I think I'm at the point where I think that Softbank is throwing billions into wework to save face. That is a very bad move.
Softbank also has full access to the company’s financials and will be in a position to restructure. It’s safe to say they are a lot better informed than we are.
They had one open position. It required all applications to have an extensive history at a prestigous VC firm, i.e. they are looking for people from the in-group.
I think a less-incestuous vetting strategy would give more honest results. Too bad, I think there's a lot of people on HN who would excel at this position despite not having worked at a big VC.
WeWork is just going to have to transition from wartime to peacetime. Ben Horowitz has a great article about what this looks like [1]. They're going to clean up the books, stop making risky acquisitions, and focus on the core business instead of side projects. After a few years of being "boring" and improving margins, then they ostensibly will look like a much more stable investment to public markets.
The bull case for WeWork that I always heard was based on the existence of a WeWork-shaped market opportunity, and WeWork themselves being in pole position to take it. The bear case was that WeWork was run by crazy people. I think SoftBank’s decisions here are making the best of a bad situation.
If it turns WeWork profitable by cutting costs and implementing responsible leadership, it just keeps its share of all future profits. SoftBank wouldn't be doing this if it didn't think those profits were likely to be more than total investment so far.
In other words, WeWork got acquired instead of IPO-ing.
Yes. The Vision Fund, like all VC funds, has a finite lifespan that all the investors agreed to when they funded it.
I don't think this quip makes any sense. It's like the reverse of a gambler telling you how much they made without telling you how much they lost.
Edit: For clarity, I think if you want to ask how much he made/lost in the dotcom boom, you have to compare his worth before the boom to his worth after the crash. Not his worth at the peak of the boom to after the crash. If you think that's wrong I'm interested to hear why.
https://www.cnbc.com/2019/09/07/uber-wework-and-slack-public...
So I would assume he knows a little about business.
Remove that.. and he's at 0 or even negative. Is that luck or skill?
But it could be just one-in-a-billion luck.
- SoftBank to invest $4-5 billion
- Pre-money valuation at $7.5-8 billion
- SoftBank will end the deal with ~70% control of WeWork
- SoftBank's Marcelo Claure to take over as chairman of We
- No confirmed word on additional job cuts, asset sales, or clawbacks from Neumann
[1] https://www.cnbc.com/2019/10/21/softbank-to-take-control-of-...
"SoftBank will pay former WeWork CEO and current non-executive chairman Adam Neumann around $200 million to leave the board of directors, give up his voting shares and support SoftBank's takeover, according to multiple sources familiar with the situation."
https://www.axios.com/adam-neumann-wework-softbank-takeover-...
So isnt this a recapitalization of the firm? Why would they need to pay $200M for control if the alternative is some variation of bankruptcy followed by a firesale and cheap buy?
At some point you have to wonder when its better to cut your losses and scrap the entire thing.
This is where the value of all that liquidation preference kicks in. At some point it becomes in SoftBanks interest to push for lower valuation, as it means they get to wipe out all the people that came before.
So it looks like they've already destroyed $4 billion+ in value. I'm curious how the more financially astute than I see this as anything besides throwing good money after bad?
If even a small percentage of companies adopt the Gitlab model, WeWork is going to be extremely successful. And given Softbank's business model is designed for long term, strategic bets there is no way I would be cutting losses just yet.
Is there some larger relevance that I'm missing?
But also, this story isn't over. This story has been almost an unmitigated catastrophe for the last year and yet this news is telling you that Softbank think that WeWork is currently still the most valuable company in the office rental space despite everything. It also tells you softbank isn't just funded a tonne of companies and are willing to let them go big or collapse - they don't seem able to walk away from WeWork. The reason this is interesting is because this is now raising big red flags about how Softbank's investment portfolio is looking - and it'll be interesting when we hear whether they start to suffer because of it.
I think the relevance is in the definition of some.
Lots of people had an inkling it was a lot of smoke and mirrors, "tech company this" "we're a platform that", with a lot of weirdness alongside - but then the IPO dropped and confirmed every single assumption and it turned out truth was more ridiculous than fiction.
The larger relevance is how completely unworthy businesses are sprung into a position by cheap VC cash when the foundations are made of custard and spaghetti. Wrap in the "cult of personality" with a seemingly deluded founder and you have the SV equivalent of a soap opera.
Alongside that, it's also a dramatic pantomime as to how said investors are trying to optimise an acquisition without the optics of a failing business. We was a poster child for the Vision Fund, and Softbank has to play this game delicately.
It's fascinating to watch it play out - this isn't just a case of a large business that's fallen on hard times. This is a story about a (hopefully) unique company that should never have worked in the first place, somehow navigating a black swan moment, and potentially turning into a real business.
