The VC-fuelled comeback of WeWork founder Adam Neumann

When Adam Neumann was studying at New York’s Baruch College 20 years ago, he pitched an idea he called “concept living” to its start-up competition: a communal twist on apartment rentals that sounded like a student dorm for urban professionals.

His professor quickly dismissed it, telling him that no entrepreneur could raise enough money to change how people live. Neumann dropped out to launch a few other start-ups (which also fizzled) before founding what he dubbed another kind of physical social network: WeWork, the co-working business whose rise and fall was to become a byword for start-up hubris.

Neumann’s company, which brought beer, pinball and flexibility to the humdrum business of office leases, raised so much money that by 2016 he was able to revive his original idea. Its WeLive business, he said, would offer monthly rentals in apartment buildings with pool tables and communal kitchens to a generation that was increasingly priced out of America’s big cities.

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

Less than three years later, however, one of the biggest names in venture capital has put $350mn behind Neumann’s latest attempt to change the way we live. This week Marc Andreessen, the Netscape co-founder who spotted tech hits from Airbnb to Facebook, announced his firm, Andreessen Horowitz, would be investing in Neumann’s new company, Flow.

Most followers of the WeWork story were stunned. “As an entrepreneur, [Neumann] presided over a start-up . . . where there was lots of promotion and relatively poor execution,” says Roger McNamee, a veteran Silicon Valley investor.

In numbers

$47bn

WeWork’s peak valuation. Its expected revenue for 2022 is $3.5bn

$14.1bn

Funds raised by Andreessen Horowitz this year alone

$350mn

Size of Andreessen Horowitz’s investment in Flow

The VC firm’s investment — its largest on record — puts a roughly $1bn valuation on Flow, a company whose most visible presence is a one-page website with a pulsing pastel logo and the words “coming 2023”. Jason Calacanis, the tech entrepreneur turned investor, struggled to keep a straight face when discussing the scale of the bet on his podcast. “They’re not launched!” he laughed, putting his head in his hands.

But the funding shapes a comeback narrative for Neumann that is marked by the same soaring ambition that he brought to WeWork. What he has planned, Andreessen said in a blog post announcing the investment, is nothing short of “a direct strike” on a crisis at the heart of the world’s largest asset class: residential property.

Flow profile

In an interview with the Financial Times trailing his plans in March, Neumann defined that crisis in terms of hard data and human longing.

The US is chronically short of homes, he said, and is not building new ones fast enough. Between 2018 and 2020 that shortage grew from 2.5mn homes to 3.8mn, the chief economist at US government-backed mortgage giant Freddie Mac estimates. A recent White House analysis noted that the number of new homes within reach of first-time buyers had fallen by 80 per cent since the 1970s. The Federal Reserve’s efforts to control inflation by pushing up interest rates are only making affordable housing more scarce.

As the laws of supply and demand push house prices up faster than salaries, Neumann said, a young cohort he once named the We Generation “are almost the R Generation because they need to rent”. So Neumann spent hundreds of millions of dollars buying rental apartment buildings in cities such as Austin, Miami, and Nashville, whose popularity among that demographic has only grown through the pandemic.

Walking through those buildings, he said, he saw a “tremendous” opportunity to make them more uplifting for tenants striving for a better quality of life: “It felt like there were better ways to operate the buildings. And it felt like, frankly, there’s room for more community.”

A similar combination of macroeconomics and morale was on Andreessen’s mind this week. He fretted in his blog post that the nation’s most dynamic cities were pricing out talent, but he also voiced fears of the loneliness facing people with little interaction with their neighbours. Only a seismic shift in how the property industry works could solve those problems, he argued.

How Flow plans to engineer that shift is not yet known. It’s also unclear how much property it will own, or how Andreessen’s investment has been structured.

Andreessen wrote of Flow combining “community-driven, experience-centric service with the latest technology.” This would include an app on which tenants could make payments and access amenities and events, according to a friend of Neumann.

Two of the buildings reportedly bought by Neumann point to the options already on offer. One in Nashville advertises a music room for jam sessions, a “bark park for pups” and “valet trash pick-up”. Another in Fort Lauderdale, Florida, lets tenants “live the lifestyle [they] deserve” with “rent-by-bedroom” co-living, an outdoor cinema and a “bumpy lawn art area”.

