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WeWTF, Part Deux
- bogomipz 7y agoThe post states: >"The firm will be forced to sell equity/issue debt at a price substantially lower than they had anticipated." What is this "selling debt" referred to here, is the basically a bond? Would it be a bond that's backed by equity? Something else entirely?
- JumpCrisscross 7y ago> What is this "selling debt" referred to here, is the basically a bond? Yes, issuing bonds or taking out a loan from a bank.
- bogomipz 7y agoInteresting, I understand how a bond would be considered selling debt but a straight up bank loan is also considered selling debt? In the former there is something being sold by the company but in the latter its actually being something bought by the company. Are they both considered selling debt because of how the accounting is done? Or am I being too literal with interpretation? Thanks.
- moltensodium 7y agoBank loans are not that different from bonds, yes you are selling debt to the bank who is buying it. Debt is an asset that is bought and sold around the world just like stocks or magic cards. Most loans are then immediately resold by your bank to some other bank, unless you're at a tiny credit union it's unlikely the bank will keep that debt asset on their books.
- soniman 7y agoThere's a distinction between bank loans and debt. Bank loans can be called by the bank if you no longer meet their loan terms, so loans are much riskier for the borrower than debt. Debt is less risky but usually more expensive.
- AJ007 7y agoThe biggest non-financial red flag for me was the glass office walls. None of WeWork’s non-corporate customers are doing anything remotely sensitive or important. During a downturn, these people will decide to go back to free Starbucks to hang out.
- bastawhiz 7y agoIn fairness, you can have the glass frosted
- effingwewt 7y agoI think that was OP's point, if they were doing anything sensitive they would at least require soundproof frosted glass rooms. On the other hand, I can't imagine anyone with sensitive information working out of a shared workspace just because ofbthe ease with which a room or whole floor could be bugged.
- alexis_fr 7y agoHaving sensitive information happens very fast when you start selling to Fortune 500 companies.
- CydeWeys 7y agoAt that point why not just use ordinary drywall though? Is WeWork really gonna be continually frosting/defrosting rooms as tenants move in and out?
- michaelbuckbee 7y agoPretty sure it's a window film - something like - https://www.amazon.com/Coavas-Non-Adhesive-Stickers-Removable-Bathroom/dp/B07VFZTKK4 https://www.amazon.com/Coavas-Non-Adhesive-Stickers-Removabl...
- kaitai 7y agoThe last WeWork I went into had a whole maze of frosted-glass areas in back. I was visiting a company doing some pretty fancy math with mortgage servicing rights, and they had some privacy.
- rzzzt 7y agoThe company name should be highlighted in the text somehow; in its current form, it sounds like an eloquent Gollum's internal monologue in my head. I found myself having to re-read quite a few sentences. "We has gone from unicorn to distressed asset"
- grenoire 7y agoWE instead of We would help a great deal. Had the same issues the last four articles I read.
- rahkiin 7y agoWE is a clothing retailer
- Sendotsh 7y agoI like how some websites format company and person names in a very specific way. Either like [We] or having them bold or in a different colour. Especially in this era of “name your company after a really common daily-use word for maximum confusion and ungoogleability!”.
- bobwaycott 7y ago> Especially in this era of “name your company after a really common daily-use word for maximum confusion and ungoogleability!”. Don’t forget maximizing the ability to trademark the simple, common daily word and go after anyone using a variant of it when you’re big enough to do so.
- blantonl 7y agoWeWTF worked pretty well in part one :)
- gameswithgo 7y agothat is the joke
- JohnJamesRambo 7y ago
- sword_smith 7y ago> So, the mother of all party crashers took a dump in the We IPO punch bowl. The crasher? Math. I laughed out loud when I read this.
- deleted 7y ago[deleted]
- lordnacho 7y agoIs We a big enough part of vision fund to take it down in some way? Even just as an embarrassing loss? His other two predictions sound plausible.
- mighty_bander 7y agoIf there really has been fraud at this scale, and nobody at the Vision fund noticed or cared, the issue is not one of solvency.
- goatinaboat 7y agoWe don’t know that they didn’t. They might just not have cared so long as the plan to dump the stock on retail investors and cash out themselves was on track.
