Say the name Adam Neumann or WeWork, and most people will have an opinion on both. For much of 2019, Neumann and WeWork were constantly in the news for both good and bad reasons. Neumann made headlines for his behavior which included walking around New York City barefoot, and downing large amounts of tequila, even while in the office.
What Neumann is known for most is his spectacular failure as CEO of WeWork. The story was so crazy that it was turned into a mini-series, and Hollywood appears to be making a movie about WeWork as well. You can read about the rise and fall of WeWork here.
Adam Neumann, the founder of WeWork, whose spectacular rise and fall has been chronicled in books, documentaries and a scripted television series, has a new venture — and a surprising backer.
According to an article in The New York Times, Neumann’s new company Flow wants to transform the residential rental real estate market. Notably, it has the financial support of Andreessen Horowitz, the prominent Silicon Valley venture capital firm that was an early investor in everything from Facebook to Airbnb. The backing of Andreessen Horowitz, considered royalty among early-stage investors, is a powerful sign of support, and perhaps a rebuke to Neumann’s critics, who have described his leadership of WeWork as a cautionary tale of corporate hubris.
Andreessen Horowitz is investing about $350 million in Flow, according to three people briefed on the deal. The investment, the largest individual check Andreessen Horowitz has ever written in a round of funding to a company, values Flow at more than $1 billion before it even officially opens its doors.
Flow is expected to launch in 2023, and Marc Andreessen will join its board, these people said. Neumann is planning to make a sizable personal investment in Flow in the form of cash and real estate assets. “It’s often underappreciated that only one person has fundamentally redesigned the office experience and led a paradigm-changing global company in the process: Adam,” Andreessen wrote in a post on his firm’s website on Monday, explaining his rationale for investing in the company.
Neumann has purchased more than 3,000 apartment units in Miami, Fort Lauderdale, Atlanta and Nashville. His aim is to rethink the housing rental market by creating a branded product with consistent service and community features. Flow will operate the properties Neumann has bought and also offer its services to new developments and other third parties. Exact details of the business plan could not be learned. (Flow appears to be financially separate from the crypto company Flowcarbon, which was also co-founded by Neumann and raised $70 million in May in a round led by Andreesen Horowitz.)
Andreessen said in the blog post that he was interested in Flow because the rental real estate market is ripe for disruption. That’s especially true, Andreessen said, now that more and more people are working from home and “will experience much less, if any, of the in-office social bonding and friendships that local workers enjoy.” He also hinted that the company might try to address one of the biggest challenges renters face: “You can pay rent for decades and still own zero equity — nothing.” He added: “In a world where limited access to homeownership continues to be a driving force behind inequality and anxiety, giving renters a sense of security, community and genuine ownership has transformative power for our society.”
At its height, WeWork was valued at some $47 billion. After a botched public offering and tales of mismanagement, it imploded spectacularly. Neumann was ousted from WeWork in 2019, but walked away with hundreds of millions of dollars. Today, WeWork has a market value of about $4 billion.
Andreessen wrote that “we love seeing repeat-founders build on past successes by growing from lessons learned.” For Neumann, he added, “the successes and lessons are plenty.”
Many people are complaining that Neumann shouldn’t receive a second chance to launch another company uses other people’s money. I understand their sentiment. However, I disagree that Neumann should somehow be blacklisted. WeWork crashed and burned spectacularly, but Neumann was never arrested and charged with a crime. Neumann may be bombastic and erratic in his behavior, but he is exceptionally smart.
The same cannot be said for Elizabeth Holmes, the founder of Theranos, who was convicted of a crime. I knew Holmes was a fraud and a liar immediately. In fact, I was the first person on LinkedIn to write a post accusing Holmes of being a fraud. I worked behind the scenes with several members of the press convincing them to dig into Theranos. Due to her conviction and willingness to defraud investors, Holmes should never be given a second chance.
As for Neumann, if Andreessen Horowitz wants to invest $350M into Flow, so be it. I’m not expecting a repeat of WeWork from Flow and Neumann. However, I’m also not expecting a smashing success either. Will Flow succeed? Only time will tell.
TOPICS OF INTEREST
Walmart+ and Paramount
Walmart is taking its membership offering to the next level by adding a new streaming benefit. Walmart+ will soon be available for members with an added bonus – a Paramount+ Essential subscription at no extra cost.
