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SoftBank to take control of WeWork: Sources

234 points by sikim 7y ago

mdorazio 7y ago
Better article in [1]. From the unconfirmed report: - 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-wework-sources.html https://www.cnbc.com/2019/10/21/softbank-to-take-control-of-...
- newfangle 7y ago
  4 to 5 billion investment in a company with an 8 billion dollar valuation. At some point you have to wonder when its better to cut your losses and scrap the entire thing.
  - thedudeabides5 7y ago
    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.
    - OnlineGladiator 7y ago
      They can also wipe out themselves by throwing good money after bad.
      - threeseed 7y ago
        Same could have been said for AirBnb, Boston Dynamics, SpaceX etc. Many of the best companies look like risky bets at the start.
        OnlineGladiator 7y 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.
        wutbrodo 7y ago
        > They are continually sold to new owners because nobody knows how they can generate a profit. They were founded in 1992, were bought by Google and then sold to Softbank. I don't think that qualifies as "continually sold", particularly when the buy-and-seller was Google. I'm not as negative on Google's acquisition strategy as many here, but Google selling companies a few years after acquisition is hardly unheard-of.
        OnlineGladiator 7y ago
        Fair point, the way I said it exaggerated the issue. But I still think any company sold more than once has an issue. Boston Dynamics was first sold to Google, and then sold to Softbank - so they meet my criterion.
        PeterisP 7y ago
        As far as I understand, the reason why Google sold Boston Dynamics was not because it wasn't able to make a profit, but because the obvious way how it would make a profit - military contracts - were not considered strategically acceptable.
    - ivalm 7y ago
      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.
      - nihonde 7y ago
        They basically bought control of the company for ~$15B. Any valuation north of $20B ought to put them in the black.
        antaviana 7y ago
        Probably less if we take into account tax credits.
        ivalm 7y 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. ------ 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/commercial-real-estate-united-states https://www.ibisworld.com/industry-statistics/market-size/co... [1] - https://www.reit.com/sites/default/files/chartjuly92019.png https://www.reit.com/sites/default/files/chartjuly92019.png [2] - http://www.annualreports.com/HostedData/AnnualReports/PDF/LSE_RGU_2017.pdf http://www.annualreports.com/HostedData/AnnualReports/PDF/LS... [3] - https://www.investopedia.com/ask/answers/052815/what-pricetoearnings-ratio-average-real-estate-sector.asp https://www.investopedia.com/ask/answers/052815/what-priceto...
    - bduerst 7y ago
      Also makes the sale possibility much more likely for the brand and whatever it is they call all that IP that they have.
  - threeseed 7y ago
    WeWork is the dominant player as the overwhelming trend in business is towards flexible and remote working. 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.
    - bduerst 7y ago
      Softbanks model isn't proven yet. They overinvest and create unicorns in the expectation that the 10x extra cash will cement market leadership for the startup. That doesn't mean much if the market does not materialize, which is possible because remote work does not require shared office space. Currently the trend is that connectivity removes the need for an office entirely, not generate more demand for them.
      - threeseed 7y ago
        Softbank's model won't be proven for decades. It invests in brands that they believe will dominant their industry and still be around in 50 years time. And as Gitlab and others have found many people simply don't like working at home and want to be around other people. And also need infrastructure like meeting rooms on the odd occasion. WeWork provides that in almost every city. And 500,000+ people today currently see it as a useful service.
        bduerst 7y ago
        Which is still to my point: Softbanks Vision Fund model is not proven yet. It is just as probable it is more a vehicle to find a place for Middle Eastern money to sit than a true 10x fund strategy, which is becoming more evident since they're already working on Vision Fund 2. Requiring Gitlab doesn't translate into requiring office space either.
        threeseed 7y ago
        Back of a napkin: * Growth in remote workers = 9% per year. * Percentage of remote workers who want an office = 20%. * WeWork market share = 90%. = 1.62% of all workers each year will potentially shift to WeWork.
  - hn_throwaway_99 7y ago
    Furthermore, according to https://craft.co/wework/funding-rounds https://craft.co/wework/funding-rounds, WeWork has already received $12 billion plus in equity investments (not counting debt raises). Softbank alone has already put in $9.4 billion in equity + $1 billion in debt. 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?
    - ian0 7y ago
      The underlying value of a company can diverge from its valuation. While obviously this happened when they pitched a $50bn valuation, it could also be happening here. IE Softbank thinks the value is way higher than 8Bn but forced a low valuation as to buy up as much stock as possible.
    - JohnJamesRambo 7y ago
