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Adam Newman: No Prejudice

Never confuse the first loss with the final loss. Scott Fitzgerald wrote in Tender is a night.

Set in the French Riviera in the late 1920s, the novel chronicles the rise of a brilliant and charming young man who grows rich, marries, and lives in a hyper and empty trance between glamorous parties and world travel – until a chain of events collides with the ascent. in his personality and lead him to a rapid collapse.

Fitzgerald was obsessed with the mysteries of wealth – what people do with it, what he does with people – as well as the power and destruction that goes with it.

Last week, Adam Neumann — the founder of WeWork whose path-worthy character Fitzgerald — stunned the world by raising $350 million with Andreessen Horowitz, or a16z for short, the popular venture capital investor from the Valley of Silicon behind companies like Facebook, Airbnb, Instagram and Twitter. And a very long list of resounding successes.

Newman’s new venture, called Flow, achieves unicorn status without ever starting its operations, and without knowing its business model in detail.

For those who know Newman’s story, listen to the podcast We Crashed: The Rise and Fall of WeWork Or watch the series that inspired them, the automatic question is: How does one of the world’s preeminent investors write the largest check in its history to an entrepreneur whose mistakes and abuses have been so abundantly documented?

Adam Newman was a Spoiled child of the tech bull market recently as founder of a real estate company – a remarkable feat that speaks volumes for his charisma and persuasiveness.

According to a businessman and investor who was with him recently, anyone who listens to him wants to be his partner: a man is the best seller in the world.

But why would anyone turn this impulse into a thoughtful, thoughtful examination, with so much being known?

Because that’s how Silicon Valley works. Ever since Arthur Rock invested in the “Eight Traitors” who left the company they worked for and founded Fairchild Semiconductor in 1957, Vale has been funding entrepreneurs and companies that don’t match the standards or complement Wall Street listings.

This is its beauty and part of its essence.

In 1974, Don Valentine, founder of Sequoia Capital, visited Atari, housed in an old skating rink, and found a chaotic environment with meetings taking place in hot tubs, free beer, thick marijuana smoke in the air, and founder, Nolan Bushnell, ripped and poorly maintained .

That didn’t stop him from investing and helping a band of hippies turn their vision and creativity into a truly non-market business that was a precursor to today’s gigantic industry.

That’s how — by funding unexpected rebels and hippies with independent thinking, lifestyles and values ​​opposing East Coast rebels — many life-changing businesses sprang up in the valley.

Bono Fox, who was a friend of Steve Jobs, told Sebastian Malabe, in exhilarating The Law of Power: Venture Capital and Creating the New Future — which tells us in detail about the beginning of the valley — that “the people who invented the twenty-first century were West Coast hippies and sandal workers, like Steve, because they had a different point of view.”

Interestingly, Arthur Rock himself stopped investing in Apple at the first opportunity he got because Jobs was at home and quickly noticed that its founder wasn’t fond of taking a shower, which bothered him enough to back out of the investment. (When he realized his mistake, he tried to correct it in time to get a huge reward.)

Radical change often comes from outside the industry, and history is full of examples. And so it was with Newman, the owner of a children’s clothing store, who persuaded one of the valley’s major investors, Benchmark Capital, to invest in a real estate company.

Then he took it one step further, convincing Softbank’s Masayoshi Son to fund a frenetic global expansion of the business with a gorgeous $4.4 billion opening check.

Whether it was worth $47 billion at its peak or the $3.3 billion it is today, Neumann captured the zeitgeist with WeWork, saw the corporate real estate market from a new perspective, and had the courage and competence to implement his vision, albeit in a way that is questionable in many ways. aspects.

But the truth is that it has dramatically changed the market (or, for some, caused disruption), and there is usually a big prize when someone achieves this feat, especially when it comes to a market as large as real estate, the largest asset class in the world.

In the middle of the venture capital, it is said, “You are betting on the jockey and not on the horse”, i.e. the entrepreneur is more important than the enterprise.

Projects can change quickly – or center around the language of the industry – as long as they are well managed. On the other hand, the rapid change of people is not something that can be easily noticed. In addition, there are many failures of entrepreneurs, and with the help of their rich experience, they later built large companies, such as Bill Gates and Microsoft.

Mark AndreessenWhat the a16z does with Newman is no different than what has always happened in the Valley. Neumann already had a vision that proved to be true, raised huge funds from the world’s most famous investors and transformed the corporate real estate market. Why can’t something similar be done in the housing market?

Marc Andreessen, founder of a16z, loves big, bold ideas, and backs controversial entrepreneurs who have previously failed.

He himself, as the founder of Netscape, made a successful initial public offering in 1995 — 16 months after the company was founded — and his company was acquired by AOL four years later for $4.3 billion.

Coincidentally (or not), he was also the poster child for the first wave of technological euphoria, and he similarly tried to stigmatize it for the excesses of the bubble when it burst in 2000.

In 2004, Mark Zuckerberg arrived late in his pajamas for a meeting at Sequoia Capital’s office on famous Sand Hill in Menlo Park, which many venture capital investors have chosen as their address. He brought with him a show where he gave ten reasons not to invest in it, which actually happened.

His partner was Sean Parker, whose home the FBI invaded at age 16 to hack federal websites and at age 20 had the entire music industry on its tail in a police and legal battle: he was the man behind Napster, the peer-to-peer program. Free piracy.

Andreessen was not interested in the history of the partners at that time and was one of the first investors in Facebook, which has a market capitalization of one trillion US dollars, and is a member of the board of directors of Meta to this day.

The nature of venture capital is the high uncertainty of return. Paradoxically, the trades that appear to have the most predictability and chance of success are often not the ones that bring the greatest returns, because they are most likely not the ones that will change the markets, which is exactly what Newman has shown he is actually capable of. a job.

Entering inconspicuous territory, on the contrary, the investor walks a fine line between stupidity and genius. This is where the biggest returns (and biggest failures as well) will come in, which is why it’s so hard to invest in early stage companies, especially those that are proposing big turnarounds.

If the Flow business is successful, it will be just another case of a controversial entrepreneur or an unlikely investment that will be a hit.

If something goes wrong, it will be to be expected, as it is the fate of most companies in which venture capital funds invest. The logic of focused returns prevails: Few of the big winners generate the most long-term returns.

The role of the investor is to find and support entrepreneurs who stand a chance of making good returns, and Neumann’s track record improves those odds.

Regarding his dark side seen in the series, the aphorism coined by cowboy actor John Wayne is valid: “Every man deserves a second chance, but watch him.”

Now it’s up to Andreessen to play that role and help Neumann prove to the world that he has learned from his mistakes, and that his departure from WeWork was just a defeat, not an eventual one.

Guilherme Pacheco is an entrepreneur and technology investor. He co-founded Bondfaro, Mosaico and Tessera Ventures and is an advisor to Banco Pan.

Guilherme Pacheco

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