What the Flow? Adam Neumann’s new real estate startup is valued at $1b before launch
Almost 3 years after WeWork IPO debacle, Neumann is back with a new company, already a unicorn following a $350m investment from Andreesen Horowitz
By Ricky Ben-David 25 August 2022, 1:48 pm
As the dust settles on last week’s surprise announcement that Israeli entrepreneur Adam Neumann, the famed co-founder of shared workplace company WeWork, raised about $350 million from Andreessen Horowitz (a16z) for Flow, a not-yet-launched, vague-on-details real estate startup in New York, two things have become clear.
First, there are more questions than answers about what Flow is and how it’s set to address a residential housing crisis in the US. Second, the global tech community — investors and entrepreneurs alike — is divided on such a large investment in a person whose behavior and leadership as WeWork CEO contributed to a botched public offering, the downward spiral of a once-dazzling unicorn valued at $47 billion at its peak, and the loss of thousands of jobs and billions in venture capital, plus the very public downfall of Neumann himself and the toll on his family.
Some suggested Neumann was a highly questionable investment, as the “guy who crashed WeWork.” Others criticized the investment industry in general, where a top Silicon Valley investment firm — known for backing everything from Facebook, Airbnb, Slack, and Instagram in their early stages — can still write its biggest check thus far (for a single round) to someone who founded “one of the most toxic companies we’ve seen,” according to one investor and entrepreneur.
WeWork’s dramatic tailspin in 2019 has been largely attributed to Neumann’s antics, temperamental nature, and management style — widely covered in a number of books, a well-received Apple podcast series called “WeCrashed” that also became a TV show by the same name (starring Jared Leto as Neumann), and the 2021 documentary “WeWork: Or The Making and Breaking of a $47 Billion Unicorn.”
Some female tech entrepreneurs denounced the investment environment in which the $350 million transaction took place, slamming Andreessen Horowitz for rewarding “a failed, ethically questionable man” with its largest single investment, while women founders and entrepreneurs with solid business models and trajectories struggle to get any VC funding. Neumann was ousted as CEO in the fall of 2019, walking away with almost $1 billion as the company quickly lost cash, canceled the IPO, and then accepted a bailout by Japanese investment firm SoftBank, its biggest backer.
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And still others welcomed Neumann’s second act due to his entrepreneurial drive, his arguable success at building a company from scratch, and the concept of second chances.
Perhaps chief among these is Marc Andreessen, who wrote that Neumann was “a visionary leader who revolutionized the second largest asset class in the world — commercial real estate — by bringing community and brand to an industry in which neither existed before.”
A sign marks the location of a WeWork office facility on August 14, 2019 in Chicago, Illinois. (Scott Olson/Getty Images/AFP)
The stories behind the rise and fall of WeWork, said Andreessen, have been “exhaustively chronicled, analyzed, and fictionalized – sometimes accurately,” but “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 Neumann.”
“We understand how difficult it is to build something like this and we love seeing repeat-founders build on past successes by growing from lessons learned. For Adam, the successes and lessons are plenty…” said the world-renowned investor.
Whether WeWork was/is a success is still up for debate. The company raised almost $10 billion in venture capital and couldn’t quite crack a profitable business model. It relied on long-term leases of often-premium commercial real estate in major cities, transforming buildings into shared workspaces that were then rented out to members and subscribers short term. As occupancy rates and revenue per occupant fluctuated, WeWork took on a lot of risk.
In this Jan. 16, 2018 file photo, Adam Neumann, center, co-founder and CEO of WeWork, attends the opening bell ceremony at Nasdaq in New York (AP Photo/Mark Lennihan)
WeWork eventually went public in 2021 at a valuation of $9 billion and has turned its focus more toward companies of over 500 employees looking for space in urban centers. It is currently valued at about $4 billion.
So, what’s Flow?
In a post last Monday, Andreessen said Neumann’s new startup Flow would be a “direct strike” on a national housing crisis.
He laid out the problem in a lengthy preamble — America’s changing demographics, inadequate rate of construction, higher housing prices, urban concentration for young people who are “having families later in life” — and delved into the solutions available so far: either buying a house if you can find one, given the shortage, and taking on a multi-decade mortgage even as housing prices have soared, or renting.
“But: it’s a soulless experience,” he wrote. And, one can pay rent for decades “and still own zero equity.”
Andreessen reasoned that changing lifestyles following the pandemic and hybrid and work-from-home options may mean more Americans will have to rent, given the prices and the shortage. A third of Americans currently rent their homes and urban rentals are increasing.
But people still look for social interaction, connection, and community. And with Flow, Andreesen said, Neumann and his partners are setting out to tackle “the world’s largest asset class” — residential real estate, specifically multi-tenant rentals — with communal features and, again, a brand.
Flow is set to manage and operate thousands of apartments Neumann bought in the US in cities like Nashville, Atlanta, Fort Lauderdale, and Miami and offer concierge-like services and property management for these residences and others, according to The New York Times. In January, the Wall Street Journal reported that entities affiliated with Neumann bought majority stakes in residential buildings with some 4,000 apartments in these cities with plans to become a major landlord.
Illustrative. In this Feb. 17, 2016, file photo, town homes stand under construction as a pedestrian walks along the BeltLine in Atlanta. (AP/David Goldman)
The concept sounds similar to WeWork’s short-lived WeLive project, a communal-living idea that would have provided furnished apartments in major urban areas, communal spaces, and shared amenities or, as it was touted, an “urban kibbutz.”
This week, Forbes reported that Flow also sounded a bit too similar to a startup Neumann previously invested in called Alfred. Neumann appears to have started a rival company, sources told the publication.
It is not entirely clear how Flow plans to effectively provide a solution in a US housing landscape marked by a shortage of residences, declining rates of housing affordability where fewer and fewer people are able to qualify and afford a mortgage loan, and investors (private individuals and large companies) flooding the market and buying up residential homes, driving up prices.
But Andreessen hinted at a possible rent-to-own scheme for Flow tenants, which would set the company apart.
Adam Neumann, co-founder of WeWork, attends the opening bell ceremony at Nasdaq, in New York, January 16, 2018. (AP/Mark Lennihan, File)
“In a world where limited access to home ownership 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,” he wrote in the blog post.
“We think it is natural that for his first venture since WeWork, Adam returns to the theme of connecting people through transforming their physical spaces and building communities where people spend the most time: their homes,” he said.
(Flow is Neumann’s second venture since WeWork. Earlier this year, Andreessen Horowitz gave Neumann $70 million for a cryptocurrency startup called Flowcarbon, which was meant to sell tokenized carbon credits on the blockchain. It has since been put on hold.)
Andreesen made headlines separately earlier this month following a report that he and his wife opposed plans to zone for the construction of smaller, multi-family properties in some areas in the upscale city of Atherton, California where they live, arguing that such housing would decrease home values and their quality of life.
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