      It seems like they haven’t even read the Wikipedia for Sunk Cost Fallacy. In case any SoftBank homies are reading this, here you go. You are investing in the Concorde. https://en.wikipedia.org/wiki/Sunk_cost https://en.wikipedia.org/wiki/Sunk_cost
      - dodobirdlord 7y ago
        I don't think that's really relevant here. The $11B is sunk, the question is whether buying control of WeWork is worth $5B.
- personlurking 7y ago
  Also, from another article (by Axios): "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-306243f9-95d5-40ef-b388-b06ef8d8bafd.html https://www.axios.com/adam-neumann-wework-softbank-takeover-...
  - TuringNYC 7y ago
    I'm utterly confused on how Neumann walks away with so much. Given the burn rate and the capital requirements, I cant imagine many other players who can step in at this point. And if no one steps in, the firm is worth zero. 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?
    - ksec 7y ago
      >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? Because it is obvious if they do Firesale and Cheap buy they would have destroy the company and buy something that everyone knows isn't remotely worth that much. By trying to save it now they could at least get back some of its investment via IPO. My question is what if Neumann decides to be an ass, and just want to watch everything burn? After all he has the voting shares.
      - dodobirdlord 7y ago
        They could probably sue him. As a member of the board of directors he still has an obligation to act in the interests of the shareholders even if he controls a majority of the votes.
        ksec 7y ago
        Wow, so it turns there is a difference between Majority of shares (50%+) and Majority of Voting Power. So hypnotically could he have done it if he had 50%+ vote? Or could he still be sued? And by watching everything burn, I mean he could try to spin it as he will take drastic action to improve on the situation and refuse Softbank's offer.
neural_thing 7y ago
This is your annual reminder that Masa Son once lost $70B
- arcticbull 7y ago
  I suddenly feel better about some of my underperforming assets lol
- semiotagonal 7y ago
  I believe Son is underwater on Uber as well, and if Slack falls somewhat below $10, would be eating a loss even there. https://www.cnbc.com/2019/09/07/uber-wework-and-slack-public-valuations-show-softbank-vision-flaw.html https://www.cnbc.com/2019/09/07/uber-wework-and-slack-public...
  - deleted 7y ago
    [deleted]
- threeseed 7y ago
  And is now worth $23B. So I would assume he knows a little about business.
  - natrik 7y ago
    I'd argue that assumption, [correlation of: current net worth -> knowledge about business], is flawed logically.
    - threeseed 7y ago
      You do understand how he made that money right ? Knowledge about business -> Current net worth
      - deleted 7y ago
        [deleted]
  - deleted 7y ago
lasgsf 7y ago
Does this mean then all the common are wiped out due to the liq preference that existed before?
- qeternity 7y ago
  Essentially yes. Not wiped out per se, but underwater. If they can grow the business beyond the high water mark, then there’s a shot at getting paid. But I’d say in a best case that’s unlikely.
  - tempsy 7y ago
    No it doesn’t. Read the deal. SoftBank will buy up to $3B in stock from existing shareholders, including employees. They are bailing out employees and investors. People will at least get something.
Traster 7y ago
It's very difficult to see how SoftBank breaks even on this new deal. They're investing $5bn now, with the hope that it's worth more than that when they IPO, but several things have killed that idea. Firstly, their brand is tarnished. Secondly, the growth play will be gone by the time they IPO. Thirdly, the charismatic leader is gone, so the message of "Disrupting" and "We're a tech play' is gone. They've put $5bn into a company that's roughly the same size as a public company that's got a $4Bn market cap, but only got 70% equity as a result. 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.
- asfarley 7y ago
  I took a look to see if Softbank was hiring any vetting-watchdogs to prevent this in the future. 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.
  - jessaustin 7y ago
    I have no particular love for any of the big-name "prestigious" VCs, but ISTM they haven't had much influence at WeWork so far. Instead SoftBank just handed the keys to a crazy dude, with the thought that he would make it rain. Maybe it didn't rain hard enough, but the firm is still in business and now they've gotten rid of the crazy dude. Maybe SoftBank just sees this as a slightly more intense version of the traditional transition from founders to "professional" management? It seems likely to feature a great deal of the equity dilution that founders traditionally suffer...
  - duxup 7y ago
    I don't see why someone with that history would necessarily do a poor job.
    - OnlineGladiator 7y ago
moneywoes 7y ago
Wow, what a fall from grace. Weren't they valued at 72 billion earlier?
- WalterSear 7y ago
  It's not grace if it's mostly smoke and mirrors: it's hubris.
- onlyrealcuzzo 7y ago
  If you sell a pig to yourself for $72Bn, does that make it worth $72Bn? 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.
- xenospn 7y ago
  46B. Still insane.
buboard 7y ago
I keep reading about that real estate company - make up your minds is it a tech company or not?
- falcor84 7y ago
  That's a false dichotomy. Is Amazon a retail company?
  - deleted 7y ago