- mighty_bander 7y agoHence the prediction of their demise.
- capableweb 7y ago> • Focus on margin expansion vs. growth. We has a differentiated product in the marketplace, and should command a premium. Hm, what exactly does WeWork do that is so unique? Sounds like a regular real estate company except they are targeted towards tech startups.
- conception 7y agoThat's because that's what it is.
- fullshark 7y agoBrand is worth something. WeWork offices are designed to be appealing to young people (free beer, group activities etc) which makes it appealing to businesses. Also in real estate location, location, location is a differentiator.
- goatinaboat 7y agoImagine you are CEO of an old fashioned company where people do work and revenue > expenses. You want to buy drinks for your staff. Do you a) put your card behind a local bar at happy hour every Friday or b) in an incredibly roundabout way pay premium rent so your staff can enjoy “free” drinks in the office? No. Outside of hipster hotspots WeWork makes no sense.
- CydeWeys 7y agoMy previous employer would send an employee with a handtruck each Friday to a local liquor store to bring back beer and wine for that evening. Hard to imagine doing it more economically than that.
- fullshark 7y agoMy claim is not that WeWork has some economic advantage in how they distribute alcohol to workers, merely that they have a product that is appealing to 20-30 year olds, and companies want to (presumably) piggy back off it to hire top young talent. It’s the entire package, things like interior decoration, tech, locations, name brand, etc. What’s that worth is debatable but I think it’s worth more than zero.
- JauntTrooper 7y agoThis was a really striking sentence: > We've witnessed a halving of journalists since 2008, while the number of corporate communications execs has tripled. In sum, the ratio of bullshit/spin to watchdogs has increased sixfold. I personally know half a dozen former journalists that recently moved over to PR, but I hadn't realized had much of a sea change it's been over the last decade.
- factorialboy 7y ago> We've witnessed a halving of journalists since 2008, while the number of corporate communications execs has tripled. In sum, the ratio of bullshit/spin to watchdogs has increased sixfold. This assumes that journalists are capable of spotting (and willing to) spin / bullshit in the first place.
- myth_buster 7y agoNot sure whether trolling. There has been some very good investigative journalism done in the tech sector. Theranos/Uber/Tumblr comes to mind. Specially from media outlets outside of the SV echo chamber.
- jlarocco 7y agoJournalism is a big field. Just because journalists did a good job in three situations you know of, doesn't mean the average quality is plummetting. As counterexamples, they've done a terrible job investigating anything related to Trump, Google, Facebook, Twitter, etc. News outlets are too dependent on advertising, ratings, and public opinion now.
- robdachshund 7y ago"Journalism" has undergone a clear shift from offering a neutral, informative perspective on a topic to blatantly telling readers what to think. Every article is now an opinion piece.
- jancsika 7y agoIt's probably not sixfold since journalism includes a mix of the intrepid and the opportunist. But it's likely on the order of at least twofold increase as the opportunists are the most likely to have moved from journalism to PR. But the idea that there isn't an increase in the ratio at all is laughable. You'd have to be some type of fascinating conspiracy theorist to believe that none of the Pulitzer-winning stories of the past decade uncovered any type of corruption or wrongdoing.
- jpalomaki 7y agoIsn't this whole valuation thing for companies like Wework a bit problematic. I assume most (all?) of the existing shareholders can't sell their shares even if they wanted when new founding rounds take place. Now we get a new investor, who might acquire a relatively small part of the company for crazy price per share. Then we state that the total value of the company is now total_number_of_shares*crazy_price_per_share. And of course even for the investor it might make sense to pay extra for the investment. If you have for example participated in previous funding rounds with lower price, it may make sense to pay overprice in the subsequent rounds, since that might make your existing share more valuable.
- rgoldste 7y agoYes. Here’s a paper that dives into some of these points and a few others. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2955455 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2955455
- caseyf7 7y agoHere’s Part 1: https://www.profgalloway.com/wewtf https://www.profgalloway.com/wewtf
- muglug 7y agoWorth reading to the end for a beautiful section on humility.
