Entrepreneurial inequality has worsened with new investment in failed WeWork founder Adam Neumann

Venture capital firm Andreessen Horowitz is reportedly investing $350 million in Flow, a new commercial real estate company that embarrassed WeWork co-founder Adam Neumann it’s creating. Flow’s value 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. This peaked at $47 billion before the startup experienced a rapid and colossal decline. Today, it is valued at around $4 billion. Much of the co-working space company’s problems have been directly attributed to Neumann’s poor decisions and reckless leadership style. He was fired from WeWork in 2019.

How can 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 firm of capital of Silicon Valley? It could be Neumann’s good ideas. But it is also Neumann’s prerogative. A privilege that is not distributed equally.

Research consistently shows that entrepreneurs of color, especially black women, are systematically disadvantaged by underinvestment in their startups. For example, a 2020 McKinsey report notes that white entrepreneurs start businesses with roughly three times more capital than black business owners: $107,000 versus $35,000, respectively. Similar disparities stifle other black and white female entrepreneurs. Even if their ideas are good (and perhaps fundamentally better and more financially profitable than Neumann’s), various innovators are often considered too risky or not proven enough. Ironically, Neumann’s failure has been proven.

In an announcement on its website yesterday, a16z co-founder Marc Andreessen wrote, “we love to see repeat founders build on past successes while 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 as we build the future of living.” At least three things about this are important.

First, very few black and women entrepreneurs are afforded the opportunities to become iterators, even when their first startups are successful. In other words, opening their first businesses is challenging due to disparities in investment. That disparity snowballs 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. Its rating dropped significantly under his leadership. He and his wife allegedly engaged in heavy spending at WeWork’s expense. The employee considered the workplace culture toxic. All of this is extremely familiar, as Neumann and company have been the subject of the Apple TV+ WeCrashed series, numerous books, business school case studies, expert analysis, and probably a lot of commentary.

Black women and entrepreneurs fail in such grandiose fashions and then convince investors to trust them with millions more.

The unequal 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, take higher education, an industry in which several head football and men’s basketball coaches in major athletic conferences earn multi-million dollar salaries. Coaches of color are vastly underrepresented. But even when they are offered coaching opportunities at the top, they are given shorter timeframes than their white counterparts to turn around underperforming teams. In other words, black coaches get fired faster. Also, securing another coaching job at the highest level almost never happens for them.

As entrepreneurs go, the failed WeWork coach has been given a financially lucrative second chance that probably wouldn’t have extended to a Latino who would have delivered similar results.

Andreessen’s claim that “lessons abound” for Neumann is also fascinating. It is very likely that most of the various entrepreneurs who failed or were kicked out of their companies for bad leadership have learned a lot. This may be the case for Neumann as well. The difference, however, is that he will hopefully learn from past mistakes as he launches Flow. Leaders of underrepresented businesses that failed are typically not afforded such opportunities to demonstrate that they have learned or apply lessons from previous failures to new, well-funded startups.

Ultimately, Andreessen Horowitz must determine in whom and in what to invest its capital. But $350 million can certainly make a massive difference in the lives and businesses of black entrepreneurs and women who haven’t failed the way Neumann failed.

Venture capital firms need to stop contradicting themselves by pretending that various startups are too risky, yet invest enormously in entrepreneurs like Neumann, who have in fact failed miserably.

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