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  - buboard 7y ago
    amazon is in the tech of retail - and more. what tech does wework make?
    - perl4ever 7y ago
      Amazon didn't start out with AWS. That's a side effect at becoming a world-conqueror in terms of logistics.
choppaface 7y ago
So is this effectively a triggering of the partial ratchet noted in the S-1 (i.e. SoftBank gets shares if valuation falls)? Or a whole new deal?
bradleyjg 7y ago
There doesn’t seem to be any original reporting in this article. The link should probably be: https://www.cnbc.com/2019/10/21/softbank-to-take-control-of-wework-sources.html https://www.cnbc.com/2019/10/21/softbank-to-take-control-of-...
deleted 7y ago
[deleted]
anm89 7y ago
Serious question: given the monstrous scale of softbank, the not so great quality of many of its holdings, and it's ties into multiple world economies, could softbank be a systemic risk to the entire world economy? 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?
- troydavis 7y ago
  > could softbank be a systemic risk to the entire world economy? 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_banks 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 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).
- dodobirdlord 7y ago
  > 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. 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.
xenospn 7y ago
So who exactly came to the conclusion that they were worth >40B just a few weeks before? How does that math even hold up?
- anm89 7y ago
  Simple, someone gave them money at that valuation (softbank). It doesn't mean the underlying value exists but it does give them that "valuation"
  - xenospn 7y ago
    Obviously - but why did Softbank think it was worth so much more? They were an investor - they knew that the company was a financial black hole.
    - deleted 7y ago
      [deleted]
    - tahdig 7y ago
      Probably to inflate the valuation, do a quick IPO of WeWork for 10x the actual value it should have, get their shares sold on high price, and wave to the fools that took the bait and bought an almost worthless stock. This whole ordeal was the best that could happen for the normal people, basically fell into the hole they themselves dug, because the economists etc. called their bullshit out loud. If you have not already, these are good reads from one of the critics of the whole scheme: 1. WeWTF - https://www.profgalloway.com/wewtf https://www.profgalloway.com/wewtf 2. WeWTF, Part Deux - https://www.profgalloway.com/wewtf-part-deux https://www.profgalloway.com/wewtf-part-deux
    - anm89 7y ago
      People refer to this as the greater fool theory. Softbank never believed that valuation. What they believed was that there was someone dumber than them that they could trick into buying it from them leaving themselves with cash and the other person with the overvalued asset. In this case it turned out they were the first and final fool and they were left holding their own bag. And thus they essentially sacammed themselves(or really their investors) out of billions. You'll also hear this referred to as a pump and dump. Pump up the value of some asset and then dump it on someone else.
mrnobody_67 7y ago
Other news sources are reporting that Adam Neuman will be paid $200m to resign from the board of directors... just, wow.
- luckydata 7y ago
  after a few years in silicon valley I learned that's essentially the right way to make it here. Building successful companies is for suckers, you just make a big ball of excrements, package it real well and then hand it to someone else before it falls apart. The VC system rewards that more than any other skillset.
  - ztratar 7y ago
    WeWork is not a Silicon Valley company.
    - luckydata 7y ago
      It is in all the ways that matter.
      - ztratar 7y ago
        Incorrect. It is not in all the ways that matter. Have you been to SV recently?
pacetherace 7y ago
In the last 4-5 years, Softbank basically caused hyperinflation in the startup world.
cookie_monsta 7y ago
I don't really get the ongoing obsession with We/Softbank. I kind of got the whole schadenfreude side of it when it all came tumbling down but now it's just turned into a story of a big company trying to dig itself out of a hole created by some dumb decisions it made. Is there some larger relevance that I'm missing?
- rattray 7y ago
  For one thing, I'd argue it's important for startups to understand how Softbank behaves as an investor, since they are a fund many companies might consider taking money from. They have an outsize quantity of capital to invest, so this is more worth watching than other funds' behaviors might be.
  - cookie_monsta 7y ago
    Do you think that Neumann feels like he got a raw deal?
    - rattray 7y ago
      I bet that he regrets doing business with Softbank, yes. An anecdote I heard (unsure if true) was that Softbank had strongly encouraged Adam to focus on growth at the expense of profitability to a much higher degree, shooting for the stars much more than he otherwise would have done. If I was Icharus and someone else had given me wings and told me fly much higher, I'd have myself to blame but I'd still be upset and filled with regret.
- wastedhours 7y ago
  > some dumb decisions 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.
rmm 7y ago
how on earth does a company go from getting ready to IPO to being cash-strapped and needing an infusion in such a short space of time? Never saw the numbers in the prospectus, but surely there was some indication?
