How Venture Capitalists are Deforming Capitalism

Even the worst-run startup can beat competitors if investors prop it up. V.C.’s enabled WeWork to make one wild mistake after another — hoping the gamble would pay off before disaster struck.

When Jeremy Neuner began having meetings with venture capitalists, he said, “their first question was ‘How do you compete with WeWork? Why should we invest with you instead of them?’ ” WeWork was reportedly losing millions of dollars each month, but it was expanding to new locations at a feverish pace. Neumann’s promises to V.C.s were so wildly optimistic, bordering on ridiculous, that Neuner was convinced WeWork had to be a scam. “They were saying they would become the biggest office-space provider in the world,” Neuner recalled. “What do I say to compete with that? Do I tell V.C.s, ‘You know, WeWork must be lying, so you should accept my smaller returns instead’? No one wanted to hear that. All the V.C.s couldn’t wait to drink the Kool-Aid.”

Venture capitalists began telling Jeremy Neuner that making piddly investments in his company wasn’t worth their time; moreover, if they funded NextSpace, they might be excluded from buying into WeWork someday. To Neuner, this seemed nuts. He was building a solid business, but the V.C.s wanted fantasy. “All we needed was five million dollars a year in revenues, and we would have made money for everyone,” he told me. “That’s enough to earn a living and buy a house and put your kids through school. But no one wanted something that just made a healthy living. They all wanted to find the next Zuckerberg.” Neuner was frustrated, but he wasn’t surprised. He knew that American history was filled with entrepreneurs like P. T. Barnum, Walt Disney, and Charles Ponzi, self-promoters whose audaciousness created new industries and vast riches—and who, occasionally, ended up in jail. What Neuner hadn’t realized was that some venture capitalists had become co-conspirators with such hype artists, handing them millions of dollars and encouraging their worst tendencies, in the hope that one lucky wager would more than offset many bad bets.

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