Walmart+ members will be able to stream premium entertainment as a benefit for the first time as part of their membership starting in September. The Paramount+ Essential Plan will give Walmart+ members access to Paramount+’s breadth of hugely popular content.
Is this the right move by Walmart and Paramount? It’s an OK move and nothing more. I would much rather see Walmart and Paramount work together to make a BIG move. For example, acquire ESPN, or partner with Microsoft to acquire Netflix.
Albertsons and Ahold Delhaize
For over three years, I have made multiple recommendations to the CEOs of Albertsons and Ahold Delhaize, to merge. From a strategy perspective, I believe it is the best thing for both companies.
The press is reporting that discussions are taking place with Ahold Delhaize interested in acquiring Albertsons. I hope a deal happens. Combining Ahold Delhaize and Albertsons will create one of the largest grocery conglomerates in the world.
Amazon Reorganizes Its Grocery Business
I am the first person to recommend to Amazon to acquire Whole Foods. I did so in a 2013 research paper titled, A Beautiful Way To Save Woolworths. It’s available on my LinkedIn profile.
I warned Amazon that if they acquired Whole Foods, they needed to do several things in order for the acquisition to succeed:
- Terminate CEO and Founder, John Mackey, and place an Amazon executive into the CEO role.
- Introduce branded CPG products into the stores, (Coke, Pepsi, Cheetos, etc.,) and rename the stores to Whole Foods +, where consumers can get the best selection of organic products, plus purchase the other products they want. A weakness of Whole Foods is that many consumers won’t shop at the stores because they can’t purchase everything they want. Whole Foods + would attract millions of new customers while retaining the majority of current customers.
So far, Amazon hasn’t changed the assortment in the stores, and a new CEO was hired from within Whole Foods. It’s also true that Amazon hasn’t grown market share or customers.
According to Insider, Amazon has reorganized their grocery team. You can read about it here.
The changes made will have little to no impact on increasing sales. I remain convinced that Amazon should divest Whole Foods to Target. In turn, Amazon should accelerate their investment in opening more Amazon Fresh stores.
Amazon should also explore acquisition opportunities. My advice is for Amazon to acquire Aldi USA, soon to become the third largest grocery retailer in the U.S.
Rivian’s Biggest Problem
Rivian Automotive Inc. reported its net loss in the second quarter nearly tripled to $1.7 billion, further pressuring the electric-vehicle startup to conserve cash and move quickly to fill customer orders. Rivian has about $15B of cash on-hand.
The California-based SUV and truck maker said revenue for the quarter was about $364 million as it increased production and deliveries of its first three models. The auto maker affirmed its 2022 production guidance of building 25,000 vehicles by the year’s end, but said its operating loss is expected to grow to $5.45 billion, from its previous projection of $4.75 billion for the full year.
Building cars is hard and expensive. The current state of affairs globally across the supply chain isn’t helping Rivian. However, that’s not Rivian’s biggest problem. I’ve stated from day one that I’m skeptical Rivian can succeed for one reason – their CEO and founder, RJ Scaringe.
I believe the only reason why Tesla is doing as well as they are isn’t because of the cars and technology. Tesla is succeeding because of Elon Musk. Had anyone other than Musk come up with the idea for Tesla, I believe the company would have failed. RJ Scaringe is no Elon Musk.
Rivian is in a dangerous place. The $15B of cash on hand will evaporate quicker than anyone imagines, about 10 months. This will require Rivian to raise additional cash. No easy task regardless of how impressive Rivian’s vehicles are. Success for Rivian isn’t assured.
It’s too early to write off Rivian, but it isn’t too early to face the facts. I strongly advise Amazon and Ford, investors in Rivian, to hold discussions with Elon Musk to discuss the possibility of Tesla taking a stake in Rivian. The Wild Card – Tesla acquires Rivian at a significant discount in all stock transaction.
Musk has stated in several recent interviews that Rivian is “tracking to bankruptcy and failure.” Musk speaks negatively about Rivian, but Musk also understands the value of Rivian’s prize vehicle, the R1T Electric Adventure Vehicle. If given an opportunity to fold Rivian into Tesla at minimal costs, Musk won’t walk away from the deal. Why? It may be impossible for Rivian to successfully manufacture their vehicles, but Musk knows it won’t be impossible for Tesla to manufacture the R1T and other Rivian vehicles.
Until next week,