- 55555 7y ago
  It's crazy that it's not basically fraud to do what they did. They put out a 100-200 page document saying "Our business is great" so that retail investors could make an informed investment decision and then 2 months later are like "actually it's relatively worthless and we have no money left and if we can't raise money right now, we will die". Did the people involved really believe that glowing 100+ page report? The difference between this and a pump and dump is simply intent, and I think it's most likely that the intent was there.
thesausageking 7y ago
This has to be tough for all of the WeWork employees who were paper millionaires and now have stock options that likely won't survive all of SoftBank's preferences when and if WeWork finally IPOs.
- xenospn 7y ago
  thousands of people crushed. Really awful.
  - deleted 7y ago
    [deleted]
- dannykwells 7y ago
  I'll be honest here, cry me a river. Everyone who joins a pre IPO company should value their stock at 0.
  - AbrahamParangi 7y ago
    That seems uncharitable given the CEO looks to be walking away with ~$900M total from the endeavor while everyone else gets... nothing? Probably?
    - icotyl 7y ago
      Evidence why people should value their stock at zero.
    - DebtDeflation 7y ago
      >the CEO looks to be walking away with ~$900M total from the endeavor How much of the previous $700M did he actually walk away with though? Everything I've read suggests that he only sold a small portion of the $700M in stock, and the majority he kept and borrowed against to buy the buildings he leases back to WeWork. In one of the negotiations post IPO collapse, he agreed to give any profit he makes off those leases back to WeWork. Also, at what valuation level for WeWork is $700M for his equity even based on?
bitflipr 7y ago
I guess Adam will get those margin calls on his $700m in loans on WeWork shares after all. Hope he can cover. https://www.ft.com/content/a9254a70-f1a8-11e9-bfa4-b25f11f42901 https://www.ft.com/content/a9254a70-f1a8-11e9-bfa4-b25f11f42...
- H8crilA 7y ago
  This saga will be a great read in a year or three. Hope someone writes a long article on this. Joining the great American predecessors of corporate failure like Enron or Lehman Brothers.
ww520 7y ago
Actually SoftBank is getting a good deal, using $5B to get a controlling interest of WeWork at 70%, wiping out all the commons and other LP's. If they can cut out the slacks and focus on the core value proposition, WeWork can work after 4 to 5 years. The WeWork brand is unique and valuable. 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.
- skinnymuch 7y ago
  Could you say when this Priceline thing happened?
kelnos 7y ago
The thing that's ironic is that the IPO market likely would have valued WeWork at $10B, maybe even $15B, but since that was so much lower than the $47B valuation it had during SoftBank's earlier investment, they balked and walked. 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.
yashap 7y ago
I can actually see this working out. Comparing the first half of 2018 to the first half of 2019, WeWork roughly doubled revenue while keeping losses constant. Their losses went from ~2x revenue to ~1x revenue, which is still nuts, but improving quickly. They also had $1.5 billion in revenue through 2 quarters, and are growing at roughly 100% year over year. 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.
ChuckMcM 7y ago
Wow, that might be a record, IPO to cramdown in 3 weeks. I wonder if Softbank sees some way to convert some of the real estate into assets that it can sell off before the next recession hits to get its money back. I could not find a single thing in that article that suggested anything other than a liquidation that might favor the investors over creditors.
tibbydudeza 7y ago
I wonder what is going to happen to the wavepool company.
goatinaboat 7y ago
So Softbank will have invested nearly $16Bn (10.5 already + 5 now) in something that even they think is only worth $8Bn? Am I reading this correctly because that makes no sense whatsoever. Except for Neumann who walks away with his $700Mn regardless!
- perlgeek 7y ago
  If they've already invested $10.5Bn, that money is gone (especially if WeWork fails). 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.
- mushufasa 7y ago
  Well, maybe you could think about it like this: 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.
  - goatinaboat 7y ago
    The sunk cost fallacy has a name because people keep doing it, even knowing what it is
baby 7y ago
Let’s be honest. 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.
Danieru 7y ago
Lots of voices ignoring how Son holds onto stakes. He has yet to liquidate his Yahoo Japan and Alibaba Holdings, and those were massive wins. An embarrassing mistake like WeWork is sure to stay on the books for decades. Selling would force him to mark down the private loss, so more so than winner he will hold I expect. 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.
monkeydust 7y ago
Does softback have strong financiers that can wrestle control over the companies expenditure and balance sheet? Given some of its recent investments at lofty valuations I don't think so. If they can close this gap then I think a turnaround is possible over time. The brand will recover.
jamesfisher 7y ago
Lol at the title. Imagine citing "Sources" in a paper. If you can't state your sources, just leave out the citation.

