And so Miguel's like, dude, don't go, don't go looking for office space in Manhattan. Like that stupid come to Dumbo, rents are cheap here. It's super awesome. It's really hip. You're going to like it a lot more. And so he convinces Adam to move into the same building that his architecture firm is in Dumbo. And this is 2008, the financial crisis is happening. Rents are super cheap. There's, you know, blood on the proverbial blood on the streets in New York. I was there. We all remember this. Real estate is plummeting. And these two, two entrepreneurial guys, they kind of cook up this idea. They're like, there's some empty floors in this building that we're in here in Dumbo. What if we convinced the landlord to let us take over one of these floors and then we can stuff some more people into it and like make the arbitrage on the rent. And they decide this is a good idea. These two new fast friends. And so they do it. They convince the landlord's like, well, I can't move this floor anyway. They give it to them. And the idea is this is going to become like Airbnb for office space. And maybe the better analogy though is there's a Forbes article a couple years later in the early days of of we work. And they say sort of like Airbnb, but maybe a better analogy is like an airline operator. Because really what they're trying to do is take a physical asset and squeeze as many people into it. Just like coach on an airplane. And to return out, I think the financial dynamics of this business look a lot more like an airplane operator than they do like Airbnb. But anyway, it's actually a great idea. Like very quickly the space gets filled up. They listed on Craigslist. And they're like, hey, we've got desks here. They decide to call it green desk. They think like, this is going to be eco friendly. That's what's going to appeal to these types of folks that are like new age entrepreneurs. They care about the environment. They start marketing. Didn't we only like stock environmental products? So it's like all seventh generation sort of like CPG stuff throughout the. I think they might have been. They used only recycled desks. And then the kicker is I'm sure this was probably fake. But they were like, we are powered only by wind power. In Dumbo. In a desert building in Dumbo. They changed their own grid. Hey, they're entrepreneurs. They're entrepreneurs. Throw windmill on top of the building. Yeah. So I'm sorry. I'm just trying to think of Brooklyn. I'm trying to identify my mind. The first windmill I've seen there. And I'm still trying. It was the Dutch. They put the windmills in the New York when they settled it. So like I said, though, it works great. Like there are all these people that are getting displaced from their traditional New York finance media. What have you jobs? Either starting businesses or they're freelancing and they're looking for stuff like this. And so the Craigslist postings that they're making are just getting all this demand. And within, I believe within a month, they have the space like pretty much booked up. Then they start taking some more floors in the building. The landlord owns a few other buildings nearby. They start doing this in the other buildings. And it really works. Wait, so this is green desk now? This is not work. This is bad happening at green desk. Or they just more. Something great happens to green desk, which is two years later, the landlord says, man, this is like becoming a big part of my business. And he, I don't know if he offered to buy or they offered to sell to him, but they buy. The landlord buys green desk from Adam and Miguel for $3 million, which is pretty great. So this is 2010. They raised no investment. They, I believe, raised no investment. Now they had a third partner who was a guy, I believe, named Gill, who Miguel had worked with at the architecture firm. And I believe Gill at this point just takes some money and moves back to Israel. He was Israeli. But Adam and Miguel, they make like a pretty bold decision. And this is 2010. Remember this, like they just made probably at least a million dollars each. They could be living large in New York at this point in time. In Dumbo at least. In Dumbo at least. And man, to invest in Dumbo real estate in 2010, like you would make it killing. But they say, no, we're going to double down. We think that we've learned a couple things from green desk. We think that this product has some form of product market fit. Let's take this across the water into Manhattan. And so they go, they decide to restart the company. And they want to go do this same concept in Manhattan. But they've learned, one of the key things they learned is that actually this eco-friendly-ness thing, like it sounds good, but that's not why people showed up. People showed up because what they were really doing was they were selling a culture. They were selling a workspace, feel, design, culture. And I think this is totally true. Like, Dan, I don't know if you'd agree with that. I mean, I think they were selling, if you think about freelancers back then, or people trying to start coming, they were selling the coffee shop. It's what they were selling without having to go by coffee. And there was actually a desk. That's what they were selling. That's where you would go. And probably with worse Wi-Fi at the time. So when I think Regis and I WG is going to come up in a minute. But again, this is not a super new idea. The idea. No, it's not. Look, in 19, I'm going to really date myself now. In 19, like, 94 in Cambridge, Massachusetts, in Kendall Square, where MIT is, I was working on a startup newspaper at the time. And we rented an office. And the big thing that that had was it had a common receptionist. And a mailbox. That was huge, right? We could get mail to us. And somebody would pick up the phone and would direct it to us. So I mean, that was very much the early version. But that general idea. And there was a bunch of different, basically, conference rooms in every company had one. Yeah. But I bet though, it probably didn't feel, it felt probably kind of pretty crappy. Yeah, it felt like, basically, we were in a very large cubicle with a better window. Yeah. So this is an age-old business. This subdividing real estate, basically, leasing, taking on a long-term liability where you rent out space for some low price because you're taking it in bulk. You subdivided it up. And then you rent it for a higher price. And in this case, for what we work with, we become, and then have some common shared services, which is, particularly if you're a two-person company, you don't want to have to deal with somebody answering the phone or how do we get broad bands of job room. Visitor, is it? Do we have to hire somebody to take the trash and get to make sure the coffee machine is filled every morning? Yep. And I think just to hit on this one more time, because I think this actually is a big difference from we work and everything else. What they did is they did that and they made it feel like you were at a real place, not like you were at some budget low rent. It's like English baby, right? It's cool. Yeah. That's what it was. Yeah, it was cool. It was cool. And there's multiple interviews with really we work members that said, yeah, I was working on a startup. It wasn't going well, but my parents could still come to the office and they felt like I was doing something real. Like I was a success. There was, I was in a place. Oh my gosh, look at all these great desks and computers and receptionists. Is this energy here? Yeah, ostensibly something was working. ostensibly, yes. ostensibly. And I think at this point in time, something really was working. People wanted this. So they had to come up with a new name. So Dan, I think you know the story of. I've heard rumors of this story. Adams never said it directly to me. The rumors are that Adam was partaking some stuff he would later take in on planes. And that is when the name came up. This time on a couch is opposed to an airplane. So, well, maybe he was on a couch on his private tip. That's possible. That's fair. Totally fair. We're referring to, you know, the reporting that came out in the last couple months that Adam apparently smoked marijuana. Which shocked shareholders. Shocked. Shocked shareholders. Because apparently his major investors had never met him. Anyway, so they, they needed, they obviously needed a name to replace Green Desk. And they come up with, we work. So this is like kind of an amazing entrepreneurial story. What happens next? So they start shopping for real estate in Manhattan, at least that they can take out on, they're looking for a whole building that they want to do this. They want to go big. But even with the two-ish million that they have between them, that's not really enough to get even until 2010, at least on a whole building. And they want to be in like real hip part of town. They want to be in Soho. They want to be downtown. So they're going around, they're like going to all of these. I don't even know how it works when a building's up for lease. It's like sort of an auction or like whatever it is. I have no idea. It's market by market. I know in New York, it's like one of the craziest ways. In New York, when you're looking for an apartment, you hire a real estate agent. Like that's how not so the real estate market there. So I'm sure there's extra complications when you're looking to lease a whole building. A whole building. Yeah. So while they're at a few of these, whatever they were, there were like moments where lots of people who are interested in buildings would all be in the room at the same time. So they're at one of these and they meet a Brooklyn-based real estate developer named Joel Schreiber. And he takes a shine to these guys. He's like an established pretty big time real estate developer. And they know they need some more capital. And so they kind of throw out something to him and say, hey, we need some funding for what we're doing. You think this is a good idea? How about you invest at $45 million valuation? And he says, sure, I'll buy a third of the company. Which by the way, just, I mean, again, go back nine. I mean, when we, you know, nothing that's under a billion dollars and I'm gonna pay attention to, that was a, for a startup that didn't exist, that was an enormous amount. That's an enormous amount of huge valuation time. Well, it is, but even then, I mean, just so absurd. Adacious. Adacious, fair. But this is the very first example of Adam looking around. Like if this were a tech company, then what they would have gone and done is raised $500,000 on a $4 million premium evaluation, what Adam did was say, oh, no, no, this is not that. And also, we're not gonna approach a traditional tech VC type person. So you pitch something unfamiliar that's completely different to someone that's not playing the same game as everyone else. And you get a non tech investor and a non tech business at a non tech valuation and boom, very first time this label has been run $15 million in the bank. And so they take out at least for a whole building and so how they start doing the renovation. So there's the least, but then they have to renovate this and turn it into a rework. We should clear why it kind of makes sense that you should feel like you're $15 million of safe here. Normally, when you're investing in a tech company, you're buying like laptops and then you're paying salaries. And in this scenario, you're getting something