One problem is their revenue doubled in the past year while maintaining losses which is a good thing. They wouldn’t have had that same giant revenue to boast about if the S-1 was filed 3 quarters earlier.
Nonetheless, actually giving out the S-1 makes this fun and juicy news. Having SoftBank/Vision Fund behind it, and billions in funding from other investors as well makes it even more interesting. The founders and their corruption and bullshit, specifically Neumann, add on to this as well.
If Uber took a big write off at this point, not only would American and Japanese companies and Saudi Arabia take major losses but I would imagine big tech stocks in general would start to see a loss in confidence and a reversion to more normal P/E ratios.
I would imagine at that point softbank would be such a dirty word that it would have to firesale as well. And certainly no second vision fund.
And then you could go on and on about what would happen to pensions in the states and the rest of our systemically daisy chained over leveraged economy or whatever else if that happened.
Do I have an overly active imagination? Does anyone else worry about this kind of stuff?
No. The Vision Fund itself is nowhere near large enough to be systemically important, even given a complete loss of all principal.
Also, a lot (most?) of the the risk from SIFIs (https://en.wikipedia.org/wiki/List_of_systemically_important...) is that they're counterparties in tens of thousands to tens of millions of relationships, many of which assume the counterparty is completely reliable. That's not true here; all Softbank and Vision Fund shareholders understand their capital is at risk. Banks also almost inherently use leverage (https://en.wikipedia.org/wiki/Basel_III#Leverage_ratio) more heavily than most other industries.
The other possible results you mentioned are market mechanics. For example, a reversion to more historically-normal P/E ratios is not something that SIFI tries to prevent (or encourage).
Most of the big tech companies have not particularly strange P/E ratios.
> I would imagine at that point softbank would be such a dirty word that it would have to firesale as well.
What's the mechanism here? Uber takes a large writedown leads to Softbank declaring bankruptcy? I don't follow the reasoning.
> Do I have an overly active imagination? Does anyone else worry about this kind of stuff?
Yes and no.
They've probably missed their window for huge VC style growth at that point anyway.
If they truly think they will get $8Bn worth for investing 4-5Bn now, it's a rational choice.
Adding your past investments to the tally is an instance of the sunk cost fallacy.
If they don't intervene, they lose all their previous investment guaranteed. So just consider all of that previous investment gone (sunk cost).
If they invest $5b they may make an $8b valuation. And they may still think there is upside beyond that.
Not sure if that's what they really think, but a lot of posters here seem to accuse softbank of sunk cost fallacies without considering that they are surely aware of investing 101.
It was valued at $20Bn in 2017 based on a $4.4Bn investment from SoftBank (where they were the sole investor). It was then valued at $45Bn in 2018 based on another $3Bn investment from SoftBank (when SoftBank was already the largest investor -- by far). Then, SoftBank made ANOTHER $1Bn investment later in 2018 "valuing" WeWork at $47Bn.
WeWork was ever valued at $72Bn. Maybe you're thinking of Uber.
They are bailing out employees and investors. People will at least get something.
They did that to Priceline in the past. Priceline was almost dead at one point. Got sold at a fire sales. They hunkered down and executed, and look where they are now.
Never saw the numbers in the prospectus, but surely there was some indication?
If SoftBank can really reign in spending, in 2 years we could be looking at a company that’s cashflow neutral, growing very quickly, with annual revenue in the range of $5-10 billion. From the outside looking in, this seems possible to me, and would result in a company with a valuation much higher than $8 billion.
Maybe WeWork can turn cash flow positive, in which case Don can easily justify holding it. So long as he is not forced to mark down then we can continue doubling down. Son is not a guy with an exit plan, he doubles down until bust then waits for the next cycle.
SoftBank likely would have made out better in the near term had they just let the (disappointing, to them) IPO play out. WeWork would have launched with at least a $10B market cap (though of course that could have dropped on day one), would have raised a couple billion, and maybe would have even raised enough to meet the requirements for the loans they were planning on taking out. But now they've more or less gutted the company, killing anything that was even slightly interesting, turning it more or less into a bog-standard office real estate company. Which presumably will be able to turn a profit after a bit of retooling, but it hardly qualifies as "Vision Fund" material.
This is definitely just Son and SoftBank trying to save face.
Wework is good business if they can become cash positive. They have a brand, more and more people are going remote, there is a bug market for pricey and google-like coworking spaces.
It doesn’t matter if they had a bad CEO, or if they can’t IPO anymore, there’s no reason this wouldn’t become massively profitable in the next 10 years.