- tempsy 7y agoI’d also argue that WeWork isn’t necessarily optimized for remote work e.g. they are optimizing for longer term office tenants who buy the actual offices and not just a hot desk because those make more money and it’s a more reliable source of income. If true remote work becomes a bigger reality then you’d expect to see a greater share of workers who only need a hot desk and not one of the glass cubes, which have smaller margins and easily switched out with a Starbucks.
- DebtDeflation 7y ago>the lines between vision, bullsh*t, and fraud are pretty narrow. I can’t wrap my head around what’s gone on here. Something is wrong. Something stinks. I had a similar thought a few weeks back. If they're willing to cavalierly expose this craziness in the S1, what else is going on there that we don't know about.
- pat87 7y agoIt’s not that they’re willing but more like had to. They need the extra cash from the IPO, and they have to disclose the craziness in the S-1 otherwise it’s plain fraud.
- ladybro 7y agoScott is a treasure. I love just about everything he writes. 'No Mercy, No Malice'
- seibelj 7y agoThe last WeWork I went into felt super impersonal. If I was to be a solo freelancer, I’d have to work somewhere communal because I hate working at home, but WeWork doesn’t have the vibe of coworking. More like ultra-cubicles where talking to other people is even harder. Second, there is definitely a question mark on companies that have their main office at WeWork, like “this is temporary until we actually make money”. And as WeWork is forced to charge more, and the glut of office space hits (I see endless cranes over the Boston skyline) it will be not much more expensive to get the real thing. The long term tenants at WeWork would be satellite offices of a major company, so if company X wanted to move into a new city they would hire sales people and put them into a WeWork for when they aren’t out meeting clients. Otherwise everyone else is temporarily embarrassed while they plan on moving up.
- sroussey 7y agoI know they are known for hot desks and all, but that actually accounts for very little of their square footage. For a solo freelancer it is a nice to have. But have 6 people and growing, then it’s a different world. Hard to find places that aren’t WeWork. Get to 14 and growing still, and you are doing leases for expected size (say 65) and a long term lease. So you are getting much more than needed. Then you grow faster and you need an office for 200 and you still have your old 5-10 year lease for 65 and now you have to sublease that out and get your next 10 year lease, hopefully in a place with an option to expand. And you probably have that 12 person office lease too if you weren’t able to get out (we were in this story).
- josephjrobison 7y agoYea the flexibility is the bread and butter. I talked to Regus, and their default pricing revolves around 24-month leases, while WeWork prices off monthly. Spot on from grandparent comment on community. One of their main forms of community is an occasional cereal bar with $20 worth of cereal and milk for the whole space, and the majority of other social events are paid for by another company.
- coredog64 7y agoWe as a concept isn’t terrible. As you mentioned, the flexibility is useful for clients. And bringing some data mining to the table could give them an edge in right sizing their lease footprint, providing the right amenities, and with pricing. But the whole mindset around this specific implementation is hot garbage.
- amos19870630 7y agoThis is brilliant writing. Please keep it up.
- elpakal 7y agoI love Stratechery and had never heard of this. Definitely signing up to the mailing list. If anyone knows of any other tech/biz strategy readings like these, please share!
- CydeWeys 7y agoSubscribe to Matt Levine for sure: http://link.mail.bloombergbusiness.com/join/4wm/moneystuff-signup&hash=54223001ca3ffcf40f2629c25acea67a http://link.mail.bloombergbusiness.com/join/4wm/moneystuff-s...
- moltensodium 7y agoThis guy Galloway also does a podcast with Kara Swisher called Pivot which is mandatory listening. They get silly but still shit on every bad actor in tech so it's super entertaining.
- bambax 7y agoWeWTF Première Partie is here: https://www.profgalloway.com/wewtf https://www.profgalloway.com/wewtf It's just as fun to read. It contains this sentence: Adam's wife is Gwyneth Paltrow's cousin, meaning Adam is two degrees removed from Goop, an assault on humanity. But the gist of Part Deux is really that the F in WTF stands for Fraud. Let's hope this story ends with some jail time for the main characters.