of value, this longish term lease, so that like at least if the business goes kaput, then this major investor owns a third of a value lease. Yep. And presumably you could repurpose that building and rent it out for other things. Which of course, by the way, as we go on is in theory, the concept in part behind we work kind of massive valuation, which makes what's just happened that much more. That much more nutty. So they start renovating this building floor by floor, doing that and I believe this, we'll see if we can find some pictures. We work as we know it today. Like this was it, like they, all the aesthetic, the glass walls, the communal spaces, like they had this nailed kind of from their green desk days from the beginning. So they start doing plus beer taps. That was very important. That like in the early days, when you hear about a we work, that was the first thing you hear, they have beer taps in the office. Yeah. I WG does not have beer. It's like the lowest cogs. It's the highest delta between value and perceived value that you could imagine or I guess between cost and perceived value. Yeah. So as they're finishing each floor in this building within one quarter of each floor coming online, they're at 100% occupancy. So they're like, oh man, this is working. They start running the same playbook on other buildings in New York. And Adam has a great quote on this. He says, during economic crises, there were these empty buildings. And these people freelancing are starting companies. I knew there was a way to match the two. If he had stopped there, that is like a brilliant entrepreneurial insight. He has one more sentence though. What separates us though is community. So even back then, even in 2010, I'm a defendant on that for a quick second, which is, and we talked about this, like, go back to the green desk days and to your friend who said, oh, you know, my parents came in and it looked like something was happening. Like, these freelancers, they weren't necessarily working with each other per se on the same project. But again, working next to someone, it's the difference between working alone in like, you know, you could rent out a one office office. You're alone completely with a door shut. There's people around. There's an energy that makes you work more. It's the same reason why there's like, even today, questions about is it better for people to be in an office compared to, you know, all working remotely all the time? Yep. Yeah. Yeah. Again, he's not wrong, but it is a, but it does lead to fraud. He's not 100% right either. So 2011, this is actually really interesting. I was surprised by this. The next year in 2011, PepsiCo takes out a bunch of desks in that first Soho we work and starts putting some of their remote New York city-based employees in the we work. I thought that was a much newer phenomenon. We were spissing out all the time. I thought so too, but it was actually from the very beginning. That big corporate clients were also saw the appeal of this. The next year in July 2012, this catches the attention of a number of venture capital firms, including a story adventure capital firm benchmark, benchmark capital. And in the summer of 2012, they lead a $17 million series day in we work at a $97 million post money valuation. So a nice step up from the original seed round, which was crazy to begin with. And again, back in 2012, a series A at $100 million post, like that's a significantly higher valuation than benchmark gave to Uber in Uber series A. Kind of crazy. And in Forbes, Bruce Dunley, he gives a nice quote where he flew out to New York to see it was going on. He said, it reminded me a lot of eBay when I first met them in 1997. There was something going on at both that you couldn't quite put your finger on. And I think this is an early pre-curse or to a lot of we work, which is there's something valuable here. You can't quite put your finger on it. And thus, it's hard to value. And that sort of gets taken advantage of a lot of time. Now, all that said, like everything up into this point, Dan could feel free to disagree. It all makes pretty much sense. No, I don't disagree. I think it does. Yeah, absolutely. Even this seemingly crazy investment by benchmark, as we stand today, that's a great investment. And there was, yes, there was like, is this a tech company? Is this just a real estate company? It is, but we will come back to this benchmark investment and the subsequent investments that in the background, is that what's going on? You talk about the valuation. The part that didn't get reported the time none of us ever see is the actual governance terms that are sitting behind that valuation. Do you know if that was happening at the series A already? Well, I don't know for sure, but I believe, I mean, Adam Newman, even at the time of IPO owned a remarkable amount of coming, for example, Travis Kalanick was, I think, owned like 6% of Uber when he got booted, around 6%, Adam owned a third of the company. So, I mean, he is still, I mean, after all the soft bank money, et cetera. So he controlled this thing, even in that early days. Those are the guys. Well, and it's interesting. Adam of course had Miguel as his co-founder. I believe, well, it's now obfuscated, because they have their shares in an LLC. But I believe Adam always had a greater economic percentage of the company than Miguel. If you remember you back to Uber and Travis, Travis was not the founder of Uber. No. It was Garrett Camp. Travis was sort of... But Adam had bigger peace than Garrett had of Uber. I mean, go for it. Interesting. Yeah. Well, because Garrett and Travis ended up splitting. But like there was some delusional, Travis didn't start in the same way as like, I am solo founder of this company. No, again, I mean, we'll get into this, but I didn't control what's important to Adam. And in every way, control really mattered. Yeah. So after that investment, things continued to work while they're opening lots of locations in New York. I think it was right around then that I remember the Seattle we work opening where we were Ben and I were there at the time. They were opening. There was definitely in San Francisco, number of cities around the country. Expansion keeps continuing. They start to attract the interest of the financial community. So they raise, I believe, three more rounds over the coming years led by investment banks by Jeffries and JP Morgan, chief among them, but also from Goldman Sachs. And they start pumping quite a lot of money into the company on short order. And so by 2014, the company now is valued at $1.5 billion and is kind of quite large at this point. Yeah. And how much do you think had to do with the fact that they were New York based and not San Francisco based? That's right. I would think, oh, you mean in terms of the leads? I think two things, New York based, but also think about that. They are still basically a real estate company. Or if you are, if you are Goldman Sachs, if you're Jeffries, if you're JP Morgan, you have giant real estate investments. You have whole teams that are dedicated. They know that some sort of app or some sort of machine learning, something, something, they've got to put a lot of faith that the founder knows what they're doing. With this, they felt they knew what they were doing. This is them. This is real estate and it's on their block. Yeah. Well, that's actually true. And I believe by 2014, we work had become the single largest lesser of new available commercial square footage in New York City. Like anybody, like think about like all of the real estate investment and property developers in New York. We work with the largest. So of course they were attracting attention to these folks. And it goes back to what you said earlier. Remember also what they are investing in. An app company can disappear just like that, right? There's a scandal or it doesn't work. There's no product market fit. Worst thing that happens here is you end up with a shell company that's got, as you said, all the real estate commercial real estate in New York City. That's the worst case scenario. There are, that's pretty safe as venture capital investments. Yeah. Goldman and JP Morgan, they're going to be super happy to take over those leases. Absolutely. If something goes sideways here. And let's think about how you might make that investment and arrive at a $1.5 billion valuation at this point. Is someone doing a discounted cash flow? Like is someone actually saying, well, if they continue growing at this rate for X years and we're looking at our net operating margin and we think that there's some chance to generate a billion and a half in cash flows. My get, I don't want to say I guess. I would hope so. I have so little faith that people do that or really do that and don't just come up. There is a big part of me that believes in you guys can feel free to disagree. The people come up with a valuation and they back their math into that valuation. If the first one doesn't work, they'll come up with another way to make the calculation. But look, but there was some reasonableness to it, right? Because you think about we work that the issue is always, they had to spend a lot of money up front. They're upfront capital costs A to lease the buildings but also to do the renovation, right? They could cost money to, because they were doing full almost demo inside of these things, almost down to the equivalent of studs and then rebuilding them inside. That costs a lot of money. And if you've got 20 or at least you are theoretical, you're going to, you know, depending on the building, you'll get to break even your three or your four at 70, 80% occupancy and that's when you're really in the money. So that's how you're planning it. Yeah. You know what it's interesting? I haven't quite thought about this till now as we've been going through it. I think you could argue, Dan, that like the valuations for the tech venture capital community look a lot like what you said. But I kind of imagine, you know, Goldman, GP, Morgan, they don't do this. They were looking at the value of this real estate. And I strongly suspect having friends that were at some of these places on real estate investing teams at the time, they probably had big theses about like, those years call it 2010 to 2014, were years to go big on investing in commercial real estate in major metropolitan areas. This is the counter argument would have been, even at the time would have been, okay, we're in an economic recovery at the time, arguably boom by 2014, 15. Okay, so you're right. So the floor, you know, floor 30 on 6th Avenue, that's, there's got a intrinsic value to it. But we work as decided that they are going to rent it out to short termers for the most part. Yeah, maybe some Pepsi's, but short termers, and they're gonna spend a fortune renovating it when it was already in office building, right? Generally most of them, maybe not the one and so, but most of them were probably already in office buildings. Could we have done better just calling Pepsi, calling somebody else, splitting the floor in half and basically keeping the infrastructure exactly the same, maybe with new coat of paint? Yeah, maybe they could have. So the net of all this is in June 2015, we work makes a really key hire. They hire a man named Arty Minson, who was the CFO of Time Warner Cable. Now, if you think about the cable business, this is the, not the content business. This is literally the pipes, the