234 points by sikim 7y ago

Better article in [1]. From the unconfirmed report: - 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-wework-sources.html https://www.cnbc.com/2019/10/21/softbank-to-take-control-of-...

newfangle 7y ago
4 to 5 billion investment in a company with an 8 billion dollar valuation. At some point you have to wonder when its better to cut your losses and scrap the entire thing.
- thedudeabides5 7y ago
  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.
  - OnlineGladiator 7y ago
    They can also wipe out themselves by throwing good money after bad.
    - threeseed 7y ago
      Same could have been said for AirBnb, Boston Dynamics, SpaceX etc. Many of the best companies look like risky bets at the start.
      - OnlineGladiator 7y 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.
        wutbrodo 7y ago
        > They are continually sold to new owners because nobody knows how they can generate a profit. They were founded in 1992, were bought by Google and then sold to Softbank. I don't think that qualifies as "continually sold", particularly when the buy-and-seller was Google. I'm not as negative on Google's acquisition strategy as many here, but Google selling companies a few years after acquisition is hardly unheard-of.
        OnlineGladiator 7y ago
        Fair point, the way I said it exaggerated the issue. But I still think any company sold more than once has an issue. Boston Dynamics was first sold to Google, and then sold to Softbank - so they meet my criterion.
        PeterisP 7y ago
        As far as I understand, the reason why Google sold Boston Dynamics was not because it wasn't able to make a profit, but because the obvious way how it would make a profit - military contracts - were not considered strategically acceptable.
  - ivalm 7y ago
    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.
    - nihonde 7y ago
      They basically bought control of the company for ~$15B. Any valuation north of $20B ought to put them in the black.
      - antaviana 7y ago
        Probably less if we take into account tax credits.
      - ivalm 7y 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. ------ 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/commercial-real-estate-united-states https://www.ibisworld.com/industry-statistics/market-size/co... [1] - https://www.reit.com/sites/default/files/chartjuly92019.png https://www.reit.com/sites/default/files/chartjuly92019.png [2] - http://www.annualreports.com/HostedData/AnnualReports/PDF/LSE_RGU_2017.pdf http://www.annualreports.com/HostedData/AnnualReports/PDF/LS... [3] - https://www.investopedia.com/ask/answers/052815/what-pricetoearnings-ratio-average-real-estate-sector.asp https://www.investopedia.com/ask/answers/052815/what-priceto...
  - bduerst 7y ago
    Also makes the sale possibility much more likely for the brand and whatever it is they call all that IP that they have.
- threeseed 7y ago
  WeWork is the dominant player as the overwhelming trend in business is towards flexible and remote working. 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.
  - bduerst 7y ago
    Softbanks model isn't proven yet. They overinvest and create unicorns in the expectation that the 10x extra cash will cement market leadership for the startup. That doesn't mean much if the market does not materialize, which is possible because remote work does not require shared office space. Currently the trend is that connectivity removes the need for an office entirely, not generate more demand for them.
    - threeseed 7y ago
      Softbank's model won't be proven for decades. It invests in brands that they believe will dominant their industry and still be around in 50 years time. And as Gitlab and others have found many people simply don't like working at home and want to be around other people. And also need infrastructure like meeting rooms on the odd occasion. WeWork provides that in almost every city. And 500,000+ people today currently see it as a useful service.
      - bduerst 7y ago
        Which is still to my point: Softbanks Vision Fund model is not proven yet. It is just as probable it is more a vehicle to find a place for Middle Eastern money to sit than a true 10x fund strategy, which is becoming more evident since they're already working on Vision Fund 2. Requiring Gitlab doesn't translate into requiring office space either.
        threeseed 7y ago
        Back of a napkin: * Growth in remote workers = 9% per year. * Percentage of remote workers who want an office = 20%. * WeWork market share = 90%. = 1.62% of all workers each year will potentially shift to WeWork.
- hn_throwaway_99 7y ago
  Furthermore, according to https://craft.co/wework/funding-rounds https://craft.co/wework/funding-rounds, WeWork has already received $12 billion plus in equity investments (not counting debt raises). Softbank alone has already put in $9.4 billion in equity + $1 billion in debt. 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?
  - ian0 7y ago
    The underlying value of a company can diverge from its valuation. While obviously this happened when they pitched a $50bn valuation, it could also be happening here. IE Softbank thinks the value is way higher than 8Bn but forced a low valuation as to buy up as much stock as possible.
  - JohnJamesRambo 7y ago
    It seems like they haven’t even read the Wikipedia for Sunk Cost Fallacy. In case any SoftBank homies are reading this, here you go. You are investing in the Concorde. https://en.wikipedia.org/wiki/Sunk_cost https://en.wikipedia.org/wiki/Sunk_cost
    - dodobirdlord 7y ago
      I don't think that's really relevant here. The $11B is sunk, the question is whether buying control of WeWork is worth $5B.
personlurking 7y ago
Also, from another article (by Axios): "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-306243f9-95d5-40ef-b388-b06ef8d8bafd.html https://www.axios.com/adam-neumann-wework-softbank-takeover-...
- TuringNYC 7y ago
  I'm utterly confused on how Neumann walks away with so much. Given the burn rate and the capital requirements, I cant imagine many other players who can step in at this point. And if no one steps in, the firm is worth zero. 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?
  - ksec 7y ago
    >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? Because it is obvious if they do Firesale and Cheap buy they would have destroy the company and buy something that everyone knows isn't remotely worth that much. By trying to save it now they could at least get back some of its investment via IPO. My question is what if Neumann decides to be an ass, and just want to watch everything burn? After all he has the voting shares.
    - dodobirdlord 7y ago
      They could probably sue him. As a member of the board of directors he still has an obligation to act in the interests of the shareholders even if he controls a majority of the votes.
      - ksec 7y ago
        Wow, so it turns there is a difference between Majority of shares (50%+) and Majority of Voting Power. So hypnotically could he have done it if he had 50%+ vote? Or could he still be sued? And by watching everything burn, I mean he could try to spin it as he will take drastic action to improve on the situation and refuse Softbank's offer.

