SoftBank thought WeWork could be a $100 billion company, and audio from 2018 shows how it inflated the hype

Reuters / Mike Blake

Rajeev Misra.

• WeWork cofounder Adam Neumann isn't the only person to have hyped up the troubled startup - investor SoftBank also played a key role.
• In 2018, senior SoftBank exec Rajeev Misra loftily predicted the business could one day be worth as much as $100 billion.
• Adam Neumann has now resigned as CEO amid intense scrutiny of his business practices and lifestyle. 
• Misra's remarks highlight how investors charged with oversight of the company were helping build the buzz that has since come crashing down, as its IPO plan goes off the rails. 
• Footage of the executive's remarks subsequently disappeared from YouTube, but Business Insider is now publishing the full audio.  
• Click here for more BI Prime stories.

Adam Neumann has fallen on his sword, stepping down as chief executive of WeWork in an attempt to help the office rental giant's bungled initial public offering (IPO) get back on track.

After weeks of intense scrutiny of the company's business model and the 40-year-old CEO's personal life that has thrown a spanner in the works of its attempts to go public, he has been replaced by two new co-CEOs, Artie Minson and Sebastian Gunningham - seasoned executives with years of management under their belts.

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With his idiosyncratic behaviour and his unconventional (and sometimes outlandish) remarks, Neumann has been emblematic of WeWork's strangest excesses. His departure is optically useful, and may allow WeWork's bankers and backers to bill the company as learning from its mistakes and placing grown-ups in charge.

But, as evidenced by one curious episode last year, Neumann wasn't the only over-optimistic hype man when it comes to WeWork.

In May 2018, one of SoftBank's most senior executives appeared onstage at a conference in London and announced that WeWork was raising funds at a $35 billion valuation - and that it could one day be a $100 billion business.

He also outlined how WeWork would expand from simply renting out office space to playing a more active role in construction and design, and said the firm's revenue growth would come from cross-selling services to its shared office members.

The executive was Rajeev Misra, the London-based chief executive of SoftBank Investment Advisers. This is the arm of SoftBank overseeing its mammoth $100 billion Vision Fund, which has funneled billions of dollars into Uber, DoorDash, Slack and, of course, WeWork. (Misra does not sit on WeWork's board. SoftBank's board seat is occupied by Ron Fisher, the firm's vice chairman and head of investment.)

"A year ago we were told that WeWork was extremely overvalued, $17 billion for a real estate company doing office space. Well guess what, they're looking to raise capital at $35 billion today. Maybe it's overvalued but I believe they're a $100 billion company in the next few years," he said. 

"They will completely go horizontal, and go beyond office space into manufacturing furniture for themselves, to becoming a leader in real estate as an industry, to building offices, to mechanising construction, etcetera etcetera."

Misra was speaking at CogX, a comparatively new UK conference focused on artificial intelligence - a key plank of the Vision Fund's investment strategy. SoftBank was also sponsoring the conference. Both were unusual. The Vision Fund hadn't yet closed the full $100 billion and SoftBank was generally keeping a low profile.

Still, Misra seemed comfortable talking about the fund's investment strategy up on stage before an audience of startups, investors, journalists and other industry figures.

Perhaps he was too comfortable. It turns out no one had ever mentioned WeWork's new fundraise publicly, nor had anyone mentioned a possible $35 billion valuation. WeWork's most recent raise had been in July 2017, the the year before, which reportedly valued the company at a more modest $20 billion.

And certainly no one had mentioned a prospective $100 billion valuation.

Business Insider published a write-up of his remarks the next day with additional comment from WeWork, which had evidently been caught off-guard.

It was, pretty clearly, a gaffe. Although Misra's remarks were also captured on video by the conference organisers and posted to CogX's YouTube channel, that video quietly disappeared after Business Insider asked both WeWork and SoftBank about his comments. SoftBank declined to comment at the time.

A few days later, Axios' Dan Primack suggested that Misra's revelation may have even violated SEC rules. It wouldn't be the first time a SoftBank executive has let the news of a major deal slip early.

'A year ago we were told that WeWork was extremely overvalued'

Business Insider recorded Misra's remarks, and is now publishing that audio in full.

Here is what the finance executive said about WeWork (emphasis added). For context, Misra was asked by the conference moderator whether the Vision Fund was fuelling a bubble and spiraling valuations:

"Valuations are high in certain companies, valuations are low in certain others. When you're taking a 10 year view, a 10%, 20% difference in valuation doesn't matter if you can get the WeWorks. It's like saying, look, I'm going to [unclear] and try to negotiate the 10% or 15% extra discount. We can do that anyway, we got into Uber at a 30% discount to the previous round, in the secondary.

"But the key that we look for is cos that we believe going to be the winners in that industry. WeWork, a year ago we were told that WeWork was extremely overvalued, $17 billion for a real estate company doing office space. Well guess what, they're looking to raise capital at $35 billion today. Maybe it's overvalued but I believe they're a $100 billion company in the next few years. They will completely go horizontal, and go beyond office space into manufacturing furniture for themselves, to becoming a leader in real estate as an industry, to building offices, to mechanising construction, etcetera etcetera.

"The key is to own the customer. They own their consumer and that is extremely valuable. [They have] one or  two million members right now, 100,000 last year, they ended last year at half a million across the globe. They will own consumers who use their app, work in their offices five days a week. And the ability to cross-sell through those members and the ability to go downstream to create those offices substantially cheaper... Not to get into WeWork in a big way, getting back to valuation, we believe if we invest in winners, of course we don't do early-stage investing any more, we do late-stage growth investing, if we believe our investment will go up 3, 4, 5x, why bother 10%, 20% valuation."

Elsewhere in the recording, Misra talks about SoftBank bringing "synergies" to Uber because it also holds stakes in other rival ride-hailing companies around the world. He also discussed SoftBank's acquisition of ARM, its investments in Indian hotel marketplace Oyo, and how SoftBank helps its portfolio firms scale into Asia.

Those charged with oversight helped contribute to the hype

WeWork would go on to hit a $47 billion valuation - but has since had a dramatic reversal of fortunes.

In the run-up to its planned IPO, Misra's exuberance for a sky-high valuation has been mirrored by the other bankers WeWork talked to. According to a Financial Times report, JPMorgan told the company it could be worth up to $63 billion in its public listing. Goldman said it could be as much as $96 billion. Morgan Stanley reportedly valued it at as much as a staggering $104 billion.

However, intense media and investor scrutiny of WeWork's business practices, Neumann's unusual degree of control over the company, and his lifestyle (there are reports of smoking weed on private jets and presidential ambitions) has since driven the IPO process off the rails. Neumann has now left his post. There are rumours of thousands of employee layoffs coming. And when the company does eventually go public, its valuation seems certain to be dented, and potentially halved.

In the aftermath, Misra's lofty pronouncements in 2018 - like the heady valuations suggested by Morgan Stanley and the rest - highlight how those meant to keep Neumann and WeWork in check instead helped directly contribute to its over-hyped image and stratospheric expectations.