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SoftBank Seeking to Take Control of WeWork Through Financing Package

128 points by bgc 7y ago

nopriorarrests 7y ago
Details including the exact amount of SoftBank’s potential investment couldn’t be learned, but executives at SoftBank figure We needs at least $3 billion to get through the next year This is insane.
- colechristensen 7y ago
  Wait how is We not cashflow positive? Do they have occupancy rate problems? It's not like their space is cheap or undercutting rivals, where is all of the revenue going? Real estate isn't SaaS where you have to pay a lot of developers to build a usable product and then scale your customers to pay for it, you can make money owning one unit.
  - pbreit 7y ago
    "Mature locations" are cash flow positive. But lots of $$ being invested into expansion. SaaS economics are much easier since marginal costs are $0. WeWork has to commit to very large lease expenses and then find tenants to move in at higher rates.
  - jjeaff 7y ago
    Ya, it's not like a software startup at all. You have to pay "developers" to build out all your new physical locations. You need to scout those locations, then you need to market and advertise those locations locally, furnish them, staff them, and then run them in the red until you get enough tenants to break even. One would think they are profitable on a per location basis. But just losing lots of money overall due to huge growth.
    - throwawaytoday5 7y ago
      Before changing jobs, I was in a WeWork location at DTX in Boston. There were many rooms that were empty, but Puma was paying for an entire floor so maybe they were making the difference up with large corporation clients?
  - koolba 7y ago
    It’s really easy to be cash flow negative when you do not have to be cash flow positive. Even with the rates being inline with competitors and cost of real estate, they have an incredible amount of corporate overhead vs a localized management company. Honestly I can’t see this business model ever working out as short of travel locations there’s nothing they’re bring to the table vs the added costs. It’s a shell game and the third shell is being lifted.
  - swampthinker 7y ago
    They paid their inside sales team insane commissions relative to industry standard, plus overall staff bloat to masquerade as a tech company.
    - wastedhours 7y ago
      I can't find the piece, but one article said they also paid brokers essentially the entire initial contract cost vs the traditional ~15% (might've missed that number, but it was a very small percentage compared to 100). Very concrete example of growth over profits - am not sure what the profitability timeframe would be on that model if we even try and look at it logically.
joeblau 7y ago
Is there any way that the numbers could work out? Let’s say SoftBank is able to trim the company to the bare bones; Does the We Company still make money at high gross margins? I wonder if it makes more sense to cut losses, as opposed to pumping more money in? I guess that’s why they pay SoftBank the big bucks…
- MobileVet 7y ago
  Hard to know what is fact, but the info that has come out (including the S-1) indicate that a majority of their properties are losing money. If that is the case, then this cannot end well no matter how they trim operations
  - harryh 7y ago
    The majority of their properties are very new so losing money is expected. If older properties are making money and new properties will eventually turn into older properties then they are, potentially, fine.
- pbreit 7y ago
  The numbers can definitely work out. Properties are margin positive on 50-80% occupancy. We Work dominates the flexible office leasing category in many huge important markets around the world.
artfulhippo 7y ago
How is this anything but the sunk-cost fallacy, throwing bad money after bad? Seriously looking for someone to explain why the WeWork glass is half-full.
- bhouston 7y ago
  Why wouldn't it be easier to rebuild this in the midst of a recession from scratch when rent is cheaper.
  - losteric 7y ago
    Same reason rent would be cheaper - fewer potential renters, especially new small businesses
- harryh 7y ago
  They rent buildings long term for low prices and then lease them back out in small pieces at higher prices. If they can keep the buildings full enough, they could make a lot of money! Right now most of their buildings are still pretty new, so they are not full enough, but that should change over time.
  - rosege 7y ago
    Yes Regus does this and is profitable - given Regus is valued at $3 bil It might make sense to buy them instead of pumping another $3 bil into WeWork that doesn't look like it will ever make a profit.
