4 ms·

This could be the best situation for Softbank. WeWork is obviously in desparate need of cash, no one is going to touch it with a ten foot pole. Softbank is too

by raiyu 7y ago

This could be the best situation for Softbank. WeWork is obviously in desparate need of cash, no one is going to touch it with a ten foot pole. Softbank is too invested for it to fail. They can buy up 50% of the equity remaining for any sort of investment since they will have a gun to their head the company will have to accept or go bankrupt. Adam Neumann's shares will become worthless in the process and new shares will be issued for the new co-CEOs. So with $11B in capital committed to WeWork at the end of the whole mess Softbank can end up with 90% ownership. Get the company on track financially and see if they can bring it to an IPO in the next 2-3 years when they have solved their financial issues. And hopefully realize some sort of return, or at the very least not leave a $9B hole in their vision fund.

atdrummond 7y ago
He already ferreted away $700m. He'll be fine.
- booi 7y ago
  Well.. if you call that living...
- fjp 7y ago
  And then borrowed $300-some million secured against his WeWork shares
  - api 7y ago
    I just did some work to get together info for an investor due diligence questionnaire and I LOLed when I came to a long series of questions at the end that I swear were an itemized list of all the shenanigans that went on at WeWork. Loans of that sort were one of the items.
  - bobbylarrybobby 7y ago
    Sucks to be that bank
- endymi0n 7y ago
  You better hope he did that in a squeaky clean way - if there‘s just the slightest hint of embezzlement, you can be sure there‘s going to be an army of SoftBank lawyers trying to make a case.
- unaxk38 7y ago
  That number is so misleading. I wish the media/prof Galloway would stop referencing it. The $700M number is a mix of a $300M secondary sale to SoftBank and a $400M loan to purchase stock options. We don't know enough to say how far ahead (or behind) he is. He likely exercised his stock options at a highly inflated value, which means his AMT bill must be huge. Not only that, he is sitting on stock that is rapidly diminishing in value, and there's a non-zero chance it could be worth 0. So he has maybe $150M cash after the $300M sale + ??? value of stock from exercising $400M in options. And his liability is his capital gains bill from the $300M sale + the $400M loan to pay back + AMT bill from the exercise of stock options.
  - MuffinFlavored 7y ago
    > he has maybe $150M cash $150m is enough to be fine too :)
    - unaxk38 7y ago
      His worth is assets - liabilities. I'm saying his liabilities look huge, much more than $150M.
  - paulsutter 7y ago
    He surely owns his stock outright, not as options, since he founded the company.
    - unaxk38 7y ago
      No, that isn't how options work. Everyone needs to pay...it's just usually when you found a company you're buying options for fractions of a penny. See https://www.axios.com/behind-wework-founders-700m-cash-out-37b82639-272a-4846-9a43-7deb567b04a4.html https://www.axios.com/behind-wework-founders-700m-cash-out-3... for more info on the $400M loan - it's not clear if it's to purchase his stock options or to pay for AMT...it's likely additional options he was granted through the years at a higher strike price.
      - 7y ago
- raiyu 7y ago
  Those stock sales weren't squeaky clean and there are numerous reports. Some have it as loans that are backed by stock, which means no stock was actually sold. Other accounts have it that he used some of the proceeds of the $700MM to actually buy even more WeWork shares which makes absolutely no sense as any financial advisor would tell you to diversify your holdings, not use borrowed money to leverage up on an investment that is 99.9999% of your net worth. He's also bought personal and business properties and there are reports that he will have to sell some assets to close some financial holes that he is encountering. I mean with the way WeWork was run, it's not surprising the his own personal finances are mimicing that of WeWork - a house of cards that needed to keep the merry go round working in order not to fall apart. He was definitely banking on a successful IPO, but looks like there maybe personal fallout from all of this for him as well. Not to mention that now that they have new co-CEOs in there they will be looking through the books so if there are any financial irregularities, such as has been reported of potentially costs being booked as revenue (wtf?) - then there maybe further legal action against him. I think this story will continue to unfold for some time.
deleted 7y ago
[deleted]
mlthoughts2018 7y ago
I think this assumes there’s some inner core of WeWork that is worth saving. I mean, maybe Softbank will fall for a sunk cost fallacy and pursue it irrationally, but I don’t see why that would be useful instead of just founding a different company to do that small kernel of an idea at much lower scale. It’s actually a big if to me whether there even is a kernel of a business idea. Even if there is, can it (assuming massive rehabilitation) generate profits of a sufficient level for Softbank to care?
- raiyu 7y ago
  There is a real business there if they can control the costs and get the revenue right and make sure there was no financial fraud. Also, they can't shelve it easily because it's one of their largest investments so it would really destroy any chance of raising a second fund if they can't get this large investment to work. From a customer perspective, while a lot of people on Hackernews do rag on WeWork as a product, personally I think what they have done is tremendous, because we used coworking early on and if you ever stepped foot into a Regus you would immediately understand the difference. Now what they really need to do is clean the business up and see what's left, but there is a solid product there, and they should be able to make the revenue and cost side work.
  - mlthoughts2018 7y ago
    I don’t dispute at all that there is a solid product, but it’s exactly the same as for Lyft & Uber. The value proposition to the end user is only worthwhile if prices are held at artificially low levels due to VC subsidy that makes the business inherently not profitable. Once you remove the subsidy and let costs elevate to the required level and/or cut back on amenities, locations, etc., to keep prices down, then the question is whether customers still want the remaining value proposition. In other words, of course consumers like upscale stuff at VC subsidized prices. That tells you nothing about whether there’s a core business idea or not.
  - the_watcher 7y ago
    Yea, a coworking space with tech company polish, marketed to tech companies seems like it could easily win the market. It's a much smaller market and the valuation math is different, but I don't see why the business couldn't work.
perl4ever 7y ago
But does that make any sense if the attraction was that, run by Neumann, it was going to take over the world? Just because people lost faith in him doesn't mean there is a replacement for him that would justify putting more investment in. If it's just a real estate company, maybe it's not even worth close to $11B.

