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WeWork Parent Weighs Slashing Its Valuation in Half
- arbuge 7y agoThat would still leave it massively overvalued compared to conventional players like IWG (Regus). Those players also don't have unusual corporate governance concerns.
- JumpCrisscross 7y agoThis is the same bollocks Softbank played with Uber. Buying secondary shares at X, making a tiny investment at 2X, and then claiming the company is worth 2X. (It wasn't and it isn't.) "Slashing its valuation in half" means reverting to X, the price around which WeWork last bought back shares. Even this reduced value is likely twice as high as it should be.
- whatok 7y agoAt least they tried to clean up Uber before the IPO. This thing just seems really sloppy on multiple fronts.
- xivzgrev 7y agoYea the ceo seems a bit of an egotistical guy, and felt we work was so awesome the “retail” markets would look past the shenanigans. He was wrong, and he’s back pedaling to salvage it. First the trademark payment, now this. Hopefully he will also clean up the corporate structure and his voting power (but prob not).
- deleted 7y ago[deleted]
- arcticbull 7y agoHe already sold $700M worth. [1] I'm not sure he cares anymore. [1] https://techcrunch.com/2019/07/18/wework-ceo-adam-neumann-has-reportedly-cashed-out-of-over-700-million-ahead-of-its-ipo/ https://techcrunch.com/2019/07/18/wework-ceo-adam-neumann-ha...
- ummonk 7y ago>and the over $100 million that Mark Pincus took off the table ahead of Zynga’s offering. Damn, I know someone who got screwed over by the IPO lockup there.
- origami777 7y agoIt's not ego, it's greed.
- jonknee 7y agoI mean they put in $2b in the last round, that's not exactly chump change! https://www.reuters.com/article/us-wework-m-a-softbank/softbank-to-invest-additional-2-billion-in-wework-sources-idUSKCN1P11YJ https://www.reuters.com/article/us-wework-m-a-softbank/softb...
- babaganoosh89 7y agoThey almost definitely have liquidation preferences on that 2B.
- JumpCrisscross 7y ago> They almost definitely have liquidation preferences on that 2B Automatic conversion clauses typically force convertible pref to convert to common in the event of an IPO. This makes liquidation preferences generally irrelevant to public offerings.
- acchow 7y agoYou can define arbitrary preference rules. For example, the conversion doesn't have to be 1-to-1. In the case of Square's IPO, Series E preferred had a provision giving them extra free common stock to make up the gap if it IPO'd below $18.55 (which it did).
- ChuckMcM 7y agoYou can, and I may be wrong here, but I seem to recall that one has to call out these sorts of options in the S-1. It is material to people investing in the IPO.
- jonknee 7y agoWell that's a different thing than what the OP claimed (marking up an investment with a tiny secondary round). They marked it up with a giant round!
- 7y ago
- Gibbon1 7y agoSo basically a huge pump and dump
- joering2 7y agoBut did they break any laws? Can SEC or AG cone after them? AFAIK they dont even have US presence right? Its all China owned??
- JumpCrisscross 7y ago> So basically a huge pump and dump Softbank have been transparent from the start. When Uber did its split round, even on HN, a number of commenters were convinced the spread was legitimate. That the top-of-the-stack pref was actually worth 2x the next-in-line pref. The media fetishised the post-money valuation, and the details got lost in the conversation amongst uninformed investors.
- konschubert 7y ago> Buying secondary shares at X, making a tiny investment at 2X, and then claiming the company is worth 2X. It should be possible to figure out the formula for how much an investor needs to invest in a given round, given a previous investment into the company, such that the downside of investing at an increased valuation exceeds the upside of the existing shares being valued higher than before. In other words: How much would SoftBank need to invest such that it wouldn’t benefit from bluffing on the valuation?
- pmart123 7y agoI believe it would depend on the liquidation preferences and the preferred stack. This would allow them to potentially own most of the company in the event it was acquired for a worse valuation, went bankrupt, etc.
- whatok 7y ago"Among the possibilities they discussed was SoftBank serving as an anchor investor in the IPO by buying a significant portion of the roughly $3 billion to $4 billion the company is expected to raise. They also discussed whether SoftBank might invest a chunk of money that would allow We to delay its IPO until 2020, people familiar with the conversations said." This is a real mess.