    - harryh 7y ago
      Maybe if you are talking about some random investor. But if we're talking about SoftBank, which already owns ~30% of WeWork, probably not.
      - rosege 7y ago
        Yes but sometimes even for companies in their position they say enough is enough to the losses and choose to let them go into administration instead. I'd say its unlikely SoftBank will choose this but it is an option for them.
ummonk 7y ago
>Some of SoftBank’s cash could also be used by Mr. Neumann to repay hundreds of millions of dollars of personal bank loans, one of the people said. Why would they save his hide when the money could be used to cover more of We’s enormous unending losses?
- detaro 7y ago
  I'd guess he can block attempts to further take control from him, and they'd need to buy out parts of his shares or otherwise compensate him.
  - bhouston 7y ago
    He has some type of captive control of SoftBank. Strange.
    - detaro 7y ago
      Not of SoftBank, but of WeWork (looked it up: chairman of the board, holding lots of shares). If SoftBank wants free reign to "fix" WeWork as they think is best, they need to buy him out or otherwise convince him that it's in his best interest to let them. EDIT: not majority of shares/voting power, he gave that up when stepping down
      - malandrew 7y ago
        I thought he already gave up the majority voting power a few weeks ago when trying to salvage the IPO. Does he still have that power?
        detaro 7y ago
        Indeed, I apparently misread that. So probably still influential, but not majority.
        wastedhours 7y ago
        He still has outweighted voting rights on his shares I think, but now at a non-majority level by the seems of it (I think the old model was 10 votes per share vs most other shareholders 1).
detaro 7y ago
not-paywalled article reporting about the submitted one: https://www.cnbc.com/2019/10/13/softbank-is-seeking-to-take-control-of-wework-wsj.html https://www.cnbc.com/2019/10/13/softbank-is-seeking-to-take-...
deleted 7y ago
[deleted]
FartyMcFarter 7y ago
Will the Vision fund still look like a smart investment if WeWork goes bust?
- jazzkingrt 7y ago
  Maybe not the Vision fund itself. But analysts seem to think that Softbank stock is really cheap when measured against its paper assets. https://www.barrons.com/articles/softbank-stock-wework-and-uber-51569019677 https://www.barrons.com/articles/softbank-stock-wework-and-u...
  - ultraluminous 7y ago
    I’m not going to get into the specifics of this particular article, or public analyst reports in general, but FYI Barrons is possibly the worst source of financial information on planet earth. You’d be better served following WSB’s advice than take anything your read there seriously.
    - Judgmentality 7y ago
      Can you provide me with a source where I can better learn about the shortcomings of public analyst reports? I had never even heard of WSB before, so I guess I'm a bit in the dark here.
      - scarejunba 7y ago
        Wall Street Bets /r/wallstreetbets : the #1 argument against the wisdom of the crowds
        notfromhere 7y ago
        there's an investment thesis to be made to invest in the exact opposite of whats trending on wsb
      - ultraluminous 7y ago
gnatman 7y ago
Is Softbank leveraged enough that a few investments going south at the same time could trigger a global recession?
- jjeaff 7y ago
  Softbank's funds are a drop in the bucket when compared to Total money in the market. And given that VC investing is inherently risky, I can't imagine their failure hurting market sentiment overall. It's not like a traditional bank failing, in other words.
  - Judgmentality 7y ago
    The Vision Fund represents a huge share of the VC market though - at least 10%. https://news.crunchbase.com/news/softbank-dealt-in-tenth-of-worldwide-vc-dollar-volume-so-far-in-2019/ https://news.crunchbase.com/news/softbank-dealt-in-tenth-of-... It could trivially collapse the VC market as companies are largely failing to IPO, and depending on how it's leveraged (I do not know nearly enough details) it could absolutely have serious economic shockwaves throughout the world. > I can't imagine their failure hurting market sentiment overall. I don't see why it would be any different than 20 years ago and the dot com bubble. Everybody says this time it's different, yet the overwhelming majority of tech companies IPOing are hemorrhaging money. Look at Uber - losing billions of dollars per year with no end in sight and their stock continues to decline. And of course Uber was a Softbank investment.
    - freewilly1040 7y ago
