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As has been called out by other analyses, the problem here isn’t really WeWork, it’s SoftBank. They thought they could run a pump-and-dump like Goldman did with

As has been called out by other analyses, the problem here isn’t really WeWork, it’s SoftBank. They thought they could run a pump-and-dump like Goldman did with Uber, but sorely misjudged the market’s view of WeWork. WeWork is probably legitimately in the $15B range, but SoftBank has really tied themselves in a knot with such a high valuation paired with the downside insurance. They‘re in for an 11-figure loss no matter what, because liquidation preferences and huge losses scare off any serious investors they could potentially find. My guess is that WeWork ends up getting massively scaled back and sold to one of its smaller competitors for under a billion. They’re just way too overextended to have any value beyond the brand.

payne92 7y ago
>the problem here isn’t really WeWork, it’s SoftBank No: WeWork is a huge part of the "problem", with crazy org structure, self-dealing, a "cult of CEO" structure, and a business model that may not be that defensible. Softbank is an enabler. Let's hope this his "peak hubris" and we're back to more sensible tech IPO attempts.
- wayoutthere 7y ago
  Softbank are the ones who drove the valuation that high. I agree with the cult of the CEO thing and all, but I’ve always felt the smart money in the valley knew to stay away from WeWork. It was a sucker’s gambit from the start.
  - whatok 7y ago
    Wikipedia is saying that the 2016 round valued We at 16bn which was before Softbank invested. It was already overvalued before Softbank and the corporate governance issues were there before as well.
    - arcticbull 7y ago
      There is a difference between 20% overvalued on the expectation of future growth and 400% overvalued.
    - puranjay 7y ago
      WeWork should be valued around the same as Regus
- roland00 7y ago
  All of this is true, but it was the SoftBank capital flow that made this all possible until now. The reconinging and reform would have happened sooner with WeWork if SoftBank was not providing "free jet fuel." >Softbank is an enabler. Enabler is true, but a lever requires both the rod and the fulcrum the rod pivots on. Without the enabler the lever would not exist.
- throwaway_law 7y ago
  >No: WeWork is a huge part of the "problem", with crazy org structure, self-dealing, a "cult of CEO" structure, and a business model that may not be that defensible. Sounds just about par for the course of any SV startup, the only difference is, the critique seems consistent with outsiders criticizing SV startup IPOs, only the shoe is on the other foot and SV is criticizing outsiders for the very concepts it seems to promote within its own little bubble.
  - deleted 7y ago
    [deleted]
  - azylman 7y ago
    WeWork takes this much further than other SV companies. In their S-1 filing, they had to disclose something like 100+ related party transactions: https://www.forbes.com/sites/alapshah/2019/08/19/just-how-unusual-are-the-related-party-transactions-disclosed-in-the-we-companys-s-1-filing/#755f9080266a https://www.forbes.com/sites/alapshah/2019/08/19/just-how-un...
    - tru3_power 7y ago
      Wow, those filings make it seem like the founder was using WeWork as his personal piggy bank. Did I understand it right that he took out a loan from WeWork then used a bonus from the company to pay it back?
      - manigandham 7y ago
        He sold the company a trademark for the word "we" for $6M. It was eventually rolled back after media exposure.
- thefj 7y ago
  There are millions of poorly run shady businesses, it's a problem that takes care of itself if you don't have infinite money coming in. Not sure that it's a problem now though. Like Matt Levine suggested[0], WeWork did a lot of weird shit when they were private, but now they want public money, they need to behave more like a responsible company. It's kind of what's supposed to happen because of the disclosure, it's just that most of the time companies take care of governance issues before the S-1. [0] https://www.bloomberg.com/opinion/articles/2019-09-13/we-is-sorry-about-the-weirdness https://www.bloomberg.com/opinion/articles/2019-09-13/we-is-...
  - ianferrel 7y ago
    I think an under-appreciated aspect is that you can't just have a CEO who's engaged in extremely questionable practices like WeWork's did just flip a switch and say "Ok, now we're public, so I'm going to cut all that out and be honest". It's a pretty big fucking signal that he's not trustworthy. Neumann's past behavior is still a problem.
    - thefj 7y ago