neural_thing 7y ago

This is your annual reminder that Masa Son once lost $70B

arcticbull 7y ago
I suddenly feel better about some of my underperforming assets lol
semiotagonal 7y ago
I believe Son is underwater on Uber as well, and if Slack falls somewhat below $10, would be eating a loss even there. https://www.cnbc.com/2019/09/07/uber-wework-and-slack-public-valuations-show-softbank-vision-flaw.html https://www.cnbc.com/2019/09/07/uber-wework-and-slack-public...
- deleted 7y ago
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threeseed 7y ago
And is now worth $23B. So I would assume he knows a little about business.
- natrik 7y ago
  I'd argue that assumption, [correlation of: current net worth -> knowledge about business], is flawed logically.
  - threeseed 7y ago
    You do understand how he made that money right ? Knowledge about business -> Current net worth
    - deleted 7y ago
      [deleted]
- deleted 7y ago

lasgsf 7y ago

Does this mean then all the common are wiped out due to the liq preference that existed before?

qeternity 7y ago
Essentially yes. Not wiped out per se, but underwater. If they can grow the business beyond the high water mark, then there’s a shot at getting paid. But I’d say in a best case that’s unlikely.
- tempsy 7y ago
  No it doesn’t. Read the deal. SoftBank will buy up to $3B in stock from existing shareholders, including employees. They are bailing out employees and investors. People will at least get something.

Traster 7y ago

It's very difficult to see how SoftBank breaks even on this new deal. They're investing $5bn now, with the hope that it's worth more than that when they IPO, but several things have killed that idea. Firstly, their brand is tarnished. Secondly, the growth play will be gone by the time they IPO. Thirdly, the charismatic leader is gone, so the message of "Disrupting" and "We're a tech play' is gone. They've put $5bn into a company that's roughly the same size as a public company that's got a $4Bn market cap, but only got 70% equity as a result. 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.

asfarley 7y ago
I took a look to see if Softbank was hiring any vetting-watchdogs to prevent this in the future. 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.
- jessaustin 7y ago
  I have no particular love for any of the big-name "prestigious" VCs, but ISTM they haven't had much influence at WeWork so far. Instead SoftBank just handed the keys to a crazy dude, with the thought that he would make it rain. Maybe it didn't rain hard enough, but the firm is still in business and now they've gotten rid of the crazy dude. Maybe SoftBank just sees this as a slightly more intense version of the traditional transition from founders to "professional" management? It seems likely to feature a great deal of the equity dilution that founders traditionally suffer...
- duxup 7y ago
  I don't see why someone with that history would necessarily do a poor job.
  - OnlineGladiator 7y ago

moneywoes 7y ago

Wow, what a fall from grace. Weren't they valued at 72 billion earlier?