- rolltiide 7y agoI only know a couple of WeWork employees and they are totally divorced from any of this. Its a mixture of not following any financial publications, not understanding financial terms and thus the memes, seemingly no emphasis on IPO at work (this I find harder to believe, maybe the word is mentioned but its white noise if the financial literacy is really that low), and then sprinkle the “cult of CEO” where everyone pretends to be there for the vision instead of 15 months. The margin call is going to be a rude awakening.
- chx 7y agoAs I was reading and reached: > To be clear, I’m not a journalist, nor a forensic accountant. Forensic accountant?? That reminds me of Snow Crash: > When she says, "Do you have any relatives in Afghanistan?" that's like a code phrase, it tells all of her spook gear to get ready, shake itself down, check itself out, prick up its electronic ears.
- dredmorbius 7y agoForensic Accounting is A Thing: https://www.acfe.com/career-path-forensic-accountant.aspx https://www.acfe.com/career-path-forensic-accountant.aspx
- chx 7y agoApparently my meaning got lost (as also visible from the downvotes). I meant those two words made me immediately think of the dire conclusion drawn up later: SEC investigation, crimes committed and so on.
- dredmorbius 7y agoAh, yes, quite.
- deleted 7y ago[deleted]
- michaco33 7y agoDoes Softbank have more than ~$10bn to lose here, or is that it? Are there any extra liabilities they've underwritten? I loved the article, but even if it were valued at $0, would that decimate and "shutter" the Vision Fund?
- umeshunni 7y agoThe medium post linked to in Galloway's article is also a good read - https://medium.com/@henry.hawksberry/is-we-work-a-fraud-5b78987d3e61 https://medium.com/@henry.hawksberry/is-we-work-a-fraud-5b78...
- fastball 7y agoYou just need to ignore the terrible proof-reading.
- jannes 7y agoDo you work for We Work?
- fastball 7y ago?? No? I enjoyed the article. But it has a ton of mistakes. The last two paragraphs are literally repeated, in addition to all the spelling / grammar mistakes. Many people have also pointed this out in the comments of the article, and somehow the author hasn't fixed it.
- reuven 7y agoI'm curious: If WeWork is found to be completely bad/rotten/fraudulent, then what happens? I'm not saying that this is the case. But I'm wondering what sort of impact that would have on thousands of businesses that rent/use their offices, as well as the many buildings that depend on WeWork paying rent to stay afloat. How much of an impact would this have on the global economy, or at least on the tech and/or real-estate sectors?
- LoungeFlyZ 7y agoNot much would be my guess. The businesses in the are not exactly the staples of industry and the economy. Would it suck? Yes of course. But it wouldn't make a ripple in the overall market IMHO. The one thing it could do is bring additional scrutiny to other "unicorns" books as bring them down to more realistic valuations.
- mathattack 7y agoVery little. The market Cap isn’t very big. SoftBank and a few others lose some money. Some buildings will change hands. Less free beer at temp spaces.
- justzisguyuknow 7y agoIf it affects WeWork's ability to pay for maintenance and management personnel for their properties, then that would definitely hurt their tenants.
- brown9-2 7y agowhat makes you think fraud has occurred?
- hossbeast 7y agoThe content of the article?
- lkrubner 7y agoTo the extent that certain real estate sectors are being propped up by speculation in future office use, the collapse of WeWork could set off a broader collapse in certain real estate markets. Whether that radiates out to the broader economy depends on how heavily leveraged investors are, and whether they can restructure their debts. Interest rates are very low, which makes debt less painful than in earlier eras, but there is always the risk of a panic causing markets to lock up. If contagion were to begin, then it's up to the central banks to step in forcefully with additional QE, so as to end the panic. Of course, the governments could engage in fiscal stimulus, which would obviate the need for monetary stimulus, but in recent years the politics have been against that.
- 55555 7y agoScott Galloway is the Matt Levine of VC.
- hintymad 7y agoIf I were a We engineer, I would leave the company immediately after learning that the CEO ripped off millions of dollars from his very own company. I just can't see how that level of greed can help build a successful company.
- ineedasername 7y agoDo they even need (or can obtain) any sort of top talent engineers? It just doesn't seem like there's much opportunity in the way of interesting tech problems being solved there. Nothing that bog standard middle-of-the road talent can't handle with plenty of time to also go retro with some local LAN Doom thrown in. Actually, getting the original running and wiring up the office through some old T-10 hubs (full duplex!) might be more challenging.