      Absolutely. Traditionally the move for a company in this situation might be to replace the CEO if they plan to raise public money and he has a history of bad behaviour. In WeWork's case it's probably impossible to remove him both legally and because the whole company is built around his personality cult.
      - munk-a 7y ago
        I mean... this should lower the valuation into the ground, companies built around personalities will collapse - possibly when the personality retires/dies but more likely just due to implosion over crazy antics. A company is something "we" build, it isn't something "one" builds, and this misunderstanding is causing a lot of social pains in the US right now.
        dondawest 7y ago
onlyrealcuzzo 7y ago
How does WeWork massively scale back? They have $47.2B worth of obligations. How do they get rid of those? The problem with blitzscaling is, you can blitzscale into shit.
- secabeen 7y ago
  Most of those obligations are through special-purpose entities for each location. They just walk away from all but the most profitable ones and leave the landlords holding the bag.
  - arcticbull 7y ago
    That's fine if they never plan to sign another lease. It's like saying oh, you can't service your debt huh, just declare bankruptcy! Sure, if you don't plan to need credit in the next 7 years.
    - kjs3 7y ago
      Corporate bankruptcy doesn't work exactly the same as personal bankruptcy. WeWork declares bankruptcy, it's officers find a couple of new, untainted folks to hold key corporate officer positions, and suddenly YouSlave, Inc is open for business and looking to rent space. Might need to polish your D&B a little, but that's easy enough.
  - jiveturkey 7y ago
    Mightn't it be possible to pierce those subsidiary corporate veils to reveal (make liable) the parent corp? Even if not, they are in for some expensive lawsuits. It won't be a matter of simply walking away.
  - gruez 7y ago
    Re: "special-purpose entities": Why would landlords agree to this? "Hey guys, we'll sign a 25 year lease with you but only through a special purpose entity, so we back out at anytime and you can't do anything!". Given how choosy and patient commercial landlords are (eg. letting properties stay vacant for years to find the right tenant), why did they make an exception for wework?
arbuge 7y ago
> WeWork is probably legitimately in the $15B range How do you arrive at that number? I've seen comparisons to firms like IWR / Regus that imply a much lower number would be appropriate, even if WeWork was as profitable as those firms (which it isn't even remotely... it loses money hand over fist).
- wayoutthere 7y ago
  You have a point; $15B is on the high side and I can’t defend it. But they do have a brand, which is what makes an undifferentiated service like office space valuable. I still contend that most of the value of Uber is tied up in their brand, and I think the same is true of We. I’m not sure either of their operations are all that valuable.
  - MegaButts 7y ago
    > I still contend that most of the value of Uber is tied up in their brand, and I think the same is true of We. I’m not sure either of their operations are all that valuable. What good is a brand if it's losing money?
    - wayoutthere 7y ago
      Because a brand is all about revenue. The entire purpose of VC financing is to build a brand with outsized mindshare before the market is mature enough to have established players and then fix the operations later.
      - MegaButts 7y ago
        But aren't they still supposed to fix the operations before they IPO, or at least enough to convince investors it's a good buy? We're not talking about companies that hope to stay private for the foreseeable future - these are companies that are trying (and failing) to IPO or very recently had unsuccessful IPOs. A brand is only so useful if it's attached to a money fire.
hkmurakami 7y ago
It's the founder's responsibility to accept responsible funding terms that facilitate the next round.
boardwaalk 7y ago
I suppose this is the next step after saying executives at companies shouldn't be held accountable. Now companies shouldn't be either, only those funding them. Wild.
goatinaboat 7y ago
WeWork is probably legitimately in the $15B range No. Scale to the same PE ratio as IWG/Regus and knock off a fudge factor for poor governance. You’re lucky if it’s worth $1B. Or anything if you accept that the only legitimate reason to own it was to flip it to a sucker, and everyone knows about it now.
nihonde 7y ago
Softbank’s MO seems to be making big bets on lots of competing companies and letting the chips fall where they may. I’m guessing (pure speculation) that they have a stake in some, if not all, of the Asian companies that will operate in WeWork’s vacuum.