- s_Hogg 7y agoIt's weird how the people who are best-informed here seem to be the latest to the party as far as that realisation goes. Why did they (by that I mean, We), even decide to kick the whole IPO process off? Surely they didn't need to do this now?
- maxerickson 7y agoThey didn't anticipate the meddling kids. What I mean is, they thought they were going to get away with it.
- cosmie 7y ago> They didn't anticipate the meddling kids. Nor their dumb dog![1] [1] The parent reference is to the catch line in Scooby Doo, for those that aren't familiar. And quite well fitting to the situation. https://youtu.be/mbXxgQLlF08 https://youtu.be/mbXxgQLlF08
- deleted 7y ago[deleted]
- Bizarro 7y agoScrappy was the biggest meddler...always mucking up the works.
- hn_throwaway_99 7y agoYup, which to an outside observer is pretty shocking, given how grossly deficient the S1 is. Another commenter in a different thread posted this informative Jason Calacanis podcast about WeWork: https://thisweekinstartups.com/e969 https://thisweekinstartups.com/e969 One part that really resonated is when Calacanis is arguing that, once you become super rich, you need to rely on your authentic, pre-rich friends to give you candid advice (because after you become super rich, you can't really trust new friends when so many folks want a piece of your wealth). Calacanis' idea, which makes sense to me, is that Neumann didn't have a strong enough social base, so that he didn't have anyone candidly telling him stuff like "Umm, you know, this We trademark licensing deal is completely batshit insane and analysts will see this as a giant, bedazzled red flag" before he went ahead and did it. Insightfully, Calacanis predicted Neumann would walk back the licensing deal, and actually talks about Masayoshi Son being one of the only people that can give Neumann the harsh dose of reality he needs. I think this is all kind of a moot point, though. It's like WeWork jumped out of an airplane without a parachute and is now going "How do we fix this??" I'd put money down on some form of either (a) a restructuring or (b) essentially being taken over by the major lenders/investors as inevitable.
- Wowfunhappy 7y agoWell, now that it's leaked that they were weighing it, they basically have to do it, or something similarly drastic, right? Because now expectations are lower.
- duxup 7y agoProbably, but arguably all the negative news may have made the IPO plans untenable as it is. Granted it is hard to measure investor interest but I'm not sure it was viable to just go along with the IPO, meeting leak or not.
- qaq 7y agowell Softbank can come up with some profit of the shorts angle.
- mrosett 7y agoIt would be wild if they pull this IPO. I consider the WeWork leadership team to be entirely unethical and wouldn't want to invest in them myself, so I'll admit to feeling a bit of schadenfreude.
- ryandrake 7y agoThe schadenfreude when this one fails is going to be great. Not as gratifying as Theranos, but how can you top those clowns? The only thing that would make these flameouts even better is if the arrogant wealthy swindlers actually lost their fortunes and ended up in the soup lines, but unfortunately it never happens.
- dbuder 7y agoRetail get hosed, every time.
- empath75 7y agoI don’t see how they can have the ipo under these conditions. Who would buy into it after their early backers decide they don’t want to invest more at half the price.
- buboard 7y agoThat's a good start
- cs702 7y agoLooking at an ambitious, high-concept, money-burning endeavor like The We Company[a] from the outside, one would assume "there must be at least some adults in the room, in control of the situation; no one would have signed up on this otherwise... right?" Apparently, no. -- [a] I'm not sure it can be called a "business." Judging by the financial details in the S-1, if the We Co. doesn't raise gobs of capital soon, via the IPO or otherwise, it will quickly run out of cash: https://www.sec.gov/Archives/edgar/data/1533523/000119312519236798/d781982ds1a.htm https://www.sec.gov/Archives/edgar/data/1533523/000119312519...
- naravara 7y agoIf Theranos has taught us anything it should be that the "adults in the room" very frequently are not good judges of anything.
- mikestew 7y agoTime for my Old Man Moment: if my years on this earth have taught me anything, it's that most of the time the adults aren't nearly as in control of the situation as we'd like to think. And even if that rare adult realizes the weight of the situation, no one wants to be the one to pull the emergency brake cable when the brick wall looms ahead of us.