      The bubble inflating money coming from private markets rather than public like 20 years ago is a pretty huge difference. Vision Fund’s collapse is bad news for SV techies but ranks far below other things like trade wars in terms of reasons for concern
      - Judgmentality 7y ago
        I agree with you the trade war is likely to have far more of an impact (at least an order of magnitude) than any of this, however as companies like Uber go public it no longer is only affecting private investors. And Softbank definitely propped up Uber for the IPO like they tried to do with WeWork, but I guess that was a one trick pony. Also let's not forget how many pension funds are tied up in VC portfolios, so while it may not have an immediate crashing impact on everybody it can ruin people's retirements.
goatinaboat 7y ago
Some of SoftBank’s cash could also be used by Mr. Neumann to repay hundreds of millions of dollars of personal bank loans Neumann’s real genius is his ability to turn investor’s cash into his own, it’s astonishing that he gets away with it even now.
rdxm 7y ago
lol. time to take "We" out behind the barn......
H8crilA 7y ago
Adam Neumann is the most brilliant, but perhaps somewhat repulsive, [not short] seller of the unicorn bubble. People sometimes incorrectly assume that the proper way to benefit from overpriced assets is to sell them short. Truth is that any selling will suffice! Housing bubble? Build more houses, sell. Corporate credit bubble? Start a corporation, get credit. Tech unicorn valuation bubble? You got it, create a stupid startup, pay yourself huge salary and sell your stock on private markets. Bottom line is that supply follows demand - if there is demand then supply will materialize. This is the "magic" of capitalism. It's no different with WeWork, which is a consequence of investors chasing outsized returns in a low return environment. Matt Levine's column on the topic (scroll to "We We We"): https://www.bloomberg.com/opinion/articles/2019-10-02/the-trades-will-be-free-now https://www.bloomberg.com/opinion/articles/2019-10-02/the-tr... And if you don't believe that this is caused by chasing crazy returns see this interview with Masayoshi Son about how he secured $45B in 45 minutes from the Saudi prince (1:05). He said he wants to give him a $1T gift: https://youtu.be/Sa2_VBu0d7k https://youtu.be/Sa2_VBu0d7k Congratulations, this is a Michael Burry level of play. But not as "pure".
- jjeaff 7y ago
  I think the jury is still out on whether Nueman comes out ahead on this deal overall. He did some self dealing and got a bloated salary, but it also seems that much of his loans and stock sales were reinvested into wework.
  - paxys 7y ago
    Neumann invested a big chunk of his money in real estate, so he should be good regardless.
- Gibbon1 7y ago
  My feeling is when you refuse to limit yourself to the one true and golden measure of inflation (basically cat food, toilet paper, and very sketchy imputed rents) and look at differential inflation. Becomes really obvious, there inflation in stock prices that isn't supported by any real economic growth. Makes sense then that if you can create bullshit stocks out of thin air and push them onto the market with all the other bullshit inflated stocks. Then you can make a lot of coin. Especially if you can get investors to swallow tech company valuations[1]. [1] Go ahead try and value any tech company as if it were a ordinary company. I dare you.
tytso 7y ago
My theory about what is going on, and why it's not totally insane that Softbank is throwing bad money after bad: By throwing in $3 billion more (after already having throwing $11 Billion into WeWork) this gives Masayoshi Son the following three things: (1) WeWork is able to secure the $6 billion loan commitment. (2) Softbank gains 51% voting control over WeWork, getting Adam Neumann totally out of the picture. (3) It avoids WeWork going bankrupt (and setting its value to zero), while Masayoshi Son is in the middle of raising money for Vision Fund 2. If it goes bankrupt a year from now, Softbank will have already raised money for their next VC fund, and like startup founders of failed companies, Masayoshi Son is probably hoping that people will forget about his prior mistakes / trash fires, and if Vision Fund 2 is at least halfway successful, he'll be able to continue to play his VC games. Being able to play the part of the visionary VC is probably well worth pouring another $3B into the WeWork firepit.
- Judgmentality 7y ago
