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0 pointsthedudeabides56y ago0 comments

I mean, if you liked 20% ownership at 50bn, you prob love 70% ownership at $8bn.

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.

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8 comments · 3 top-level

ivalm6y ago· 3 in thread

But the reason they liked 20% ownership at $50bn is presumably because they thought they can cash-out at $80bn+. This cash-out valuation was not value-based but growth/hype-based. It seems that weworks will no longer be valued on growth/hype, which means that the value of weworks is much lower.

Liking 20% ownership at 50bn doesnt mean you like 70% ownership at $8bn. The value of the company had significant future growth/hype component which required other investors to pour additional money in to keep up the growth, that is now gone.

nihonde6y ago

They basically bought control of the company for ~$15B. Any valuation north of $20B ought to put them in the black.

ivalm6y ago

Big Edit: multiplying is hard, forgot to multiply by the PE ratio! Actually, potential valuation is 660B.. so 20% would mean 3% of US office real estate business. At a less generous pe of ~10 (perhaps more appropriate given they don't own the buildings), it would be about 10% of real estate market.

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Sure, but $20B valuation seems hard to achieve.

US commercial real estate market by revenue is ~$1.1T [0]

Office space by value is about 1/8th [1]

Regus gross margin is ~16% [2]

Real estate generally has good PE ratio but partly because they usually own the property [3], so let's be generous at 30x.

So if we value WeWorks as a normal real estate company AND weworks has %100 of US office real estate business we have a valuation of 1100 / 8 x 0.16 x 30 = $660B.

Now, weworks exists outside of the US, but the valuation you propose means they must have ~equivalent of all US office real estate.

[0]- https://www.ibisworld.com/industry-statistics/market-size/co...

[1] - https://www.reit.com/sites/default/files/chartjuly92019.png

[2] - http://www.annualreports.com/HostedData/AnnualReports/PDF/LS...

[3] - https://www.investopedia.com/ask/answers/052815/what-priceto...

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antaviana6y ago

Probably less if we take into account tax credits.

OnlineGladiator6y ago· 2 in thread

They can also wipe out themselves by throwing good money after bad.

threeseed6y ago

Same could have been said for AirBnb, Boston Dynamics, SpaceX etc.

Many of the best companies look like risky bets at the start.

OnlineGladiator6y ago

How do you consider Boston Dynamics successful? They are continually sold to new owners because nobody knows how they can generate a profit.

SpaceX likewise is also in a somewhat murky financial position, although I suspect they will come out doing great in the future. My limited understanding is they are avoiding an IPO because their financials are not up to snuff.

AirBnB was heavily derisked before serious investors took notice - YC loves talking about them as an example because they had so much trouble raising a seed round before they skyrocketed into their A round shortly thereafter. Also I suspect AirBnB is actually going to IPO at a lower valuation than their last round, but I realize I am very much an outlier with that assessment.

I understand high risk high reward, but sometimes investors are just being dumb. I feel like you chose terrible examples to make your point. And since all of your examples are private companies it is impossible for us to analyze their finances.

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bduerst6y ago

Also makes the sale possibility much more likely for the brand and whatever it is they call all that IP that they have.

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