distribution of cable systems. Which is why he was perfect for this. Exactly, it's cash flow business. Cash flow business, but the same thing, right? A huge upfront infrastructure spend, and you will get your money basically recurring revenue year after, it'll take a while to get your nut back, but then eventually it's a lot of money down the road and it's recurring. I mean, I remember. And limited supply also. I mean, you think about cable, there's in New York, is everyone knows when, you know, when Time Warner decides to stop carrying a channel, you're out of luck. There's a lot of money. Same thing. There's a limited amount of commercial real estate in New York. Yeah. I remember back in the mid 2000s, I was an immediate investment banker at UBS in New York. And I remember covering cable companies and the history of cable companies, as we've discussed a little bit on acquired, was like nobody believed in them during the 80s and 90s when they were incurring huge losses doing all this build out of laying the cable, laying the pipes into consumers homes. But then the switch flipped exactly like you said, Dan, and then they became cash flow monsters and people loved them. And so I think a lot of this bet here was the same thing was gonna happen with we work. And already said that explicitly over and over again. He felt they were analogous. And that's Ben Thompson's AWS analogy too. That says, look, there's huge build out costs. It would be strange if this business weren't incurring huge losses right now in this era of rapid expansion of infrastructure. At some point it should flip. Yeah, indeed. This though, it did eventually. It did eventually. No, no, no, no, we work just in the opposite direction. Yeah, well, exactly. I was gonna say, no, no, no, no, you're not. This is a switch does flip at this moment. Unfortunately, the switch that flips, I think, was more in Adam than in the business. Yeah, so this is the moment where until this point, the name we work is in no way solid or in no way a head scratcher. It's a really interesting company that seems to have product market fit. That's of course growing very fast, but no one's looking at the growth and saying, like there's something massively around here. The only concern, at least I remember hearing at the time was this argument. The Pepsi thing's interesting because the enterprise piece of them, in terms of renting big enterprise companies, wasn't well known and wasn't even that big within we work in terms of its revenue at the time. There was a concern that, wait a minute, they are filling these with all of these startups, these tech startups. If the tech startup bubble bursts, and that's on top of a commercial real estate burp, you've got burst rather, you've got a bubble on top of a bubble, and then the whole thing goes to help very, very quickly. That's a great point. Yeah, that was. I distinctly remember having this conversation, like late 2014 of, I would be short this company purely because there's going to be a tech bubble that burst soon, which here we are five years later, and we're all still waiting for it to happen, or maybe it's happening right now. But yeah, Dan, this great point. Yeah. But the growth makes sense, and it's the reason I kept raising money to the higher valuations, and they kept filling the buildings. I mean, that's important. The buildings kept getting full. Yeah, they kept being full. So, Adam at this point, he's very wealthy on paper, but as they keep raising money, he starts doing, it's unclear exactly the method by which he did this, but he starts taking quite a bit of money off the table. Some definitely from selling his own shares, we won't know. And there were all, there were employee tenders. I mean, I'm told at least that every time, there's some debt stuff to JP Morgan, but in general, every time he sold shares, it was part of an employee tender. And he was selling at the same price they were, but he just had a lot more stock. Well, I was gonna say, yeah, then what we do know is that, by the time we get to now, he has, I believe it's a $500 million loan facility, personally, from JP Morgan, backed by his, we work shares, which is effectively a way to be selling without actually selling your shares along the way. I'm $500 million, that's a lot of money. Man's got a lot of houses. It's like 10 homes or something like that. So he starts doing two things. Yeah, well, that's two for each of his children. That's not bad. Well, he does have five children. Well, look, I agree. If I had five children, I too would have 10 houses. So I'd rush that at all. But yeah, he starts buying residential property. He owns four multi-million, we're talking like 10 plus million dollar properties in the New York area alone. And Dan, I think you're right, 10 residential properties around the world. I believe so, yeah. 10 or in that ballpark. Well, he also sees, gosh, there's these companies like WeWork that will pay a bunch of money to me if I own a building to lease it for me. That's the other thing. I got to figure out a way to get into this building ownership. The other thing, and the other more problematic thing that he starts doing is he uses, it starts using this money to invest in commercial real estate. And this is a huge conflict of interest, because. I mean, it is, it's not his conflict of interest. His argument was always an exciting member, hearing about this and actually asking about this. This is before I joined Axis, is when we brought him and his wife Rebecca to a fortune conference in Aspen. I remember asking about this. His basic argument was, we were having a hard time. So I almost think he did some of the commercial real estate earlier, because at least his argument was, we were having a hard time at points convincing landlords to let us in, because they viewed us as this venture back startup. Oh, we're going to sign a 20-year lease, but where you're really going to be in five years, or you're not, you're going to be gone. But if I buy the building, or I have a piece of the building, well, will these two we work? Because I have faith in it. So I'm solving that. I'm solving for that problem. But you're right. Obvious conflict of interest. Right. Well, I mean, that logic makes sense. Which in theory, if you had an independent board of directors which had oversight, would be able to manage and, and silence. Yeah. And that logic might make sense, but then the obvious answer is start investing. Have we worked start buying buildings? Correct. Not Adam personally. Which is what they ultimately get to. But not, right. Yeah. Yeah. Not Adam personally. And then leasing the buildings back to, we work, whether he's profiting on. The other thing you're doing, this is just standard, like ridiculous startup stuff. They, which is sad to say at this point, but they ran out all of Universal Studios one day and they get the chain smokers to perform. And they start doing this thing called, WeWorks Summer Camp. Some are coming up. Yeah. And actually started at Rebecca's family's property, I think in upstate New York. Somewhere like, I don't think it's the cat skills, but somewhere sort of like that looks a lot like that. There's a, there's a few really great pieces reporting on this. But it's like 150 acres of land. Her family, I think is independently wealthy. Actually, her cousin is Gwyneth Paltrow. Yes. Yeah. Yeah. You know, again, this is one of those things that sounds so stupid. And he is. I remember the first time I call, I think it was, I had talked to like, who was running PR for WeWork at the time. And I called and I get a text back saying, sorry, I'm a camp right now. It's which I say to a colleague of mine. I say, he, because it was like June, maybe. I said to a colleague, I think he's bringing his kid to camp. And she responds, he doesn't have a kid. Said, but he says he's a camp. Oh, he said, we work camp in that began a whole conversation. What the hell are you talking about? But I will say, like, look at Google. Google still does this. Totally. So if things are going well at no one cares. And when things go badly, this looks just awful. So when you have a monopoly in an 85% gross margin business, you can do shit like this. You can't, by the way, as I said, I came from Fortune Magazine. The old story is for Fortune from before my time, where when they had a blowout, the Fortune 500 issue was the kind of the Vogue issue, right? It was massive. And I guess maybe like 10 years before I'd gotten there, they had a blowout issue, and they brought the entire staff from, you know, most junior to the most senior, everybody to Hawaii for a week. So I mean, that in retrospect was really dumb. But, you know, at the time, you know, great. Like, you know, exactly. But here we are in a, I don't know, 10 to 20% gross margin business that's purely right now. Like all the cash in the bank is investor dollars. None of it is profit dollars. Correct. Yeah. So the peak of this period of the company is 2016. They raised just under half a billion dollars from two Chinese entities that value the company at $16 billion. And that was, I think that was the first time they crossed the $10 billion valuation threshold. And now they're among the top like three most valuable startups in the world, the quote unquote startups. And we were, we were, we were Airbnb, and then you can check some of the Chinese ones, but at least for the US, yeah. Yeah, for the, at least for the US. And I think that was 2016. That was before, I think people really maybe drop box at that point was already there, but close, they're not quite. It was like in the five-ish because it went IPO to run 10. Yeah, Uber Airbnb and them. That those were the three. Well, and I think actually a lot of the Chinese companies hadn't even been started in 2016 yet. Some minutes for. Yeah, like, Pindu Oduo, I think was started in like 2017. Like, it's crazy. So, so yeah. So Benchmark's two for three. And these, these three big $1 billion. Yeah. Well, plus there's a Snapchat was kind of up on its, you know, rise at that point. So yeah, everybody's sitting pretty. Enter SoftBank. And it's one of a kind founder, Masayoshi Saan. Listeners, if you don't hear the Imperial March playing, know that it's because I checked with Disney, and we did not get the copyright authorization to put that behind this section. So we've talked a lot about SoftBank on this show, including doing a whole episode on the Vision Fund. We're now in early 2017. SoftBank has just raised the Vision Fund. And we're going to talk a lot about their motivations and everything that happened here along the way. But one thing I think they really keep in mind, like, they have $100 billion to put to work. They read it. Theoretically. And their goal that they're clear about is they wanted to play this capital in less than five years. How do you deploy $100 billion, which as we've talked about, is the largest fund of any type in any asset class ever raised in history? How do you do that? As let alone in tech companies. You need to find some companies that can absorb massive chunks of capital. So they start looking around and they say, where can we put this money? Uber is obviously one example that they put quite a lot of number of those billions into. But here's this interesting company called WeWork. It's already one of the highest valued startups in the world. And they have this interesting capital dynamic. They're very capital intensive. They scale with capital. They