Mar 10, 2016 · 4 minutes

The Journal reported yesterday that WeWork has filed paperwork saying it’s raising its third mega round since December 2014: Some $430 million at a $16 billion valuation, 60% higher than its valuation last summer.

You know that iconic bit in cartoons where someone runs off a cliff and doesn’t fall because they don’t look down and don’t realize they’ve run off a cliff? Yeah.

The Journal notes that that valuation would make WeWork the third most valuable office landlord if it were a public company, despite leasing out a fraction of the top companies in that sector. It quotes flummoxed sources in that industry who simply can’t understand how WeWork-- even with fancy neon signs and beer taps-- can continue to expand at this rate, finding new would-be startups to rent its space for more money that WeWork rents the space.

Because at the end of the day: That’s all WeWork is. A middle man that rents space, decorates it, chops it up, and re-rents it for higher prices. For all the talk that it’s benefiting from a new way young people want to work the same way Uber is benefiting from a different way people want to get around cities, WeWork is doing something that doesn’t rely on software, an algorithm, or much of a network effect at all.

Yeah, old economy landlords: I’m with you. I don’t get it either.

Pitchbook doesn’t either. From its newsletter today:

The round and skyrocketing valuation are notable for a handful of reasons. One reason is that it’s been just nine months since the company raised the aforementioned uncommonly large financing. And six months before that, the company raised a substantial $355 million investment at a $5 billion valuation. Usually, rounds are meant to sustain a company through at least a year of operation with specific goals in mind, but in WeWork’s case, the time between raises has been much shorter. One reason could be the funding environment at those times. There were many investors in the market looking to back high-growth startups, and WeWork was likely able to secure favorable terms. This same explanation is harder to apply to this most recent round.

There has been a lot of talk recently of a cooling in investment activity, sparked by less-than-attractive performance of stocks in the public market. With the general acceptance that the current funding environment is less than ideal, it’s interesting that WeWork would set out to raise a round now, when it presumably still has cash on hand from the large round last year.

It will be interesting to see how the round fills out. Has WeWork set its sights too high? Could we see the valuation for the round come down, or will investors continue to pour money into the company at eye-popping valuations?

New unicorn level investments in Oscar Health, Snapchat, and Slack I get. I do not get this. Either there’s some magic to WeWork none of us get, or there’s still more air to come out of the startup economy. It makes less sense when you consider the money is being raised to allow WeWork to expand in Asia. Because that never goes wrong.

WeWork’s CEO Adam Neumann hasn’t provided much of an argument. The Journal quotes his blog post on the news: “despite cultural differences, at the end of the day, we are all one and we all want the same thing. We want to pursue our passions.”

Um... Even if that did justify a fancy high margin coworking space business that works the same in South East Asia as it does in Manhattan that doesn’t clear up why WeWork would have any advantage over local players. If this was a great business, why wouldn’t Asian corporates for instance to do in China? They’re doing 30% of the deals and no doubt have the balance sheet to lease space and the connections to gut them, build them, and lease them more effectively. If this is such a great opportunity, why has it waited for WeWork?

Sure, entrepreneurship is booming in markets like China and India, but the economics are completely different, venture capital is far less certain and there are reports that it’s already starting to cool in India.

While WeWork likely doesn’t do anything controversial enough to get banned in China, it also doesn’t seem differentiated enough. What I love about WeWork in the US-- and indeed, there are many things this company does really well-- is the community and the private club feel of it. We were WeWork clients in New York for a bit, and I love that you can use a WeWork location anywhere once you are a member. But that’s as close as WeWork gets to a network effect and I’m not sure it matters if you want to get broadly into the entrepreneurial landscape of China or India.

Everything about this deal seems plausible if it happened six months ago. Today, it’s confusing to nearly everyone.