by raiyu 7y ago

atdrummond 7y ago

He already ferreted away $700m. He'll be fine.

booi 7y ago
Well.. if you call that living...
fjp 7y ago
And then borrowed $300-some million secured against his WeWork shares
- api 7y ago
  I just did some work to get together info for an investor due diligence questionnaire and I LOLed when I came to a long series of questions at the end that I swear were an itemized list of all the shenanigans that went on at WeWork. Loans of that sort were one of the items.
- bobbylarrybobby 7y ago
  Sucks to be that bank
endymi0n 7y ago
You better hope he did that in a squeaky clean way - if there‘s just the slightest hint of embezzlement, you can be sure there‘s going to be an army of SoftBank lawyers trying to make a case.
unaxk38 7y ago
That number is so misleading. I wish the media/prof Galloway would stop referencing it. The $700M number is a mix of a $300M secondary sale to SoftBank and a $400M loan to purchase stock options. We don't know enough to say how far ahead (or behind) he is. He likely exercised his stock options at a highly inflated value, which means his AMT bill must be huge. Not only that, he is sitting on stock that is rapidly diminishing in value, and there's a non-zero chance it could be worth 0. So he has maybe $150M cash after the $300M sale + ??? value of stock from exercising $400M in options. And his liability is his capital gains bill from the $300M sale + the $400M loan to pay back + AMT bill from the exercise of stock options.
- MuffinFlavored 7y ago
  > he has maybe $150M cash $150m is enough to be fine too :)
  - unaxk38 7y ago
    His worth is assets - liabilities. I'm saying his liabilities look huge, much more than $150M.
- paulsutter 7y ago
  He surely owns his stock outright, not as options, since he founded the company.
  - unaxk38 7y ago
    No, that isn't how options work. Everyone needs to pay...it's just usually when you found a company you're buying options for fractions of a penny. See https://www.axios.com/behind-wework-founders-700m-cash-out-37b82639-272a-4846-9a43-7deb567b04a4.html https://www.axios.com/behind-wework-founders-700m-cash-out-3... for more info on the $400M loan - it's not clear if it's to purchase his stock options or to pay for AMT...it's likely additional options he was granted through the years at a higher strike price.
    - 7y ago
raiyu 7y ago
Those stock sales weren't squeaky clean and there are numerous reports. Some have it as loans that are backed by stock, which means no stock was actually sold. Other accounts have it that he used some of the proceeds of the $700MM to actually buy even more WeWork shares which makes absolutely no sense as any financial advisor would tell you to diversify your holdings, not use borrowed money to leverage up on an investment that is 99.9999% of your net worth. He's also bought personal and business properties and there are reports that he will have to sell some assets to close some financial holes that he is encountering. I mean with the way WeWork was run, it's not surprising the his own personal finances are mimicing that of WeWork - a house of cards that needed to keep the merry go round working in order not to fall apart. He was definitely banking on a successful IPO, but looks like there maybe personal fallout from all of this for him as well. Not to mention that now that they have new co-CEOs in there they will be looking through the books so if there are any financial irregularities, such as has been reported of potentially costs being booked as revenue (wtf?) - then there maybe further legal action against him. I think this story will continue to unfold for some time.

deleted 7y ago

[deleted]

mlthoughts2018 7y ago

I think this assumes there’s some inner core of WeWork that is worth saving. I mean, maybe Softbank will fall for a sunk cost fallacy and pursue it irrationally, but I don’t see why that would be useful instead of just founding a different company to do that small kernel of an idea at much lower scale. It’s actually a big if to me whether there even is a kernel of a business idea. Even if there is, can it (assuming massive rehabilitation) generate profits of a sufficient level for Softbank to care?

raiyu 7y ago
There is a real business there if they can control the costs and get the revenue right and make sure there was no financial fraud. Also, they can't shelve it easily because it's one of their largest investments so it would really destroy any chance of raising a second fund if they can't get this large investment to work. From a customer perspective, while a lot of people on Hackernews do rag on WeWork as a product, personally I think what they have done is tremendous, because we used coworking early on and if you ever stepped foot into a Regus you would immediately understand the difference. Now what they really need to do is clean the business up and see what's left, but there is a solid product there, and they should be able to make the revenue and cost side work.
- mlthoughts2018 7y ago
  I don’t dispute at all that there is a solid product, but it’s exactly the same as for Lyft & Uber. The value proposition to the end user is only worthwhile if prices are held at artificially low levels due to VC subsidy that makes the business inherently not profitable. Once you remove the subsidy and let costs elevate to the required level and/or cut back on amenities, locations, etc., to keep prices down, then the question is whether customers still want the remaining value proposition. In other words, of course consumers like upscale stuff at VC subsidized prices. That tells you nothing about whether there’s a core business idea or not.
- the_watcher 7y ago
  Yea, a coworking space with tech company polish, marketed to tech companies seems like it could easily win the market. It's a much smaller market and the valuation math is different, but I don't see why the business couldn't work.

perl4ever 7y ago

But does that make any sense if the attraction was that, run by Neumann, it was going to take over the world? Just because people lost faith in him doesn't mean there is a replacement for him that would justify putting more investment in. If it's just a real estate company, maybe it's not even worth close to $11B.