take on these long-term leases. And they want to move into Asia. And they want to move into Asia. Exactly. This feels like the perfect fit. We could really put a lot of billions to work in this company. And then get through our deployment phase in fund one and just any good fund manager, you then go raise our next fund. Now David, is Softbank Vision Fund's mission to invest in technology companies? How does that start to factor into the picture? By this point, WeWork believes it's a technology company. I mean, the one thing you didn't say when I thought you were going when you talked about that. Inflation point was, to be honest, the AWS example is pretty good. It is starting to add lots of services on top of the real estate. Beyond the beer taps and the decor, it's trying to add all these services. And some of those are social networks for members. All that stuff, eventually, elementary school. But nonetheless, that's the idea. And I think that's part of it. But it's also, if your Massa, your Softbank looks at what they believe are transformational shifts in how people either live or work. So they invest in Slack, for example, they think that's a fundamental change in how people work from collaboration. In this case, they think this is a fundamental change in how people work from a physical location standpoint. So this works for that from a thematic standpoint. Thematically, but economically, this doesn't have the high fixed cost, low variable cost component that a true pure technology business would have. No. Not at all. But I think as to underscore again, as we said, it has this other extremely attractive element to Softbank. Different than, you know, Softbank invested in Slack, right? How much money could they put into Slack? They couldn't put that much money in. And Uber, Uber, they could only plug a ton in because it was in crisis. Yeah, right. Imagine a crisis. They took advantage of a situation. Even if you look at Vision Fund, a ton of that was money that they had already invested in ARM. In ARM, yeah. That they basically just transferred over to take a big chunk. If you're doing privately held companies, as you say, it is hard. It was the big question there is. How are you going to deploy this in any way you want to? What are you going to do with this? Yeah. And so here's this like perfect vehicle. So this is amazing. Dad, you made no more details on this, on how this happens. But the Softbank team is scaring the world looking for companies like this. We work as top of the list. So they set up a, you know, sort of like final diligence meeting where Masa's going to come over to New York to we work headquarters. They have two hours booked with Adam. Going to see the whole space, going to spend a lot of time with Adam. And as the story goes, the time when Masa's supposed to show up arrives. Adam's all like, you know, ready. He's activated the space as he says that he does. And Masa's nowhere to be found. Time goes by. Waiting. Like an hour goes by. Finally, Masa shows up and he says, I'm really sorry. I only have 12 minutes. And so they do a quick walk through in this face. And then he says to Adam, I got to get in the car to the airport. You can get in the car with me if you want. We can talk about this. Adam gets in the car with him. Masa pulls out his iPad as the story goes. Draws up with his like finger on the iPad. A sketch of like the terms of a deal. The terms being that Softbank would invest an initial four billion in total. Out of vision company. Out of the vision fund. And that's one billion for international expansion into. Subsidious. In Asia. One point three billion of primary capital into the company. And one point seven billion in secondary to basically buy shares from existing shareholders. No new cash. Including Adam. Including Adam. They sketched this on the iPad. In the car. Masa signs his name to it. Adam signs his name to it. And then of course, like the team. And it's important just for those who don't understand vision fund to get an investment from vision fund. At least one I think it's like over a hundred million dollars. You do need Moss's approval and that can't be be a phone. It's got to be an in person meeting. This isn't a normal venture fund where one partner meets with this or maybe two partners meet with the CEO. And then they bring it back to the partners and they discuss it and they have investment committee to vote. No, if you want this, Adam had to meet with Moss. This has been true for anyone who's raised money from them. Yeah, lots of friends. It's what 100 companies now, 100 investments. I'm not sure with numbers, although vision fund one is basically full in terms of new companies. Yeah. I have friends who've gone through this like where the soft bank investment team, well, you know, we're kind of deal together. And then it's like, okay, well, we're going to fly you over to Tokyo or wherever in the world. Yeah, the fact that Moss's came to New York was a big deal. Or was going to be in New York was a big deal. Usually you have to get on a plane. Usually you go to Tokyo. Yeah. So it's done. So now all of a sudden, they valued the company at 20 billion dollars, which was, you know, was already valued at 16. But this was $4 billion of capital. That was a step order of new capital coming in. And 1.7 of that going to existing shareholders, which again, we don't know the details, but I imagine a lot of that was to Adam. Yeah. And also notable time, they get two board members to it's important. They put two people on the board of directors at this moment. Yeah. Which that had to be stomach churning for Adam who's obsessed with control. Well, as we will learn later, he had two people on the board of directors, but you know, they have as much control over financial decisions. There's my kid does in my house, right? Like they, she can ask for things and complain about things. But in the end, I get to decide what we buy and what we don't buy. Dan, do you know, so famously now, Adam has a 20 votes for every one share in the company that he has. Do you know if he got this as part of the deal? I do not know. I do not know. At some point along the way, I mean, I have to, again, we can't go back. We don't have the documents to sort of forensically examine what the... But luckily, there will probably be class action losses sometimes. Yes. So we will get these documents in just a question of time. But what the governance was at various points along the way, I can say what the 100% confidence, there's no way that going back to like the original benchmark investment that the voting structure was like this. I don't know that that's true necessarily. I think benchmark, it's not just benchmark, but all of them were so bent over backwards for any... I mean, go back to the Zuckerberg thing, right? Think of Zuckerberg. He turns down a billion dollars from Yahoo when the entire board, including his investors, wanted him to take the deal. He was able to do that. And as you know, I mean, after that, so many other founders of start-up were able to get so much money. Which means whether it was 20 to 1 or not, I have no doubt that after the benchmark deal and the B and the C rounds, Adam could ultimately... Whatever he had, it was more than the rest of the board combined. Yeah. What is really interesting here is the soft bank dynamic that comes into play with boards. Because they're basically the only entity that is going to do the things that they're going to do because they so aggressively want to put this capital to work. So they basically arm Adam to go back to the board, holding a piece of paper that says, I'm going to get literally billions in investment dollars. And the terms can kind of be as Adam-friendly as they want. You can look at the rest of the board. The board's not going to say, no, we don't want $2 billion here to what, $2.3 billion of new capital coming into the company. Like, almost any terms, they're going to be happy with that, especially because what soft bank does is they say, also, if you don't take it, we're going to find someone who competes against you, who will. And also with soft bank, they and Adam are peas and a pod in this, right? Adam is a grow, grow, grow, grow person. And that is what soft banks model has been really with most of its companies that the vision fund's invested in, right? I think of DoorDash, I think of Uber. It has been this idea that if you buy, no matter what the industry is, if you buy market share, you can suffer the losses, we will make money eventually. So in the case of we work that is new markets, new cities, new buildings, buy, buy, buy, and here's your checkbook, we're going to do this. And that's exactly what Adam wants to do. Yeah, yeah. I mean, there's a famous story also of they have a closing dinner for the investment in Tokyo after it happens. And supposedly, Masha asks Adam and Miguel, who would win, sort of rhetorical question. Who would win in a fight? Who wins in a fight? The crazy guy or the smart guy? And Adam answers right off the bat, the crazy guy. And Masha says, yes, the problem is you're not crazy enough. So he's, you know, Dan, we talked about this in the prep for this. Masha in a lot of ways is feeding Adam's instincts here. Absolutely. I mean, he's an enabler. But beyond that, he's more than that. He's an enabler who's also like pushing him from behind. I mean, because they said they were perfect for each other in the sense of they both wanted the same thing. And leaving the money out of it, Masha, when you hear founders saying, I want this investor because they see the same vision I see, Masha was that guy. Yeah. So this is the pivotal moment where if you accept this term sheet as the board, this is the last opportunity that you have to exert any measure of control. This is basically your face with this, it's almost a Kobayashi Maru. On one side here, you cannot take $2.7 billion of fresh capital on a company that needs a crap ton of capital. On the other side, you can accept your fate that what all then happens in the next two and a half years, something along those lines, you're letting happen. It's not going to necessarily play out exactly like it did, but you're basically saying, this is the soft bank and Adam show. We're about to do a bunch of crazy stuff. Another thing we do not know is you talk about that tender, did benchmark take money off the table and that deal? They might have, they did an Uber from soft banks. So you might also be saying, well, okay, we're getting our principal back plus three XR principal. So we're already in the money. The worst thing that happens is we're three XR and five XR, whatever the hell the number is. So go for it. And then make us the next Google, make us the next Facebook. Yeah, yeah, get the exactly like you're at the casino at this point. You know, you've gotten three XR money back. Let it all ride, you know, like. So those are the incentives. So we've talked about the board, the investors we've talked about, Adam is looking for this partner in crime and soft bank is looking to go put billions and billions of dollars into something because Boy are those management fees sweet when they have these huge funds and they can actually put it to work. Yeah, it's also crazy to I mean, just think about this for a minute. This was like mid 2017. That was two years ago. Like this was very recent. It feels five years ago. It feels 10 years ago. So much has changed. So they take this money. They turn