  > while Masayoshi Son is in the middle of raising money for Vision Fund 2 I just can't imagine why anyone would put money into the Vision Fund 2 after watching what happened with the Vision Fund 1. I don't have billions of dollars to invest though, so I guess I'm not his target audience. The man is even famous for losing the most money in history, and yet people seem to be rallying for him to do it again. https://arstechnica.com/information-technology/2012/10/how-sprints-new-boss-lost-70-billion-of-his-own-cash-and-still-stayed-rich/ https://arstechnica.com/information-technology/2012/10/how-s... Apple and Microsoft signing up as LP's for the new fund seems weird to me. I realize they are sitting on enormous piles of cash and want to find new ways to invest it, and they can comfortably put billions behind extremely risky assets, but even then it makes no sense to me. I just don't get it, but maybe that's why I'm not a billionaire.
  - freewilly1040 7y ago
    Do we know how much Apple and Microsoft are actually putting in? I can't find anything about it. To put numbers on "enormous piles of cash", Apple books $20 billion in profits a quarter [1] and $245 billion cash on hand [2]. My guess is that if they are looking for risky plays, there just aren't a lot of options for the amount of cash they have. [1] https://www.reuters.com/article/us-softbank-group-vision-fund/softbank-groups-108-billion-vision-fund-2-draws-in-microsoft-apple-idUSKCN1UL01F https://www.reuters.com/article/us-softbank-group-vision-fun... [2] https://www.cnbc.com/2019/01/29/apple-now-has-tk-cash-on-hand.html https://www.cnbc.com/2019/01/29/apple-now-has-tk-cash-on-han...
pfarnsworth 7y ago
Softbank has completely destroyed the natural order of things and we will all pay the price for it. Companies that should have died already are instead valued in the billions. I use the term "valued" loosely because valuations are just VCs circlejerking each other off and selling snake-oil to retail investors like mutual fund companies chasing returns. Anyone who believes the "valuation" numbers they read on Techcrunch deserves to lose all their money investing in them. These zombie companies are buying their customers with Softbank money and will keep doing this until they believe they have created a new market. It's an absurd waste of money that will cripple things once things revert back to the natural order. Silicon Valley is going to have a huge, huge reckoning when the Vision funds collapse, which they will. Masayoshi Sun got lucky once, by betting big on Alibaba, and now he thinks he can do it again, with more money. Already his fund is a failure with his terrible investments that have mostly lost money once it hits the real markets, so as the money pulls back, lots of companies will die quickly and painfully. It will cause real estate to plummet in the Bay Area and mass unemployment like what we saw during the dot com bust. I'm not sure if this will cause a global recession, but with hundreds of billions, it very well might.
Traster 7y ago
It's very interesting to me whether this behaviour is because SoftBank still believe significant value can be wrung from the corpse of WeWork or whether this is simply an exercise in hiding losses in order to pave the way for the other funds SoftBank are work on. So let's examine the first condition - SoftBank needs to put around $3Bn into the company to get through the year. Let's say that's right, it's going to cost them that amount, and over the next year they completely stop the burn rate. That essentially means you end up with a IWG sized company, with more debt, arguably a huge hangover of extra over-head, and broken processes. IWG has a market cap of $3.5Bn. So let's assume neutrally WeWork can get back into a normal situation for an office rental company- that is a bad investment, you're better off letting the company go bankrupt.. So the second situation seems more likely. WeWork is trying to hide the scale of its problems until the next fund has been completed. I can't help but think that people are going to catch on to that - they caught on to WeWork and now SoftBank are really going to be subject to way more scrutiny.
TheOtherHobbes 7y ago
As a reminder, WW has gone from a $47bn valuation - higher according to some interested parties - to skirting bankruptcy in less than two months. The WGS law firm mentioned are better known for Chapter 11 "restructurings." The Saudis who were persuaded to put money into Softbank are better known for this kind of thing: https://en.wikipedia.org/wiki/2017%E2%80%9319_Saudi_Arabian_purge https://en.wikipedia.org/wiki/2017%E2%80%9319_Saudi_Arabian_... Interesting times for Vision Fund 1/2 and SB.
olingern 7y ago
It seems like SoftBank has money in so many places and I was surprised when I read [1] how many 1+ billion dollar investments they have and have made. 1 - https://www.businessinsider.com/running-list-softbank-investments-2017-7#eleme-3-billion-56 https://www.businessinsider.com/running-list-softbank-invest...