- trimbo 7y agoRoad show going that well? WeWork highlights why I am still skeptical of pure index investing. This company seems rotten, and I would not deliberately buy their stock. But there's a big pool of index fund money that will be thrown at this company's stock no matter how poor their governance is or how much self-dealing they do... just because it's public.
- JohnJamesRambo 7y agohttps://www.bloomberg.com/news/articles/2019-09-04/michael-burry-explains-why-index-funds-are-like-subprime-cdos https://www.bloomberg.com/news/articles/2019-09-04/michael-b... You probably saw that yesterday but yes I am beginning to feel the same.
- trimbo 7y agoI did. It was also brought to my attention a few months ago with this article[1] Question is, where to put money? Factor funds? [1] - https://www.wsj.com/articles/wave-of-index-money-is-about-to-hit-recent-ipos-like-uber-11560513600 https://www.wsj.com/articles/wave-of-index-money-is-about-to...
- JohnJamesRambo 7y agoI’ll probably get lots of downvotes because HN seems to hate it but I’ve been putting a lot in Bitcoin. It seems like a nice investment totally outside of the normal financial system that I’m losing faith in.
- goatinaboat 7y agoIt’s a valid question: what could we do if we had unlimited money? One answer to that question was “put a man on the moon and return him safely to Earth”. SoftBank has the means but seems to have no “vision” at all. I mean you have literally $100Bn and all you can think of is... that?
- ryandrake 7y agoFor most people and organizations with effectively unlimited money, the answer to “What should we do?” is “Do something with least effort and just barely within the law to make even more money.”
- deleted 7y ago[deleted]
- yalogin 7y agoThe tech companies going public after the last recession are all like this. They squeeze out as much funding they can from investors and when that dries up or when the investors demand their money back the company dumps their stock on the unsuspecting public and makes money. Most of them don’t make money and have terrible balance sheets but still somehow are “great” “unicorns”. I don’t invest in any one of them.
- jai_ 7y agoWeWork is not tech company, but somehow they seem to always be discussed in the same way as one.
- empath75 7y agoI think the best argument you can make for them as a tech company is that their customers are tech companies.
- TrackerFF 7y ago9 out of 10 times, when I ask someone about a woefully unprofitable business model, I get the same answer - seriously, almost every time: "Yeah but look at Amazon, they had x unprofitable years" "We're still in the growth phase, our business model relies on scale and market share."
- kreck 7y agoCan confirm. To back test i sometimes ask those people on their opinion on juicero, just to be sure about who i’m dealing with.
- dentemple 7y agoThe investors themselves aren't blameless in this. It's on them for believing that companies who literally torch money will somehow present them with gold nuggets in return. It's succeeded for others in the past, but this is very clearly a high-risk field, with the inherent downsides that involved in it.
- 7y ago
- ineedasername 7y agoThis would seem to be a huge red flag. The fact that they'd use additional funding to potentially delay an IPO indicates that the IPO may be necessary to raise money for operating expenses rather than just as a vehicle to allow early investors a profitable exit. If they don't get that funding and need to do an IPO at a significantly decreased valuation, they may not have a good short-medium term path to staying solvent. I think it's premature to predict collapse yet, but it does point toward that possibility of a house of cards falling. It would also help explain why its CEO is so eager to publicly & brazenly self-deal to extract as much value into his own pockets as he can before the collapse. Which ironically, playing into the concerns about corporate governance, could be the tipping point that causes or hastens collapse.
- aresant 7y agoSoftbank has $12b+ up so far into WeWork. (a) So are they better off supporting the IPO price by exposing themselves another $3b (20%), writing down the IPO by 50% which likely is at least $3b in losses, or delay? And muddying their view, as I commented yesterday, is the fact that there is a huge debt contingency surrounding this IPO. EG if WeWork does NOT raise at least $3billion in this IPO they will be in default of a contingency with lenders that will WITHHOLD a committed $6billion credit line. This huge credit facility is their growth engine forward (b). (a) https://www.reuters.com/article/us-wework-m-a-softbank/wewor.. https://www.reuters.com/article/us-wework-m-a-softbank/wewor.... (b) https://www.bloomberg.com/news/articles/2019-08-01/wework-se... https://www.bloomberg.com/news/articles/2019-08-01/wework-se....