around right away and they buy the Lord and Taylor building on Fifth Avenue in New York for $850 million. Which, you know, I don't know. I'm not a real estate investor. I don't know how to judge like whether that was a good investment or not. But now all of a sudden you're now in a new league of capital deployment here. This is for their head. I mean, it's partially the use of flour. We were because they feel they need new headquarters because they have physically grown out of there. And they're out of space. And I will say from being in their headquarters even a few months before I'll help broke loose this year. It was crowded. Like it was legitimately crowded. They hired a lot of people. Yeah. I mean, they had 15,000 employees until this week. Now that Lord and Taylor store is going to look like an American apparel store. The one you pass by. It's going to look very similar. Oh, man. How history repeats itself. They also at this point purchased the infamous Gulf Stream G 650 private jet purchased by the company for Adam's use for 60 million dollars. Right around the same time, Adam and his wife Rebecca who at this point has been rewritten into history as a co founder of the company. As best as we could tell in our research. She and Adam were together when they started the company but was not actually like. It's a fascinating thing too because usually co founders get written out of stories not written in like that. Silicon Valley is littered with people who legitimately co founded companies who don't get to be part of those narratives. And in this case. In the sort of like sci fi world, this is referred to as a retcon retroactive conversion. Yeah. Sort of retcon that person into that. Yeah. Again, we don't know for sure. But so anyway, they the two of them decide right around the same time that going back to the green desk environmental routes of the company. They really should ban meat from it would have such an environmental impact if they banned meat from we work. And I have heard a back story of this and again, I'm not going to I'm not going to claim that this is completely true. But the back a story I heard when this decision came up or when Adam proposed this decision was that internally said no. Like his people internally said, for example, we have sales people who go and try to sell things to potential customers or maybe with landlords. Are they not and they're going to pick up the tab right you know I'm on salesperson. If the person I'm with gets a burger can they not buy it and because Adam had actually basically said no. No company money will be spent on meat. Well, that is a problem. Some people raised all these legitimate concerns. But this goes to the government later the government is this wasn't the board issue, but raised all these legitimate concerns. And he sat there. He took them all in and just got up and said, yeah, we're going to ban meat and walked out and then announced it before they're like and just announced it. And that was that. And that's how these things worked. Yeah, at the same time that he's playing around on a private jet which is a very stable environmental impact. Cover your ears and ignore the cognitive dissonance. Nothing wrong with the ending meat but like in theory. But it's part of this idea that we work, you know, what was that line you said the community line, right? I mean, Adam and I believe this was sincere. He believed we work with more than a co-working space. You know, anytime if you've ever been in a we work and you get in the elevator to go up to whatever the floor is, there's a schedule of events, these events have nothing to do with quote businesses is it is farmers markets. It is, you know, it is yoga. It's stuff like that. He legitimately believed that and he also believed that that was a way to keep customers that when you, okay, maybe now my three person company now is a 20 person company and we should maybe have our own space. But man, we like it here. Yeah, yeah, totally. Again, not wrong. It just got so perverted over time. So fast forward to this year and, you know, the probably I think in many ways once this came out in the IPO filing this was the straw that sort of broke the camel's back. We've talked about everything that's happened up until now in January of 2019. We work changes its name to the we company. And in doing so, we work did not have the trademark for the name the we company who had that trademark. Adam had that trademark via an entity he controlled called we holdings, I believe. And so we work at Adam's direction licensed that name from his own company for $5.9 million. And again, I'm just sort of speechless here and the defense of Adam Newman in this, which I'm not going to make by the way, because I said this was horrible. But the defense, the argument was that this was a tax issue was that that it had a that Adam created it had a value. And if he simply gave it, it's kind of like you can't just give your friend a brand new car. You just can't do it. There's a tax liability with that that if he had simply given it to the company now. This is also a person who did have a $500 million loan from JP Morgan, someone who had taken hundreds of millions of dollars, he could have sucked up taxes. And how and again, even if it's one of those things that the board at the time was willing to do, how nobody was able to flag it and convince everybody internally before it became publicly disclosed is a just endless. Yeah, like how this would look. Yeah. Yeah, even even if there is one of those things that even if you could make a valid on paper argument for it, the optics are so god awful, you don't do it. Yeah. David, I have a name thing I get to talk to you about after this. We're changing the name. We're going to be the acquired company. No, acquired media LLC is a great name. Right around the same time news comes out. Remember soft bank and their motivations. They want to dump a lot of money in here. So now we're in the beginning of 2019. We're two years into the vision fund. I can't believe that was that was that was this. That's when the news comes out. The discussion between soft bank and Adam or we workers are going on late 2018 and Adam does think he has a deal. Yeah. Well, and again, so like let's think one of the things I wanted to we wanted to do on this episode is talk about why is soft bank doing what they're doing throughout all this. Okay, so we're now two years into the vision fund. They've deployed a lot of it, but they're thinking about and talking publicly about vision fund too and trying to start fundraising for that. People are still like shaking off the shock that vision fund one happened like this notion that we're about to go do it again 100 billion again. Yeah. Yeah. So now speaking as a fund manager, like any fund manager, you can't it is in your fund documents that you cannot go raise a successor fund until typically you are at least two thirds, if not more deployed and reserved of your initial fund. So they're now sitting here and I don't know exactly how much capital they deployed out of vision fund one at this point, but they're like, we want to raise fun too. We got a deploy fund one. So news comes out that they're talking about and like you said, Dan Adam thinks there's a deal for soft bank and the vision fund to invest 16 billion more in we work. And by the way, this is the first time the issue of control comes up because the story, the news stories that come up were that that soft bank would basically buy a majority stake in the company, which even though I don't think it was ever explicitly said the assumption is if you own most of the company, you get to make most of the rules, which we thought until yesterday, which we thought until yesterday, but Adam apparently, at least from what I'm told was never going to give up control. And that this becomes this issue of you might own 52% but I still have control and that I don't think that was the breaking point of that deal, but that was always something I always heard from Adams people internally we work was that he always felt the reporting on that was wrong because quote, he was never ever going to give up control in a soft bank deal. Interesting. Interesting. Yeah, because it was not Adam that blew up that deal. No, it was soft banks LPs. So at least according to the reporting, David walk us through this. I thought venture capital was a blind pool. Not in vision. Saudi Arabia has a side. It's actually funny. Saudi Arabia doesn't have a veto. They can't kill a deal. But Saudi Arabia, which I'm going to you probably know this better than me. I think they're like 30 or 40% of the fund. Yeah. They can say you can't use our money for this and they are for anything over a certain amount. They are they have a right to basically say you go do the deal but we're carved out of this one. And yeah, interesting, which is not typical in a venture fund agreement. But there's a lot of commitment isn't typical. There's a lot of things that are not typical about the vision fund. But regardless of whatever control they had, they had the ultimate hammer, which LPs always have, which is like, we're evaluating you about whether we're going to do fun too or not. And I have to believe that that was ultimately the leverage they had and why soft bank backed out of the deal was they're like, oh shoot. Actually, if we do this is also there's also tense relationships at this point. Remember when you're thinking now this is a little bit after but in October of 2018 we're talking December January. In October of 2013 is when the Jamal Kishoggi gets killed in 2018. Sorry, I apologize. Masa decides he's not going to go to their big conference. He's actually going to show up in Saudi Arabia and meet behind the closed doors, but he's not going to sit on stage. So things are tense. This is Davos in the desert. Davos in the desert. Which is happening very shortly happening this coming Tuesday. Masa is speaking this year. Wow, someone needs to raise a fund. And that just shows it's all written out right there. I mean, no, I'll make a value judgment on the show. Like that's a horrible thing to go after the events that transpired and represent your organization there and participate clearly, clearly desperately needs to raise a fund. Absolutely. Yeah. So the deal falls apart. Soft bank does end up investing corporate, I believe, not the vision fund. Correct. Two billion dollars in we work at this point in time. So we work needs the cash. They've been grow, grow, grow. They bought the Lord and Taylor building for 850 million. And they've been making decisions. Because remember, this the bigger deal fell apart really at the last minute as far as we work with concern. They were making and think about the time again. End of year, Q4. That's when you're making all your plans for the next year. They expected to have the money. They were, I don't know whether they were officially signing a lease or not, but they certainly had the engine runner. Yeah. Totally. And to explain the soft bank corp thing. This is soft bank, the gigantic telecom that's been around for 30, 40 years. That precipitate came before the vision fund. This is off their balance sheet rather than a balance sheet that soft bank corp expects to grow in 2019 because they've agreed to sell sprint. A deal that's not close. Interesting. Yes. Wow. We did the team of a sprint episode. So long ago, I forgot that it hasn't closed. Has not closed. They'll be still in