payne92 7y ago

>the problem here isn’t really WeWork, it’s SoftBank No: WeWork is a huge part of the "problem", with crazy org structure, self-dealing, a "cult of CEO" structure, and a business model that may not be that defensible. Softbank is an enabler. Let's hope this his "peak hubris" and we're back to more sensible tech IPO attempts.

wayoutthere 7y ago
Softbank are the ones who drove the valuation that high. I agree with the cult of the CEO thing and all, but I’ve always felt the smart money in the valley knew to stay away from WeWork. It was a sucker’s gambit from the start.
- whatok 7y ago
  Wikipedia is saying that the 2016 round valued We at 16bn which was before Softbank invested. It was already overvalued before Softbank and the corporate governance issues were there before as well.
  - arcticbull 7y ago
    There is a difference between 20% overvalued on the expectation of future growth and 400% overvalued.
  - puranjay 7y ago
    WeWork should be valued around the same as Regus
roland00 7y ago
All of this is true, but it was the SoftBank capital flow that made this all possible until now. The reconinging and reform would have happened sooner with WeWork if SoftBank was not providing "free jet fuel." >Softbank is an enabler. Enabler is true, but a lever requires both the rod and the fulcrum the rod pivots on. Without the enabler the lever would not exist.
throwaway_law 7y ago
>No: WeWork is a huge part of the "problem", with crazy org structure, self-dealing, a "cult of CEO" structure, and a business model that may not be that defensible. Sounds just about par for the course of any SV startup, the only difference is, the critique seems consistent with outsiders criticizing SV startup IPOs, only the shoe is on the other foot and SV is criticizing outsiders for the very concepts it seems to promote within its own little bubble.
- deleted 7y ago
  [deleted]
- azylman 7y ago
  WeWork takes this much further than other SV companies. In their S-1 filing, they had to disclose something like 100+ related party transactions: https://www.forbes.com/sites/alapshah/2019/08/19/just-how-unusual-are-the-related-party-transactions-disclosed-in-the-we-companys-s-1-filing/#755f9080266a https://www.forbes.com/sites/alapshah/2019/08/19/just-how-un...
  - tru3_power 7y ago
    Wow, those filings make it seem like the founder was using WeWork as his personal piggy bank. Did I understand it right that he took out a loan from WeWork then used a bonus from the company to pay it back?
    - manigandham 7y ago
      He sold the company a trademark for the word "we" for $6M. It was eventually rolled back after media exposure.
thefj 7y ago
There are millions of poorly run shady businesses, it's a problem that takes care of itself if you don't have infinite money coming in. Not sure that it's a problem now though. Like Matt Levine suggested[0], WeWork did a lot of weird shit when they were private, but now they want public money, they need to behave more like a responsible company. It's kind of what's supposed to happen because of the disclosure, it's just that most of the time companies take care of governance issues before the S-1. [0] https://www.bloomberg.com/opinion/articles/2019-09-13/we-is-sorry-about-the-weirdness https://www.bloomberg.com/opinion/articles/2019-09-13/we-is-...
- ianferrel 7y ago
  I think an under-appreciated aspect is that you can't just have a CEO who's engaged in extremely questionable practices like WeWork's did just flip a switch and say "Ok, now we're public, so I'm going to cut all that out and be honest". It's a pretty big fucking signal that he's not trustworthy. Neumann's past behavior is still a problem.
  - thefj 7y ago
    Absolutely. Traditionally the move for a company in this situation might be to replace the CEO if they plan to raise public money and he has a history of bad behaviour. In WeWork's case it's probably impossible to remove him both legally and because the whole company is built around his personality cult.
    - munk-a 7y ago
      I mean... this should lower the valuation into the ground, companies built around personalities will collapse - possibly when the personality retires/dies but more likely just due to implosion over crazy antics. A company is something "we" build, it isn't something "one" builds, and this misunderstanding is causing a lot of social pains in the US right now.
      - dondawest 7y ago