WalterSear 7y ago
It's not grace if it's mostly smoke and mirrors: it's hubris.
onlyrealcuzzo 7y ago
If you sell a pig to yourself for $72Bn, does that make it worth $72Bn? 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.
xenospn 7y ago
46B. Still insane.

buboard 7y ago

I keep reading about that real estate company - make up your minds is it a tech company or not?

falcor84 7y ago
That's a false dichotomy. Is Amazon a retail company?
- deleted 7y ago
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- buboard 7y ago
  amazon is in the tech of retail - and more. what tech does wework make?
  - perl4ever 7y ago
    Amazon didn't start out with AWS. That's a side effect at becoming a world-conqueror in terms of logistics.

choppaface 7y ago

So is this effectively a triggering of the partial ratchet noted in the S-1 (i.e. SoftBank gets shares if valuation falls)? Or a whole new deal?

bradleyjg 7y ago

There doesn’t seem to be any original reporting in this article. The link should probably be: https://www.cnbc.com/2019/10/21/softbank-to-take-control-of-wework-sources.html https://www.cnbc.com/2019/10/21/softbank-to-take-control-of-...

deleted 7y ago

[deleted]

anm89 7y ago

Serious question: given the monstrous scale of softbank, the not so great quality of many of its holdings, and it's ties into multiple world economies, could softbank be a systemic risk to the entire world economy? 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?

troydavis 7y ago
> could softbank be a systemic risk to the entire world economy? 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_banks 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 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).
dodobirdlord 7y ago
> 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. 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.

xenospn 7y ago

So who exactly came to the conclusion that they were worth >40B just a few weeks before? How does that math even hold up?

anm89 7y ago
Simple, someone gave them money at that valuation (softbank). It doesn't mean the underlying value exists but it does give them that "valuation"
- xenospn 7y ago
  Obviously - but why did Softbank think it was worth so much more? They were an investor - they knew that the company was a financial black hole.
  - deleted 7y ago
    [deleted]
  - tahdig 7y ago
    Probably to inflate the valuation, do a quick IPO of WeWork for 10x the actual value it should have, get their shares sold on high price, and wave to the fools that took the bait and bought an almost worthless stock. This whole ordeal was the best that could happen for the normal people, basically fell into the hole they themselves dug, because the economists etc. called their bullshit out loud. If you have not already, these are good reads from one of the critics of the whole scheme: 1. WeWTF - https://www.profgalloway.com/wewtf https://www.profgalloway.com/wewtf 2. WeWTF, Part Deux - https://www.profgalloway.com/wewtf-part-deux https://www.profgalloway.com/wewtf-part-deux
  - anm89 7y ago
    People refer to this as the greater fool theory. Softbank never believed that valuation. What they believed was that there was someone dumber than them that they could trick into buying it from them leaving themselves with cash and the other person with the overvalued asset. In this case it turned out they were the first and final fool and they were left holding their own bag. And thus they essentially sacammed themselves(or really their investors) out of billions. You'll also hear this referred to as a pump and dump. Pump up the value of some asset and then dump it on someone else.

mrnobody_67 7y ago

Other news sources are reporting that Adam Neuman will be paid $200m to resign from the board of directors... just, wow.

luckydata 7y ago
after a few years in silicon valley I learned that's essentially the right way to make it here. Building successful companies is for suckers, you just make a big ball of excrements, package it real well and then hand it to someone else before it falls apart. The VC system rewards that more than any other skillset.
- ztratar 7y ago
  WeWork is not a Silicon Valley company.
  - luckydata 7y ago
    It is in all the ways that matter.
    - ztratar 7y ago
      Incorrect. It is not in all the ways that matter. Have you been to SV recently?

pacetherace 7y ago

In the last 4-5 years, Softbank basically caused hyperinflation in the startup world.

cookie_monsta 7y ago

I don't really get the ongoing obsession with We/Softbank. I kind of got the whole schadenfreude side of it when it all came tumbling down but now it's just turned into a story of a big company trying to dig itself out of a hole created by some dumb decisions it made. Is there some larger relevance that I'm missing?

rattray 7y ago
For one thing, I'd argue it's important for startups to understand how Softbank behaves as an investor, since they are a fund many companies might consider taking money from. They have an outsize quantity of capital to invest, so this is more worth watching than other funds' behaviors might be.
- cookie_monsta 7y ago
  Do you think that Neumann feels like he got a raw deal?
  - rattray 7y ago
    I bet that he regrets doing business with Softbank, yes. An anecdote I heard (unsure if true) was that Softbank had strongly encouraged Adam to focus on growth at the expense of profitability to a much higher degree, shooting for the stars much more than he otherwise would have done. If I was Icharus and someone else had given me wings and told me fly much higher, I'd have myself to blame but I'd still be upset and filled with regret.
wastedhours 7y ago
> some dumb decisions 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.

rmm 7y ago

how on earth does a company go from getting ready to IPO to being cash-strapped and needing an infusion in such a short space of time? Never saw the numbers in the prospectus, but surely there was some indication?

