Home Stories WeWork and Theranos – what do we learn? – Hemant R Joshi

WeWork and Theranos – what do we learn? – Hemant R Joshi


A few weeks ago, I finished reading a book called “Billion Dollar Loser” – a book about the epic disaster at WeWork. The company, which was going to IPO at a valuation of $47bn once, was valued at less than $10bn weeks later, and also decided not to IPO.

Right after, I saw a documentary about another company called Theranos, another colossal startup failure.

Both of these made me wonder about the motivations of founders. What was it they were really wanting that they kept growing their companies despite not having a business that worked?

What exactly happened?

Theranos, founded in 2003 was a startup “revolutionizing” blood tests as we know them. The company was building a device that could conduct more than 200 blood tests with just a few drops of blood, instead of the test-tubes full of blood that is collected today in blood testing centres. The company claimed it required only 1/100 of the amount of blood that would ordinarily be needed.

At its peak, the company was valued at $10bn dollars.

But there was a problem. The company didn’t have a working product! It was all a scam. And what’s more interesting is that the company managed to convince giants like Walgreens (a large pharmacy chain in the US) to be its early customers.

As more and more people started coming out and telling that things were not how they looked, investigations started in 2016. The company became defunct in 2018.

WeWork was a different game altogether. WeWork is a company that rents real estate to freelancers, small businesses and enterprises – a modern concept called co-working spaces. The founders of WeWork always mentioned that they were not renting real estate, but were building a “global community” of workers. They claimed the company was a tech company, but really, it was a real estate business that didn’t scale very well. Yet, they were able to get to a sky-high valuation of $47bn when they filed their documents for IPO.

Weeks later, as the investigators started poking holes into their IPO documents, the onion started getting peeled. The company lied on its financials, was losing much more money than it stated, and it didn’t have much of a “tech operation.” As a result, the company decided to back off from its IPO. Later, the investors in the company decided to oust its CEO, who got $1.7bn to get away from the company. WHAT?

The problem, in both the cases, lay at the top – the founders.

About the founders

Both Elizabeth Holmes (Theranos) and Adam Neumann (WeWork) seemed great at selling. Elizabeth consistently motivated her employees to think that they had a breakthrough product, even if the employees knew they didn’t have much going. Adam was able to convince investors that the company was a tech operation, and was building a physical social community, kind of like Facebook or Twitter, but in real spaces. Real estate just happened to be a part of the business.

Both of them seemed a little delusional – Elizabeth believing that what she was doing was good for the world, while Adam thinking that he was genuinely building a global community that could help each other. But, how could they not honestly look at the world around them? In one case, the product didn’t work (and this was blood tests – the accuracy of medical reports is of supreme important. One mistake and you could kill people). In the other case, the company was spending too much money and didn’t show any value on the community aspect. Sure, they might have had the right intentions at start, but later, how could they be delusional when raising more and more money? It seemed like they were chasing higher valuations, and not sound businesses.

Both of them were unafraid of lying in public. Theranos, for example, made a claim that they were making $100mn in revenue when they were really making $100k. WeWork came with its own way of calculating EBITDA, calling it the “community adjusted EBITDA”.

[EBITDA = the money a company makes before taxes]

What about the investors?

Venture capitalists (VCs) have to take huge bets with very little data. It is assumed that if you invest in 20 startups, only 1 or 2 are going to succeed and others are going to fail. But the returns on those 1 or 2 are 10x, 20x, or even higher, which cover up for the losses with the other firms.

In venture capital, you cannot invest in any company you want, like you can in the stock market. You need to get permissions from founders in order to invest. As such, there’s a great demand among VCs for investing in the top startups, while other startups don’t see any responses to their investment pitches.

In the case of WeWork, something similar happened. One popular firm decided to invest, considering how Adam Neumann was able to convince them of his vision. As a result of this investment, many more people followed. Eventually, the whale in the ocean – Softbank, decided to invest in WeWork. And Softbank was ready to go bold and invest billions of dollars in the company.

But it seemed like diligence was missing. Desperation of the investors to get in on a “fast-growing company” was higher than the patience required for diligence.

A quote about WeWork from the book:

“These people invested, they knew the terms, they knew about the governance issues, and they told this guy, ‘Be you, but be ten times you.’ What did they expect?”

Billion Dollar Loser

To give the investors credit, I think this is a really hard game they are playing and such misses can happen.

They can screen for “intellectual honesty” to an extent, but are probably not going to know someone’s inner motivations fully. In both the cases, it is clear that the founders were passionate about their companies, but they were not honest.

This to me seems like the core issue here.

Sure, as founders, you are visionaries. You chase visions that people don’t believe in, maybe for years, but lying is not the solution. You can say your business is not working currently, but you have a plan to make it work. But saying that your business is going great just to raise your valuations is problematic.

In conclusion, what I’ve learnt is scamming is not that hard. It all boils down to how honest you are.


  1. Billion Dollar Loser – the story of WeWork – book link
  2. The Inventor: Out for blood in Silicon Valley – the story of Theranos – documentary
  3. Theranos – Wikipedia
  4. WeWork’s IPO disaster – Vox

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