- bertil 7y agoIn case of a default, what would happen to all the companies who could on WeWork operating for their office to remain functional?
- atm0sphere 7y agotbtf. fed will step in
- psv1 7y agoNo chance this will happen.
- CountSessine 7y agoUnlikely.
- Twirrim 7y agoWhy?
- jonwachob91 7y agoThe Federal Reserve only steps in when there is 1) system wide risk, and 2) when the company they are interfering with owns enough assets to guarantee the fed loans. * Bear Sterns had healthy assets, Lehman Brothers did not. AIG had enough healthy insurance premiums to guarantee the loan to fix the unhealthy insurance products. Fannie Mae and Freddie Mac owned the home mortgages assets. --- 1) WeWork doesn't have a substantial enough real estate position to bring down the entire real estate system. 2) WeWork doesn't have any assets to guarantee a fed loan.
- neom 7y agoTwilio at IPO was a good investment, Twilio at 23 was even better. PagerDuty, Elastic, Fastly, Datadog, CloudFlare... there are lots of great stocks to invest in. This certainly isn't one of them.
- Traster 7y agoThis company will never achieve profitability, it will have burned through literally Billions of investment money. It will have done this whilst buying its own brand off the CEO, self-dealing from the CEO and literally buying a wave machine for the CEO. It's going to absolutely crush the landlords that rented to them. ...And the CEO is going to walk away with $700m cash.
- theflyinghorse 7y agoSeems like a smart guy!
- benjaminclark 7y agoWeWork never achieving profitability does seem entirely possible, maybe even the most likely outcome. However, I'm not sure that leads to the conclusion that it will crush their landlords. All of those landlords are sophisticated parties who could understand the counterparty risk involved in their choice of tenant. They should be prepared to deal with making money from WeWork for the time being and then finding a new tenant. With regard to Neumann walking away with $700m, I've got to say if you are going to make a bunch of money off schmuck investors, it would be hard to find a list of investors I have less sympathy for than the Vision fund investors.
- torgian 7y agoIt’s interesting how much SoftBank has interest in. A friend of mine’s company was given funding by Softbank, but those funds were delayed due to Saudi interests being held up by blocked wire transfers at the time. A _lot_ of Softbanks’ money comes from Saudi Arabia and Iran, etc
- vxNsr 7y agoSo you're saying that Softbank is just a laundromat for ME oil money?
- syassami 7y agoSource on Iran in the Vision fund?
- jessaustin 7y agoThat does seem unlikely. The whole point of basically all the violence in ME is that MbS and his silent partners hate Iran. Then again, what sort of investment would one suggest for a hated enemy? Maybe Softbank?
- ulfw 7y agoThis whole IPO is going so well...
- omarhaneef 7y agoEDIT: Removing it because have a lot more thoughts on this that do not get captured here properly.
- tomp 7y agoHow do liquidation preferences work when a company goes public? Presumably shares are then just shares, and have a market value... Or are they converted into preferred shares?
- omarhaneef 7y agoThat is true -- most likely the preferences will go away, although who knows what they may negotiate.
- fullshark 7y ago> I like that no one in this reading of the situation is dumb Well except the employees
- binky 7y agoI'm feeling sorry bag holders to be. Raise awareness among F&F.
- anonu 7y agoNever have a down round! This must really hurt. SoftBank just put in $5bn at a $40bn+ valuation. Imagine how that cash just loses half it's value (from an investor perspective) instantly..
- Edmond 7y agoIn other words we have actual investment fraud happening here, because the only way you agree to -50% re-valuation is to admit you grossly inflated the valuations to begin with. If I lied to a bank that I had assets worth $x as collateral for a loan and it was later revealed to be a lie, I would be headed to the slammer in no time. These guys had every intention of dumping this garbage onto the public markets for the rest of us to be left holding the bag.
- acchow 7y agoWeWork didn't decide their own valuation. Investors did.
- downrightmike 7y agoYou mean the banks who wanted to make gobs of money fleecing investors.
- acchow 7y agoSoftbank's investment inflated WeWork's valuation. How does Softbank win in this scenario? How does the "fleecing" work? They certainly didn't win in their Uber investment.
