• A billionaire investor dubbed “the subsequent Warren Buffett” slammed WeWork in a personal annual letter to shoppers.
  • Baupost Group CEO Seth Klarman blasted cofounder and ex-CEO Adam Neumann’s $1.7 billion golden parachute because the “epitome of capitalist extra.”
  • “WeWork was a prosaic working enterprise which was branded as a VC-backed, technology-empowered, futuristic innovator with boundless potentialities,” Klarman mentioned.
  • The coworking startup was finally sunk by the “onerous truths of enterprise fundamentals,” he mentioned.
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A billionaire investor dubbed “the subsequent Warren Buffett” tore into WeWork in his non-public annual letter to shoppers.

The coworking startup, which spectacularly imploded final 12 months, is “a reminder of how shortly the teachings of prior monetary bubbles may be forgotten,” Baupost Group CEO Seth Klarman mentioned in the letter, which was considered by Enterprise Insider.

“Simply as with most of the wildly overvalued shares of the late 1990s – early 2000s, WeWork was a prosaic working enterprise which was branded as a VC-backed, technology-empowered, futuristic innovator with boundless potentialities,” the hedge-fund boss continued.

“Moderately than describing itself as an unprofitable workplace landlord that relies on unusually brief leases from its tenants, WeWork thickly laid on the hyperbole in its SEC filings,” Klarman mentioned. Nevertheless, the “onerous fact of enterprise fundamentals” finally introduced the corporate again to bleak actuality.

Uber, Tesla, and Netflix’s good points may very well be a mirage

In his letter, Klarman highlighted WeWork for instance of how extreme, undiscerning investor money has artificially inflated firm valuations. He additionally revealed  that money made up about 31% of his portfolio on the finish of 2019, and warned the current bull market won’t last.

“Whereas most individuals see Netflix, Uber, Lyft, and even Tesla as excellent success tales in in the present day’s financial panorama, one has to contemplate the chance (even a restricted one) that the funding ‘success’ of those firms is partially a mirage,” Klarman mentioned.

“A mirrored image not of worth creation for shareholders, however of tulip bulb pricing pushed by practically limitless inflows of undemanding capital,” he continued, referring to tulip mania in the Netherlands in the 1630s.

Klarman’s nickname is the “Oracle of Boston” due to his Buffett-style technique of sniffing out undervalued companies. In 1992, when a school scholar requested Buffett who is likely to be the subsequent Buffett, the Oracle of Omaha swiftly replied, “Seth Klarman,” according to the class professor.

The “epitome of capitalist extra”

WeWork filed to go public final August, however traders balked at its monumental losses, dangerous enterprise mannequin, lack of governance, and cofounder and then-CEO Adam Neumann’s controversial habits.

Vulnerable to not elevating sufficient cash to unlock important financial institution financing, WeWork shelved its IPO and Neumann stepped down. Operating in need of money, it accepted a bailout from its largest backer, SoftBank, in October. The rescue deal valued it below $8 billion — a fraction of the $47 billion non-public valuation it secured firstly of 2019.

WeWork’s new bosses are scrambling to revamp the enterprise, laying off thousands of employees and flogging past acquisitions. In the meantime, Neumann negotiated a $1.7 billion golden parachute, which Klarman described because the “epitome of capitalist extra.”