55555 7y ago
It's crazy that it's not basically fraud to do what they did. They put out a 100-200 page document saying "Our business is great" so that retail investors could make an informed investment decision and then 2 months later are like "actually it's relatively worthless and we have no money left and if we can't raise money right now, we will die". Did the people involved really believe that glowing 100+ page report? The difference between this and a pump and dump is simply intent, and I think it's most likely that the intent was there.

thesausageking 7y ago

This has to be tough for all of the WeWork employees who were paper millionaires and now have stock options that likely won't survive all of SoftBank's preferences when and if WeWork finally IPOs.

xenospn 7y ago
thousands of people crushed. Really awful.
- deleted 7y ago
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dannykwells 7y ago
I'll be honest here, cry me a river. Everyone who joins a pre IPO company should value their stock at 0.
- AbrahamParangi 7y ago
  That seems uncharitable given the CEO looks to be walking away with ~$900M total from the endeavor while everyone else gets... nothing? Probably?
  - icotyl 7y ago
    Evidence why people should value their stock at zero.
  - DebtDeflation 7y ago
    >the CEO looks to be walking away with ~$900M total from the endeavor How much of the previous $700M did he actually walk away with though? Everything I've read suggests that he only sold a small portion of the $700M in stock, and the majority he kept and borrowed against to buy the buildings he leases back to WeWork. In one of the negotiations post IPO collapse, he agreed to give any profit he makes off those leases back to WeWork. Also, at what valuation level for WeWork is $700M for his equity even based on?

bitflipr 7y ago

I guess Adam will get those margin calls on his $700m in loans on WeWork shares after all. Hope he can cover. https://www.ft.com/content/a9254a70-f1a8-11e9-bfa4-b25f11f42901 https://www.ft.com/content/a9254a70-f1a8-11e9-bfa4-b25f11f42...

H8crilA 7y ago
This saga will be a great read in a year or three. Hope someone writes a long article on this. Joining the great American predecessors of corporate failure like Enron or Lehman Brothers.

ww520 7y ago

Actually SoftBank is getting a good deal, using $5B to get a controlling interest of WeWork at 70%, wiping out all the commons and other LP's. If they can cut out the slacks and focus on the core value proposition, WeWork can work after 4 to 5 years. The WeWork brand is unique and valuable. 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.

skinnymuch 7y ago
Could you say when this Priceline thing happened?

kelnos 7y ago

The thing that's ironic is that the IPO market likely would have valued WeWork at $10B, maybe even $15B, but since that was so much lower than the $47B valuation it had during SoftBank's earlier investment, they balked and walked. 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.

yashap 7y ago

I can actually see this working out. Comparing the first half of 2018 to the first half of 2019, WeWork roughly doubled revenue while keeping losses constant. Their losses went from ~2x revenue to ~1x revenue, which is still nuts, but improving quickly. They also had $1.5 billion in revenue through 2 quarters, and are growing at roughly 100% year over year. 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.

ChuckMcM 7y ago

Wow, that might be a record, IPO to cramdown in 3 weeks. I wonder if Softbank sees some way to convert some of the real estate into assets that it can sell off before the next recession hits to get its money back. I could not find a single thing in that article that suggested anything other than a liquidation that might favor the investors over creditors.

tibbydudeza 7y ago

I wonder what is going to happen to the wavepool company.

goatinaboat 7y ago

So Softbank will have invested nearly $16Bn (10.5 already + 5 now) in something that even they think is only worth $8Bn? Am I reading this correctly because that makes no sense whatsoever. Except for Neumann who walks away with his $700Mn regardless!

perlgeek 7y ago
If they've already invested $10.5Bn, that money is gone (especially if WeWork fails). 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.
mushufasa 7y ago
Well, maybe you could think about it like this: 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.
- goatinaboat 7y ago
  The sunk cost fallacy has a name because people keep doing it, even knowing what it is

baby 7y ago

Let’s be honest. 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.

Danieru 7y ago

Lots of voices ignoring how Son holds onto stakes. He has yet to liquidate his Yahoo Japan and Alibaba Holdings, and those were massive wins. An embarrassing mistake like WeWork is sure to stay on the books for decades. Selling would force him to mark down the private loss, so more so than winner he will hold I expect. 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.

monkeydust 7y ago

Does softback have strong financiers that can wrestle control over the companies expenditure and balance sheet? Given some of its recent investments at lofty valuations I don't think so. If they can close this gap then I think a turnaround is possible over time. The brand will recover.

jamesfisher 7y ago

Lol at the title. Imagine citing "Sources" in a paper. If you can't state your sources, just leave out the citation.