court. Yeah. Still antitrust regulars. But I believe they just have a problem. They got, they got through antitrust, but about a dozen state attorney generals are still into block it. So we'll see. Hmm. Wow. So, okay. So now we work needs plan B. They need capital to fund this plan. And probably a lot of these lease commitments are in place already. So what's, what's the alt, at this point, when I raise a point here that we want to talk more about, there's essentially only one buyer of we work shares at this point. And that's off bank. Like, at these points. Or the public market. Or the public market. Well, the belief is, or the public market. Correct. The public market is not a buyer. Yeah. But so they're looking around for alternative. There's no other private investment firm or entity that we work could go to for financing at this point in time. Some might call this a price discovery problem. Yeah. Indeed. So the only alternative is, well, public markets, let's tap the public markets. So in April of 2019, just like three months after this deal falls apart, they file confidentially with the SEC to go public. It gets reported that this is happening. They filed technically in December. Technically filed confidentially. They thought they did it. What was the ex, they gave an explanation, which I didn't think made a lot of sense, but they did because why else would they've done it? Something about the timing in the year, but yeah, they filed officially confidentially in December. Wow. I got reported several months later. Wow. Is that like, help us understand that timeline versus a normal IPO timeline. Was this rushed? No, that makes sense. If you were to file confidentially in December, they knew kind of similar to how Uber knew or lift knew that this was, that this company was relatively unusual and the SEC was going to have more questions than it would have, you know, for a run of the mill company. So you file in December with the idea, first idea, maybe we'll go public and late spring, but we'll probably go public in September. We are working on this big soft bank deal, so we don't have to, but we'll have this in our back pocket. You do it in December. No one's paying attention until January anyway. Go through a bunch of revisions. You don't want to go public in the middle of the summer. You'll come out right when Q3 happens. You'll be out, you'll be out the door. And indeed, that was what they tried to do. Yes. So August comes around of this year, just two short months ago. And they filed the public version of the S1, which means like, the train has left the station. Like once the public version of the S1 comes out, the process is going. Yeah, it should be six weeks and then you're up your public. It should be six weeks in your public. And all hell breaks loose. I mean, Dad, you were more than anyone on top of this. It's one of the most remarkable S1s that's ever been written. And not just because, look, let's start with the obvious, right? There was huge revenue growth. You know, the base, if you only read like to the, whatever it is, like the eighth page where you see kind of the top line financials, even though the losses were massive, which wasn't a secret, because remember, it could have been kind of like Uber and Dunn, even though they were private, had been disclosing financials for a while for two reasons. One, because they wanted people probably not to be shocked by the S1 eventually. And two, they had done a bond offering, a public bond offering about a year and a half earlier. So they had public disclosure requirements anyway. So the top line, look, revenue growth was huge. And it was billions of dollars of revenue. This wasn't a small thing. Losses were huge, billion dollars losses. But then you had to keep reading. And to be honest, these things are like 100 pages long. And this, I think is the longest I've ever read. It was like multiple hundreds of pages. It was very long. And lots of reporters kept going to different sections and finding things that were shocking and surprising. And you kept looking at and going, no, that can't be right. And you would have, we had conversations like, it says this, but it doesn't really, right? Like what am I, because these are written by lawyers and bankers. What does it really mean? Right. And good lord. And also partially because, you know, you talked at one point about, you know, Adam has some real estate. We work has, is this series of LLCs. Every building is its own LLC. So it's incredibly, even if everything is on the up and up, and there's, it's extraordinarily complex organization structurally. And all that comes out in the S1. Yeah, even without, I mean, there's, I think it's page, I'm going to lose it. But the first 20 pages here, there's their org structure here. It is page 16 of the Wii company that owns the Wii company MC LLC that has the Wii company partnership. And then the Wii work companies LLC and then all the countries. And like this is before you get to buildings. Yeah. And remember, they'd also, they'd raise or still are, or maybe not now. They've been raising a massive fund. You know, you talk about, oh, you know, we work should about the buildings. Well, they were doing that. They were raising a massive fund, which Adam was going to have a stake in. But just like everybody else, we work wood. And that was going to go by buildings. And that was again, that's another separate entity, which is then leasing out and all that. But yeah, look, we learn a lot of stuff. This is where we learn about the trademark. Yeah. This is where we learn about the extraordinary amount of control he had, even to the point where if something were to happen to Adam, like he were to die, the board doesn't get to replace him. His wife Rebecca gets to decide the succession plan. And if she dies too, then their children absolutely. Absolutely. We learn that they are also going to give away an enormous amount of money and charity after this IPO. I think he's committing to a bill. And Adam has, I will say, Adam has given a lot of my charity over the years out of some of that money. He hasn't put it all into houses and Gulf streams. But I think they commit that they're going to give a billion dollars over 10 years after the IPO away from proceeds. Which is fascinating. If it's fascinating, there's actually in this document a section that says charitable commitments of our co-founders and other senior leaders, that is very atypical. It's very typical. And if this had become official, if this IPO had gone forward, he would have, I think, been legally obligated to do so. I mean, he was, he was, this wasn't the giving pledge, which is signing something the Warren Buffett gave you. And you know, if you don't do it, what's going to happen to you? This had the force of law behind it in theory. Yeah. Or at least the force of the SEC version of it. Of course, it is. Okay, so much, much weaker law. No, that's a lot. Yeah, but it's sort of law. It's not the DHA, but it's something. Exactly. Yeah. So let's talk about what we don't learn in this document. So what I was really trying, when we were talking about doing this episode in my head, I'm like, okay, I want to tell people what the macro story is here. And then the question in my mind was, is this actually a good business at steady state? If we work stops expanding. So I'm scrolling and scrolling and scrolling in hundreds of pages, you can't actually ascertain, hey, of the cohort of your buildings that are at scale, what are the gross margins? What are the unit economics? They keep saying we have really strong unit economics. And then the only financials they give are this massively blended one. That is, you know, a very, very basic P&L that shows the business, including all of the expansion. So really difficult to tease out what losses are actually incurred at maturity. They have this silly graph that has no y-axis with this curve that basically shows, hey, the buildings are breaking even after six months. But like not much more detail than that. No, and you would have thought they maybe would have, by the time they filed the S1, learned the lesson from Uber, which had a similar problem, which is, you know, every, look, every single company, I think I've ever talked to, tells me that even though they're losing a lot of money, their unit economics are fantastic. I'm waiting for someone to say, well, you know economics are kind of mediocre. No, you're not an economist, you're always great, but you're right. And that was an issue with Uber, right? I guess what they don't tell investors, not either. But when you looked inside Uber's documents, you could not figure out how much, what were the US economists, parried, particularly for Uber Eats, per delivery. You couldn't figure out any of that. I think that has been an ongoing problem for them. And we work with the same way, right? And you should have been able to, because we work had been saying things over the years like, again, like Uber in mature for them, mature markets where they had been X number of years or had X number of buildings. We were building profitable, even understood. But there's overhead, there is marketing, but you couldn't even figure out that in that building in Soho that they had been in for four years, take out all the overhead is the building profitable. No freaking idea. No idea. Which is a problem, because if the argument was already mentioned's argument, like with a cable company eventually you could figure that out. Was the, you know, was deciding to lay pipe in Seattle. Did that make money in the end? After a certain amount of time, it should be able to say yes or no. In this case, they didn't. It didn't, it wasn't even that they couldn't they didn't. And the back story that you keep hearing and part of this is probably self serving about bankers and board is that these things were indeed raised, not by the SEC, but these things were raised by bankers and boards and just like with Adam and the meat thing, he basically waved his hand and said, don't worry about it. This is how we're doing it. Wow. So needless to say, potential public market investors react terribly to this as does the media and everybody. First problem is the governance as you keep saying. Yeah. So September 13th, we were announcing is changing the corporate governance and Adam is still going to have the super voting shares, right? But they are going to be weaker. I think it was supposed to go down to three to one if I'm correct. It was 20 and then 10 and then 10 and then three. So he was going to load the succession thing was going to change. The board was going to be able to determine who was replacement was the one and they were allowed to fire him, which was important. And by the way, that's unusual because again, think of Facebook board can't fire Zuckerberg. I don't think the alphabet they can fire Larry Page. That was interesting that the board now, even though they didn't have the votes, the one thing they could vote on would be to fire Adam Newman. Now this was Dan Craig me if I'm wrong. This was an announcement. This was not an actual change. These were things that were going to happen upon the IPO. Yes and no. And that's where things get very tricky because as we know, they do fire Adam Newman. So they clearly got the ability to do so or maybe they just persuaded him he had to step away. Either way, we, we being you, me, media, ever, everyone is under the impression at that moment that these changes have