onlyrealcuzzo 7y ago

How does WeWork massively scale back? They have $47.2B worth of obligations. How do they get rid of those? The problem with blitzscaling is, you can blitzscale into shit.

secabeen 7y ago
Most of those obligations are through special-purpose entities for each location. They just walk away from all but the most profitable ones and leave the landlords holding the bag.
- arcticbull 7y ago
  That's fine if they never plan to sign another lease. It's like saying oh, you can't service your debt huh, just declare bankruptcy! Sure, if you don't plan to need credit in the next 7 years.
  - kjs3 7y ago
    Corporate bankruptcy doesn't work exactly the same as personal bankruptcy. WeWork declares bankruptcy, it's officers find a couple of new, untainted folks to hold key corporate officer positions, and suddenly YouSlave, Inc is open for business and looking to rent space. Might need to polish your D&B a little, but that's easy enough.
- jiveturkey 7y ago
  Mightn't it be possible to pierce those subsidiary corporate veils to reveal (make liable) the parent corp? Even if not, they are in for some expensive lawsuits. It won't be a matter of simply walking away.
- gruez 7y ago
  Re: "special-purpose entities": Why would landlords agree to this? "Hey guys, we'll sign a 25 year lease with you but only through a special purpose entity, so we back out at anytime and you can't do anything!". Given how choosy and patient commercial landlords are (eg. letting properties stay vacant for years to find the right tenant), why did they make an exception for wework?

arbuge 7y ago

> WeWork is probably legitimately in the $15B range How do you arrive at that number? I've seen comparisons to firms like IWR / Regus that imply a much lower number would be appropriate, even if WeWork was as profitable as those firms (which it isn't even remotely... it loses money hand over fist).

wayoutthere 7y ago
You have a point; $15B is on the high side and I can’t defend it. But they do have a brand, which is what makes an undifferentiated service like office space valuable. I still contend that most of the value of Uber is tied up in their brand, and I think the same is true of We. I’m not sure either of their operations are all that valuable.
- MegaButts 7y ago
  > I still contend that most of the value of Uber is tied up in their brand, and I think the same is true of We. I’m not sure either of their operations are all that valuable. What good is a brand if it's losing money?
  - wayoutthere 7y ago
    Because a brand is all about revenue. The entire purpose of VC financing is to build a brand with outsized mindshare before the market is mature enough to have established players and then fix the operations later.
    - MegaButts 7y ago
      But aren't they still supposed to fix the operations before they IPO, or at least enough to convince investors it's a good buy? We're not talking about companies that hope to stay private for the foreseeable future - these are companies that are trying (and failing) to IPO or very recently had unsuccessful IPOs. A brand is only so useful if it's attached to a money fire.

hkmurakami 7y ago

It's the founder's responsibility to accept responsible funding terms that facilitate the next round.

boardwaalk 7y ago

I suppose this is the next step after saying executives at companies shouldn't be held accountable. Now companies shouldn't be either, only those funding them. Wild.

goatinaboat 7y ago

WeWork is probably legitimately in the $15B range No. Scale to the same PE ratio as IWG/Regus and knock off a fudge factor for poor governance. You’re lucky if it’s worth $1B. Or anything if you accept that the only legitimate reason to own it was to flip it to a sucker, and everyone knows about it now.

nihonde 7y ago

Softbank’s MO seems to be making big bets on lots of competing companies and letting the chips fall where they may. I’m guessing (pure speculation) that they have a stake in some, if not all, of the Asian companies that will operate in WeWork’s vacuum.