Venture capital firm Andreessen Horowitz is reportedly investing $350 million in Flow, a new commercial real estate company that disgraced WeWork co-founder Adam Neumann is creating. Flow’s valuation exceeds $1 billion. The Silicon Valley firm, which also goes by the name a16z, has never invested more in a funding round for any company, according to the New York Times.
Twenty billion dollars was WeWork’s initial valuation in 2017. That peaked at $47 billion before the startup experienced a rapid, colossal decline. Today it is valued at around $4 billion. Much of the co-working office space company’s problems are directly attributable to Neumann’s poor decisions and reckless management style. He was fired from WeWork in 2019.
How could someone who was so publicly fired walk away with $200 million in cash and $245 million in company stock for himself and then secure such a lucrative deal less than three years later from an elite a Silicon Valley venture capital firm? These may be Neumann’s good ideas. But this is also Neumann’s prerogative. A privilege that is not fairly distributed.
Research has consistently shown that Black entrepreneurs, especially Black women, are systematically disadvantaged by underinvestment in their startups. For example, a 2020 McKinsey report noted that white entrepreneurs start businesses with roughly three times as much capital as black business owners: $107,000 versus $35,000, respectively. Similar injustices stifle other entrepreneurs of color and white women. Even if their ideas are good (and perhaps significantly better and financially more profitable than Neumann’s), various innovators are often considered too risky or not sufficiently proven. Ironically, Neumann’s failure has been proven.
In an announcement on his website yesterday, a16z co-founder Marc Andreessen wrote, “we love to see repeat founders build on past successes by growing from lessons learned. For Adam, the successes and lessons are many, and we are excited to embark on this journey with him and his colleagues, building the future of life.” At least three things in this regard are noteworthy.
First, too few entrepreneurs of color and women have the opportunity to become multiple founders, even when their first startups are successful. In other words, starting their first business is challenging because of the unfairness of the investment. These inequities snowball as guys like Neumann get rounds and rounds of funding for multiple business ideas.
Characterizing Neumann’s previous leadership as a “success” is another notable aspect of the a16z co-founder’s statement. Neumann failed to take WeWork public. His rating dropped significantly under his leadership. He and his wife are said to have engaged in lavish spending at WeWork’s expense. The employee considers the workplace culture to be toxic. All of this is extremely well known, as Neumann and company have been the subject of the WeCrashed series on Apple TV+, numerous books, business school case studies, expert analysis, and perhaps too much commentary.
Women and entrepreneurs of color cannot fail in such spectacular fashion and subsequently convince investors to trust them with millions more.
The unfair distribution of second chances is not limited to failed startups. It occurs across industries and has a disproportionately negative effect on the careers of various professionals.
For example, let’s take higher education, an industry in which several head football and men’s basketball coaches in major athletic conferences earn multimillion-dollar salaries. Black coaches are severely underrepresented. But even when they are given head coaching opportunities, they are given shorter time frames than their white counterparts to turn around underperforming teams. In other words, black coaches get fired faster. In addition, it almost never happens to them to secure another job as a head coach at the highest level.
As for entrepreneurs, the failed head coach of WeWork was given a financially lucrative second chance that certainly wouldn’t have been extended to a Latin American who had achieved similar results.
Andreessen’s assertion that “the lessons abound” for Neumann is also fascinating. It is very likely that most various entrepreneurs who have failed or been kicked out of their companies due to bad management have learned a lot. This may also be true of Neumann. The difference, however, is that he hopes to learn from past mistakes as he launches Flow. Underrepresented business leaders who have failed typically do not get such opportunities to demonstrate that they have learned or apply the lessons of previous failures to new, well-funded startups.
After all, Andreessen Horowitz can determine in whom and in what to invest its capital. But $350 million could certainly make a huge difference in the lives and businesses of entrepreneurs of color and women who haven’t failed in the ways Neumann did.
Venture capital firms really need to stop contradicting themselves by claiming that various startups are too risky, yet investing heavily in entrepreneurs like Neumann who have actually failed.