been made. It is codified. It's talked about an SEC document and again, it comes this question of, okay, is this something you've done or is this something that is effective as of the issue and the actual shares being issued. That remains unclear. Because I believe when we get to the end of this and just a sec, Adam still has the 20 to one. If not 20, he has at least 10. I believe he still has 10. It's not the right. He still controls the votes as of, well, as of two days ago. Yeah. So then September 24th, Adam is out of CEO. The board is replaced. He remains chairman. He remains becomes chairman. Yeah, executive chairman. Yeah. Even that wasn't enough to get the IPO back on track. They announced after that they're pulling the IPO. Well, let's just go back quickly because this is important. This is where SoftBank plays. Even before Adam gets fired. There's start to be reports over a weekend that SoftBank is pushing to have the IPO postponed. Now, remember, Adam wants this thing to go forward. To be honest, the board wants this to go forward as well. Obviously, the bankers want this to go forward. It's an interesting leak. It's an interesting leak. And SoftBank will not cop to it. But if you go to who had incentive to leak this, because this is a really damaging thing to leak. This isn't just like, oh, you know, maybe earnings projection. Well, this is really damaging. This is saying perspective investors. This thing shouldn't happen. That's a real freaking problem. And by the way, the biggest investor who's got two people on the board, they should know this company well. It doesn't want it to happen. So SoftBank is clearly somebody at SoftBank is leaking this. And then there's the question of why? Why would SoftBank be torpedoing its own portfolio company? And the best explanation I've come up with, or at least the one that everybody affiliated with we work. Those who support Adam, those who don't, everybody seems to believe. It's a SoftBank that goes back to Vision Fund, which is. If this goes public, and it goes public, say, at a valuation, I'm going to make this number up now, with 15 billion. Because now they were getting investor feedback. This thing's not going at 49. It's probably not going at 20. Yeah, the 20 down to 15. If it goes public at 15, SoftBank then is obligated to revalue its existing shares in we work. And what does that do? It means when you're going to the Saudis or to Apple or whoever else, our IRR on our existing fund has gotten a lot lower. Because you said earlier, this is one of the biggest investments there. It has a significant, any valuation change has a significant change to SoftBank. And remember, SoftBank had previously marked it up to 49 billion. It had done an insider deal. It marked up on its own. So the reduction would have been massive. Yeah, it would have cratered. They've got 70 billion in because they continue to put in more convertible notes too. There's a lot of money in big. And again, just, yeah, and the value of it just would have been, they had marked it up themselves. If they had just kept it at cost, things would have maybe been a little bit better. But yeah, it leaks out and it becomes a cavalcade and eventually Adam leaves. Because then there was, again, there was first talk SoftBank wants the IPO not to happen. Then SoftBank thinks Adam Newman should leave. Well, Adam's not leaking that. There's no reason for anyone else to be SoftBank's leaking that. Yeah, well, so the net of all of this is that I should say for the record SoftBank says they didn't leak it. There we have it. We don't know who did somebody did. The net of all of this is that the company is now running really, really on fumes. Shockingly low on cash because they remember how much money they were planning to get. They are looking to bring in $3 billion via the IPO. And then they'd also agreed. That's a massive $6 billion debt package which was concurrent to the IPO. So we work in whatever it is in August. Looks at its balance sheet and says we're running really low on cash. But come end of September, we're going to have $9 billion. And they had banked that in their brains and in their models. And at that point, if you got $9 billion coming in September, spend. And by the way, really spend because wouldn't it be great if we go public right after Labor Day, then five weeks later, we can come out with Q3 financials which show massive growth. And so let's goose the growth now. Yeah. Yeah. So I think Dan, you had reported something's got to happen by Thanksgiving because they're going to hit. And I overstated it. I heard by Thanksgiving, but apparently they would have been out of cash by the end of next week. Although it is unclear how much of that's related to severance, et cetera. They were going to have to pay to these thousands of people going off. But yeah, they were they were almost out of money. They need money. So yesterday, as we sit here, the outcome of this is announced. Soft bank is acquiring the company. Without acquiring the company. Without actually no one can explain to me. Still including soft bank. So no one can explain. So let's walk through what that package looks like. So soft bank is going to well, first of all, to get Adam to step aside from the board position. They are paying 175, 185 million, 185 million dollar consulting fee. A quote consulting fee, which gives them three things. Adam gives up his super voting shares. Adam steps down as executive chairman. And those are the two official things. The unofficial thing is he votes for the deal. There's an alternative package. And there's questions about how real it was. But there's an alternative package led by JB Morgan. Like Starwood, Barry Stern, look, there's a serious real estate investor. There's an alternative package. There are people on the board who prefer that package because they think it leads to IPO quicker. But Adam again didn't give up the voting control. So Adam gets to decide and he takes 185 million dollar bribe. Which his people say is in the best interest of the company of the employees because there's a tender offer as a piece of this which is discussed. But yeah, they pay him off. And by the way, what a remarkable thing to learn. If you are an activist investor like Elliott who spends all this time, for example, the AT&T, like working with small shareholders and stuff to convince the board to maybe vote. I wonder if Paul Sanger has ever thought, why don't I just give the independent directors 10 million dollars each? Wouldn't that be faster, easier and buy their votes? It's unclear at this moment if that's illegal because to be honest from what I can tell him about so long as you can have a defensible fiduciary argument in this. Yeah, he's going to be a consultant to the company. I'm going to ask his advice. I asked him, is this legal and they said we can't tell and said because no one really considered this, right? Like, I don't know, like in the way he said to me, he said we also don't have anything in there. What happens if we learn that like we work can actually work well on Mars? It's not in the documents. We didn't think about it. I think the only guaranteed outcome here is that the SEC is going to have lots of job openings and guaranteed employment for a number of years. At least the New York office of the SEC. There's going to be a lot of work we work people to go there. Let's go through the rest of the package because in addition to that $185 million consulting agreement, they are doing a tender offer of $3 billion. So to Adam and anybody else at the company and investors at $19.19 a share which goes back from evaluation perspective years, you know, four years, three years. Right. So that's it's looking like about a billion of that will buy Adam shares up to a billion. It doesn't necessarily have to sell at all. It's hard to imagine you won't, but in theory, he doesn't have to. So interestingly, you pointed on that 19, 19 number that strike price. If you go back to the last time that the stock was valued around there, you brought this up earlier. It was around 2014, which was around the time when we work at about a thousand employees. So 14,000 of the 15,000 employees have been issued stock options that are underwater. It's what we think. I mean, as we discussed before the show, there's a, I mean, valuation stuff. There's a 4.9a valuation, which is what shares are really valued at. And that's different than the official price. So it's possible there's another thousand that, but even even if you're slightly in the money, there are taxes on top of this. You weren't expecting this. So a lot of people might not have exercised options. And if you deal with this stuff, you realize that if you haven't exercised your options, you're actually paying a higher tax rate than people who did a year ago. And I have been told there are certain people who got actual stock grants, which is different than options. Just were handed stock, basically free in lieu of cash. I doubt that was very much if that existed. Those people are in the money. But look, no, most people who've joined, we were in the last couple of years, who a couple of months ago, honestly, might have been taking out mortgages. Might have been taking out loans. Why wouldn't you write? You got a $49 billion company, any bank with loan against that, or at least loaned something against that. And they are, they are two things. They, they get nothing out of that financially. And thousands of them are literally going to be out of work. Yeah. Yeah. So they, they don't get nothing for their stock and they don't even have paychecks. They'll get some severance, but not much. Really sad. The last component of this deal is a $500 million loan to Adam. I'm sorry, there's a couple more prints this deal. The $500 million loan to Adam personally from Softbank Corp. Also, they're freaking balance sheet, which you will use to basically repay his loans to JP Morgan. And then a $1.5 billion investment at a share price of around $11. So somehow there are two different. And that values the company at $8 billion. I believe I'm I think in the end, I was going to say a little bit over 10, I believe. But again, it's so convoluted. No one really quite knows. And I think at this point, you could say that the old valuation models that we use for most these companies, right? This is serious. I value this. I think it's just out the for a window. So this gets to the market discovery or the price discovery problem that I alluded to earlier. When you have only one party who can buy and the leverage keeps swinging all over the place, they just keep valuing it up, down, up, down, all these different places, depending on what specific moment times. Yeah, there's no way to ascertain what the price should be because there's only one party that can end is willing to and keeps buying. Yeah. Wild. And then the final piece could we kept saying that they bought the company, except they say they didn't. They have a majority stake in the company, but they claim they will not control the votes on the board. And the way they say they get to that is they are going to significantly expand the board. But when you ask them, okay, what's the size of the board? And then most importantly, who's going to appoint those new board members? There are no answers. When you ask, we work internal official spokesperson for we work internal, you ask her that she said, she said to me yesterday, she said, call soft bank. I said, why would