Was WeWork’s Problem Too Much Money?

Our expert argues that a too-big bundle of cash drove the startup sensation into bankruptcy.

Written by Colin Campbell
Published on Nov. 10, 2023
Was WeWork’s Problem Too Much Money?
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Once worth $47 billion, WeWork filed for Chapter 11 bankruptcy protection on Nov. 6.  What happened to this startup darling whose story turned into a Netflix series titled WeCrashed?

Many bad decisions led to this moment. In our recently released book, Start. Scale. Exit. Repeat., we refer to a syndrome we coined: Silicon Valley Disease. 

What Is Silicon Valley Disease?

Silicon Valley Disease strikes when a company raises too much money and fails to operate a lean or efficient startup to pursue a goal of growth at all costs.

First, let me state that Silicon Valley and the venture capital groups behind it have created more successful startups than any other vehicle in history. I applaud the risk-taking and innovation that come from those involved in that community. 

However, among all the glamor and success lies a heap of carnage on the Silicon Valley highway. We live in a unicorn nation where many founders believe less than $1 billion doesn’t cut it anymore. We celebrate the few that achieve this status and fail to look at the downside of venture capital. As many as 75 percent of all venture-backed companies fail and fewer than 1 percent of companies get venture funding.

In a recent interview, Jenny Kassan, a lawyer and author of Raise Capital on Your Own Terms, said, “The purpose of VC funding is to fund very high-growth companies that have the intention of dominating the market,” she said, adding that VC funding “is not a fit for 99.5 percent of companies.”

WeWork is an example of what goes wrong when too much money is thrown at founders. Yes, every company wants to grow big fast, yet too few of these venture-backed companies build a solid foundation. 

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The Danger of Too Much Capital

WeWork was a classic case of how excessive venture capital leads to reckless spending — a startup’s version of a sugar rush. It’s a cautionary reminder that capital is fuel to scale proven concepts, not a license for financial abandon. The money flooded into the company, giving the illusion of endless resources and handing the founder a blank check to spend on lavish offices, extravagant events and running side ventures (wave pools, for instance) that had nothing to do with the core business model. 

It’s like sending a teenager to the store with a hundred bucks when you just want them to buy a carton of ice cream. There’s a good chance they’ll walk out of there with 10 types of ice cream, some sprinkles, chocolate syrup and root beer to make floats — and then half of the ice cream melts on the way home because they also stop to pick up a friend along the way.

And it doesn’t stop there. Adam Neumann, WeWork’s founder, began to believe that anything he could do was going to succeed. Caution was thrown into the wind, and the company began to make reckless decisions, including signing long-term leases in major cities at a rapid rate that in some cases would never be profitable. The expansion occurred not because they had a sustainable business model that could scale, but instead an endless supply of money that kept coming in, allowing Neumann to consume capital as if it were an addiction.

I had my own case of Silicon Valley Disease back in 1999 when we merged our publicly traded tech company with a cable company. At first, it all looked great when the value of the company jumped to more than $1 billion and the stock hit a high of $19 dollars a share. The company we merged with, which now was in control, spent on everything from lavish office upgrades to hiring big corporate executives. Nothing could go wrong!

But something did go very wrong: the dot-com crash. Fast-forward 18 months and the company filed for bankruptcy protection. I ended up selling for six cents a share. This might sound familiar, as history has repeated itself with the tech wreck of 2022. WeWork struggled in a commercial real estate market with much higher interest rates. In challenging times, companies without a solid foundation are prone to collapsing.

smart moneyYour Startup Just Raised Millions. Now What?


Beyond VC Funding

The fact is there are a lot of alternatives for companies when considering raising money – everything from crowdfunding and angel investors to bank or government-backed funding. But my favorite comes from an interview we did with John Mullins, author of The Customer-Funded Business, who told us that fewer than 10 percent of the Inc. 5000 list of fastest growing companies raised outside capital. They’re getting their money from customers. That may sound a bit crazy for most founders, but John’s reasoning is this: “If you put the customer at the center of the business, that is likely to take you a long way.”

One of the worst symptoms of Silicon Valley Disease is the addiction to VC funding. It’s incredibly contagious because entrepreneurs look at the unicorns making headlines and think they need to make the same moves to mimic their success — and without knowing the details of what they’re giving up. VC funding in and of itself is no guarantee of success like so many founders believe it to be. 

Post-bankruptcy, the new management at WeWork will have to figure out how to get back the culture of a scrappy startup that embraced a community of ideation, and support. How do they go from $47 billion to nothing and then reset? Can they capture back the magic and develop a business model to scale profitably and measure risk appropriately so they can survive the next storm?

Clearly, WeWork had Silicon Valley Disease. And I think so-called unicorns like WeWork should serve as a stark reminder that VC funding in and of itself is no guarantee of success.

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