- inflatableDodo 7y ago'My pen, which is accustomed to figures, is unable to express the march and rhythm of consonance; therefore I shall try to record only the things I see, the things I think, or, to be more exact, the things we think. Yes, "we"; that is exactly what I mean, and We, therefore, shall be the title of my records.' 'We', by Yevgeny Zamyatin - https://mises-media.s3.amazonaws.com/We_2.pdf https://mises-media.s3.amazonaws.com/We_2.pdf
- csspoints 7y agoLearn how to create image hover effects with animation only using CSS. We are using image zoom on hover effects max website to show button on hover. https://csspoints.com/image-hover-effects-css/ https://csspoints.com/image-hover-effects-css/
- algodaily 7y agoLOL wtf wrong thread?
- braythwayt 7y agoOr automated spam.
- huac 7y agoanyone know what strike price WeWork employee offers were at? guessing anybody who joined since the last round is underwater
- anm89 7y agoCan anyone point me in the direction of good resources on how to short IPOs directly on the first day?
- empath75 7y agoYou can’t and probably shouldn’t. First days are super unpredictable and you could get margin called very easily on it.
- georgeecollins 7y agoThis is the part that I believe is a bit deceptive to retail investors: >> Over the past year, SoftBank committed to invest $4 billion in We at a valuation of around $47 billion. It also spent $1 billion to buy existing shares from We employees and investors at a valuation of around $23 billion. It makes it seems like SoftBank believed the company is worth owning at a value of $47B. I don't know for sure, but I strongly suspect that they have a liquidation preference for their investment so that they get all their money back even if the company is much less valuable than $47B. That is unlike common share investors who may think they are getting the same thing at the same price. When they actually bought shares from employees they only paid half as much.
- Animats 7y agoWeWork and its parent don't hold the leases in the buildings. They have special-purpose entities for each building, so they can go bankrupt piecemeal. That will probably start when the recession hits.
- ummonk 7y agoWhat is up with Softbank? It seems to be throwing a lot of its money into overvalued late stage funding rounds for companies that don't really have growth potential left in them.
- rossdavidh 7y agoHypothesis: they have been given more money than they have good investment targets for, among others by Saudi Arabia after they postponed the Aramco IPO. They had to invest that money somewhere, so they gave companies like Uber and WeWork 10x what their most generous investment should have been. Disclaimer: I don't have any inside or expert knowledge about Saudi Arabia or Softbank. But they seem to have been stuffing billions of dollars into companies that can pretend to be "tech", but aren't really.
- alephnan 7y ago> they have been given more money than they have good investment targets for Why not give the money back?
- rossdavidh 7y agoI'm not saying you're wrong, but I'm not surprised that they didn't.
- jethro_tell 7y agoLol, because they probably already spent their fee.
- mrnobody_67 7y agoIt'll be interesting how much of the confirmation & consistency bias forces SoftBank's hand here... will they throw good money after bad? The board of directors at WeWork is crazy dysfunctional as well... Im guessing no one has a questioner tendency, they all just went along with whatever BS they were told by the management team and nodded in order to maintain group cohesion and avoid being labeled as "difficult".
- thorwasdfasdf 7y agoWith risk like this, people wonder why softbank would invest so much in the likes of WeWork and even Uber at such a late stage. But, I think it's no wonder, considering how low global interest rates, and future equity returns are. This is what happens in an ultra low interest rate environment. Desperate investors do desperate things, and thus increasingly risky investments start looking better and better against negative yield interest.
- purplejacket 7y agoCan people please stop putting this paywall crap up here on hacker news?
- synaesthesisx 7y agoCompanies like Knotel are set to eat WeWork's lunch. I cannot fathom how WeWork's astronomical valuation is even remotely justified. Relevant: https://stratechery.com/2019/what-is-a-tech-company/ https://stratechery.com/2019/what-is-a-tech-company/
- vadym909 7y agoFinally a stock worth putting all my spare money into shorting!
- WMCRUN 7y agoWow, now WeWork looks even more overvalued than it did when I wrote this list [1] of things it’s “worth more than”. My favorite: At $47 billion, We would be more valuable than all the cash raised by every IPO in 2018. [1] https://betterquestions.blog/what-is-we-worth/ https://betterquestions.blog/what-is-we-worth/