I call soft bank? If soft banks, not the one who's controlling this call soft bank. When you call soft bank, we haven't either I don't know if it was we haven't determined or no comment. But I mean, look, there for whatever reason they're claiming they're not controlling this, they're in charge. They should be they own most of the company, they own most of the shares. And whether or not most of those board members are salaried soft bank employees or not, they're going to be beholden to soft banker in some way related. Okay, so this is the last piece, which conveniently is acquisition category on this show. Why is soft bank doing this? Here's my thoughts. There are I think there are two reasons. One, I can't remember where I read, but I didn't come up with this idea is syphias, the committee on foreign investment in the US. So I think is of course foreign entity there, Japanese company. Now they would be buying control of a US company. They've had issues with syphias in the past. So this just like short circuits that could be a risk to the deal say, oh, we don't actually own it. So we don't have to go through syphias. I don't think that covers because even a minority state, for example, they had to go through syphias for their Uber deal. Yeah, yeah. So yeah, I don't think that's the real reason. I think the real reason is I don't think they want to I'm pure speculation. I don't think soft bank wants to consolidate. We works financials on their balance. No way because now remember the balance sheet of this company is enormous liabilities of all these leases. Soft bank has a lot of debt that they have taken out at the corporate entity. Remember, they're a telecom provider. They have debt that debt is basically junk bond rated status. They are one of the most highly leverage companies that exist. Yeah, look at it. They would make a private equity person blush. Exactly. And so now if they all of a sudden consolidate this balance sheet, jack up the liabilities on the balance sheet, that's going to torpedo their debt ratings at the corporate level. That's going to increase their cost of capital. Usually that's terrible for the company. So I think they're doing all these gymnastics to a to avoid that happening. But then be wide do all these domestic then you get back to the vision fund and at this point, I don't even think it's about raising vision fund to I think it's about just trying to salvage vision fund one. They can't let we work go to zero. Because the alternative here is we work. They didn't work. Yeah, we work is going to die as you said in like a month. Maybe the JP more. I mean, look, the thing that's interesting. There's a bunch. I mean, this is still a real business. Right. This is you know, I've seen all this the next there. No, there are no. Had a product didn't work. This has a product that work. It's still you know, like good. There are people who walk went to work this morning. We work and not who work for we work lots of them. They have real buildings. Those buildings still exist. All that stuff. There will still be thousands of employees left even after the massive layoffs. Obviously certain facilities will close that are under performing obviously expansion slows down. But it is a real business. I I will say that. Massa the word soft bank isn't arbitrary right soft as the software piece right. I believe I'm a tech visionary. But the bank part is important to he is a financier. So the stuff you said about you know balance sheet. That's all real. I will say that I will bet that soft banks still believes long term there can be a business here. The one thing about my see us your son is that I've always found fascinating is he made an enormous amount of money in the dot com boom huge money. If I saw I'm sitting next to Bill Gates at one point and he said to Bill Gates. He said at one point. He said in the late 90's I was richer than you. He said two weeks later I was broke. And that's true. And what happens to most people who went through that dot com boom market. And he's not always talked about how people who went through that are too risk a verse. That's true. Usually you are because you you were so scarred by it. Massa went the other way. Massa decided to take all that risk again. And he he caught the olive Bob a train and he did great with it. But like most and then he decided to go over the top. That's why he's so unusual and I would say with this he might look at it and say things are really bad right now. But there is a business I still believe in the thesis of the business. Maybe the management got got away from us. If I can get in what I believe is relatively cheap and control this thing. Maybe we can make a go with this. So here's my attempt to put a bow on the whole thing. Which is you know we talked about this in the vision fund episode. This is the largest fund of any type any asset class raised ever masquerading as a venture capital fund. Well wait that doesn't make sense venture capital funds shouldn't be bigger than private equity funds is this an unmasking of the vision fund for what it is is a private equity fund. And when you look at this gosh they just made a $1.5 billion equity purchase that now has them owning a majority of the company. Oh and they they levered of $5 billion of debt on top of it. Wait a minute I've seen this playbook before. And they pay to CEO to go away which is a very private equity leveraged by all thing to do totally so now all of a sudden like yes you've now taken out the time frame of which they're going to realize returns on this asset. But if they can turn this around turn it into you know what it does still have the potential to be not the same kind of business everyone thought it was but a good business and a big one with real state assets all around the world. Well now maybe they just saved the vision fund. I mean I will say I will say that there is an ongoing question of why they didn't let JP Morgan do the bailout like I almost get the sense that JP Morgan looked at this and said with soft banks deal. All right if you want this problem your problem take it like I it was almost like a hot potato I don't quite understand why soft bank was willing to catch that what because again JP Morgan was going now you could argue would have been too much debt in the company would have sunk under the debt you can make that argument. But it was money it was money it was it was lifeline it was runway this brings us to what we normally call what would have happened otherwise this episode I'm going to call the bizarre world we work we've got this comp it's I WG last year they did 3.3 billion in revenue this business ends up looking a lot like we work at maturity that was profitable 200 million operating profit their market cap is about 4.6 billion so we're getting close to the neighborhood of where you know you're basically buying a business that looks like I WG. You run that for a while it's going to be you know profitable for you so look great private equity pick up exactly exactly exactly. All right well let's bring this home so we work as in a place now where they have 6.5 billion in the company some debts and equity we sit here today we will see if that is enough to have them figure it out over the next year maybe IPO at some point we don't know what the future will hold what we're going to grade here today is soft banks pseudo acquisition here. We work. I'm going to give him a B minus the low part is for why exactly again I think they should let JP Morgan probably take it but man they were creative. Like you deserve something for like you might have gotten to the wrong answer but you got there in a fascinating way so you really can't knock the hustle here now. And by the way remember they wanted control of this company a year ago they got it even though they didn't officially get it they got it for a lot less money to so soft bank corp has put in the 2 billion dollars from earlier this year and now another 1.5 billion in equity capital so the corporation themselves outside of the 3 billion tender that's equity they're buying from shareholders but that's a new equity that point so they've spent. What's that 6.5 billion dollars to own a majority of this company now the vision fund poured 8 billion dollars in and the business isn't even worth the combined amount of that but if you look at what's off make did they made a bunch of management fees off the vision fund and paid 6.5 billion dollars to own an asset that's probably worth about 6.5 billion dollars. I'll give what the one counters maybe I would give a lower grade would be it's unclear who runs this they've spent a lot of money without having a CEO there are there's these co CEOs who are their Sebastian Gunningham and already mentioned who we talked about earlier it remains unclear if they are staying or not maybe they're getting a good deal cash stick around that's unclear they put Marcelo Clara the CEO sprint in his executive chairman which is. Minemainly strange mainly because Moss said well we're going to originally we're going to bring Marcelo in so we can figure out what's really happening inside the company again you had to directors what where where what were they doing and why do they still have jobs if they couldn't figure those basics out but like but Marcelo is a telecom guy yeah they do they believe these two are the right horses or not that's unclear it's a lot of money to spend without knowing who's really going to be running it in 6 months. I'm in for your B minus David were you. It's so hard to conflate I think just like this story has illustrated all of these series of decisions along the way by everybody involved many of whom were like many of which decisions were terrible decisions I think it's why like in the beginning we frame this as like this is a tragedy like this is the sum of the system that has created this so now if we're to grade specifically this decision by soft bank. I think there's if you're on the fence take employees sentiment into it they have to own this thing and there's very angry people working on yeah yeah so I yeah I think I'm in for the B minus for slightly different reasons which is. The reason it's that high is this is a safe like because this was going to go to zero if maybe the JP Morgan thing would happen maybe it wouldn't so it saved but on the other hand there's a very strong case we made that this is throwing good money after bad so you know and that's that's never a good position to be and so yeah B minus there we are we'll check in in a year so I'm sure we will well if the cash last that long listeners thank you for going on this journey with us. Dan working listeners find you. Oh at axios.com I get my daily prerada newsletter sign up at axios.com or just type axios prerada into your podcast thing because we've got daily podcast as well and I will say prerada is excellent like much of the details that we've gotten over the last few years about this company have been that prerada is the first thing that I read when I wake up in the morning so thank you for doing that. The first thing I write when I wake up in the morning awesome well listeners if you want to hear more acquired feel free to subscribe from wherever you are listening to this one and if you're looking for another episode to listen to we did a soft bank vision fund episode earlier this year last year something like that search soft bank and you're your acquired feed with that listeners we will see you next time. you