But Andreessen hinted that Flow may also have a bigger goal: to rethink a decades-old rent-to-own model that is supposed to make it easier for tenants to turn into homeowners but that has been plagued with predatory practices.

“You can pay rent for decades and still own zero equity,” Andreessen observed. The fundamental change he thinks is needed in housing would require “rethinking the entire value chain, from the way buildings are purchased and owned to the way residents interact with their buildings to the way value is distributed among stakeholders”.

Other start-ups promising to make home ownership more accessible have attracted venture money, with Landis Technologies raising $165mn from Sequoia Capital, Jay Z’s Roc Nation and others last year. Crunchbase estimated in April that 17 rental-related US companies had raised more than $1.3bn in venture funding over the previous nine months.

Time to build

Even with the promise of a smartphone app, a bricks-and-mortar business like Flow might seem an unlikely priority for a venture capitalist such as Andreessen.

In 2011 he wrote an essay entitled “Why software is eating the world” that predicted the triumph of software-based insurgents over most industries’ incumbents. But in 2020 he declared it was “time to build” things like housing, schools and hospitals to “reboot the American dream”.

With the VC world awash with cash, the pressure to find bigger and bigger bets has escalated, even as the collapse in tech stocks cast doubts on private company valuations and threatened to choke off the flow of new fundraisings.

At the end of June, US venture capital firms had a record $290bn available to be invested, according to PitchBook, up nearly $60bn from the end of 2021.

Andreessen Horowitz alone has raised a massive $14.1bn this year for investment vehicles ranging from specialist crypto and biotech funds to more traditional venture and growth funds. That is about as much as it raised in the previous seven years combined, according to data compiled by Crunchbase.

Such numbers make markets as large as residential accommodation more tempting to VCs. But the outspoken Andreessen, who made his name as the

inventor of the first web browser while still a university student, is known for taking big bets on the boldest ideas.

He had already placed a smaller wager on the WeWork founder earlier this year, when his firm led a $70mn fundraising for Flowcarbon, a separately managed business launched by Neumann with his wife Rebekah, the former actress once described as his “strategic thought partner”.

Flowcarbon brings carbon credits, the environmental permits companies buy to offset their emissions, on to the blockchain. Its first token, backed by a bundle of carbon offsets, is named the Goddess Nature Token.

Andreessen Horowitz appears to have been attracted less by the New Age branding than by the size of the financial opportunity. “The carbon credit market could potentially grow to $50bn by 2030, and on-chain carbon credits can help facilitate this reality,” enthused Arianna Simpson, one of the firm’s general partners, announcing its investment.

Lessons learned?

Flow’s mission is “a heavy lift”, Andreessen admitted this week, but he made clear that the size of its ambition is what attracted him. “Only projects with such lofty goals have a chance at changing the world,” he said, and Neumann was the only person who had built a “paradigm-changing” global business while upending a similar industry.

WeWork expects to make roughly $3.5bn of revenues this year and cost-conscious new managers are trying to end its long run of losses. But it has closed WeLive, which only ever opened two outlets, and its valuation has fallen below $4bn.

Even as more diverse entrepreneurs bemoaned the overwhelming sums of VC funding that still flow to white, male founders, whatever their past mistakes, Andreessen was touting the value of past failures.

“We love seeing repeat-founders build on past successes by growing from lessons learned,” he wrote. “For Adam, the successes and lessons are plenty.”

Andreessen is not alone in betting on Neumann pulling off a second act. Despite his initial mockery, Calacanis concluded on his podcast that Flow had a good chance of succeeding.

“I’m guessing four out of five venture capitalists who would hear this pitch from Adam Neumann at a reasonable valuation would invest,” he said. “If you’re a founder and you’re willing to go big and be audacious, it counts for more than your mistakes.”

Neumann, usually the arch salesman, was uncharacteristically quiet this week, however. That was deliberate, according to one person who spoke to him: “He’s saying, ‘I’ve learned my lesson: judge me by my actions’.”