- tgsovlerkhgsel 7y agoWhat makes WeWork so unique and powerful that it managed to paint itself as a unicorn? AirBnB has network effect for the huge market of "a place to sleep at while travelling". This requires matching customers with providers frequently, and the same customer will use the same platform and a different provider. Uber has the same for "a car to take me somewhere". Again, repeat customers, different provider every time. WeWork seems to be... a company that runs coworking and office spaces. What advantage does it have over any other company that runs coworking spaces? Why would a customer choose them over any other coworking space/landlord in a city where they want a coworking space/office? Most customers don't make that decision often enough for WeWork to benefit from any sort of lock-in/network effect. Why do/did people ascribe more value to WeWork than to a random collection of coworking spaces with the same square footage? (Did they?)
- dannyw 7y agoPoor investment decisions and hubris by SoftBank.
- wpietri 7y agoI think Uber is a big cause of the problem here. Companies like Google and Facebook got investors thinking that a tech thing that a lot of people used must be worth a lot of money. Uber came along and legitimately made something that a lot of people loved, and if you didn't look too hard, it looked like a tech thing. Plus it spent years getting bigger and bigger rounds of investment, so it looked like a rock star. Everybody wanted to be "Uber for X", never mind that Uber was losing money hand over fist, still does, and may never stop. WeWork went with the same formula, hoping to cash in similarly: Uber for office space! Shiny thing that people like in a market that is a pain in the ass! Amazing growth! Sure, the technology gloss was a little thinner, a little hazier. But the CEO was even more arrogant, more of a performative visionary than Kalanick, so that compensated for a while. Unfortunately for WeWork, Lyft and Uber IPOd and didn't do so well. Tesla's not looking so healthy either, and let's not forget Theranos. So investors are starting to get wise to the fact that even if a "tech visionary" has gotten investment, grown quickly, and gotten a lot of good press, it doesn't mean it's a good stock to buy. So yes, from an analytical perspective, it makes no sense. An oversupply of investment money and tech hype meant a lack of discipline, meaning a dreamer or a scammer (if in the end there's a difference) could try to build an empire, and investors would either fall for it or believe that they had a good chance of cashing out in an IPO before the house of cards collapsed. (For a parallel example, consider Groupon, which is now trading at 10% of its IPO price.)
- pcmaffey 7y agoIf you mashed together the movies Wolf of Wall Street and Zoolander, you’d get WeWork.
- clircle 7y agoI hate graphs like the first one in this post. What is the graphical representation of value? The area of the box or the width?
- freyr 7y agoArea. Or width. It doesn't matter.
- deleted 7y ago[deleted]
- cmarschner 7y agoThere‘s another few positive effects from WeWork that has been overlooked so far: It‘s a one-stop shop for startups that expand internationally. When my company started building an office overseas, they looked first at a new development built by a pension fund. Long story short our company would have had to have a facilities person locally for months on end to coordinate this. Lots of things lost in translation - the construction and real-estate industry have many local norms and cultures. For example, the US facilities people assumed to have many flexibilities how the office would be built out while the local landlord had more of a “take it as it us or go away” attitude - which is how real-estate deals are done in this city. Negotiations dragged on for months. Project got delayed. It was a nightmare, we didn’t know where people would be working as our team was growing. Meanwhile I figured WeWork would open their first offices in the city. I connected them to facilities. Turns out we already rent a space in NYC - so connect them to the rep, moved in within two months. Problem solved, and the product we get (AC everywhere, office design) is a few notches better than what we would have gotten elsewhere. WeWork also said once the office size gets stable they could build one out for us - with our brand and separate entrance. So, I see it more as an outsourcing shop for facilities departments, whose moat is the experience of doing this at scale - internationally and for many customers. If they get their act together this could be just as viable of a strategy as it was for KPMG, Deloitte et al. in accounting.
- kwakuDompreh 7y agoThe board needs to be removed first for this devaluation of pre IPO valuations of WeWork! Too bad