128 points by bgc 7y ago

Details including the exact amount of SoftBank’s potential investment couldn’t be learned, but executives at SoftBank figure We needs at least $3 billion to get through the next year This is insane.

colechristensen 7y ago
Wait how is We not cashflow positive? Do they have occupancy rate problems? It's not like their space is cheap or undercutting rivals, where is all of the revenue going? Real estate isn't SaaS where you have to pay a lot of developers to build a usable product and then scale your customers to pay for it, you can make money owning one unit.
- pbreit 7y ago
  "Mature locations" are cash flow positive. But lots of $$ being invested into expansion. SaaS economics are much easier since marginal costs are $0. WeWork has to commit to very large lease expenses and then find tenants to move in at higher rates.
- jjeaff 7y ago
  Ya, it's not like a software startup at all. You have to pay "developers" to build out all your new physical locations. You need to scout those locations, then you need to market and advertise those locations locally, furnish them, staff them, and then run them in the red until you get enough tenants to break even. One would think they are profitable on a per location basis. But just losing lots of money overall due to huge growth.
  - throwawaytoday5 7y ago
    Before changing jobs, I was in a WeWork location at DTX in Boston. There were many rooms that were empty, but Puma was paying for an entire floor so maybe they were making the difference up with large corporation clients?
- koolba 7y ago
  It’s really easy to be cash flow negative when you do not have to be cash flow positive. Even with the rates being inline with competitors and cost of real estate, they have an incredible amount of corporate overhead vs a localized management company. Honestly I can’t see this business model ever working out as short of travel locations there’s nothing they’re bring to the table vs the added costs. It’s a shell game and the third shell is being lifted.
- swampthinker 7y ago
  They paid their inside sales team insane commissions relative to industry standard, plus overall staff bloat to masquerade as a tech company.
  - wastedhours 7y ago
    I can't find the piece, but one article said they also paid brokers essentially the entire initial contract cost vs the traditional ~15% (might've missed that number, but it was a very small percentage compared to 100). Very concrete example of growth over profits - am not sure what the profitability timeframe would be on that model if we even try and look at it logically.

joeblau 7y ago

Is there any way that the numbers could work out? Let’s say SoftBank is able to trim the company to the bare bones; Does the We Company still make money at high gross margins? I wonder if it makes more sense to cut losses, as opposed to pumping more money in? I guess that’s why they pay SoftBank the big bucks…

MobileVet 7y ago
Hard to know what is fact, but the info that has come out (including the S-1) indicate that a majority of their properties are losing money. If that is the case, then this cannot end well no matter how they trim operations
- harryh 7y ago
  The majority of their properties are very new so losing money is expected. If older properties are making money and new properties will eventually turn into older properties then they are, potentially, fine.
pbreit 7y ago
The numbers can definitely work out. Properties are margin positive on 50-80% occupancy. We Work dominates the flexible office leasing category in many huge important markets around the world.

artfulhippo 7y ago

How is this anything but the sunk-cost fallacy, throwing bad money after bad? Seriously looking for someone to explain why the WeWork glass is half-full.

bhouston 7y ago
Why wouldn't it be easier to rebuild this in the midst of a recession from scratch when rent is cheaper.
- losteric 7y ago
  Same reason rent would be cheaper - fewer potential renters, especially new small businesses
harryh 7y ago
They rent buildings long term for low prices and then lease them back out in small pieces at higher prices. If they can keep the buildings full enough, they could make a lot of money! Right now most of their buildings are still pretty new, so they are not full enough, but that should change over time.
- rosege 7y ago
  Yes Regus does this and is profitable - given Regus is valued at $3 bil It might make sense to buy them instead of pumping another $3 bil into WeWork that doesn't look like it will ever make a profit.
  - harryh 7y ago
    Maybe if you are talking about some random investor. But if we're talking about SoftBank, which already owns ~30% of WeWork, probably not.
    - rosege 7y ago
      Yes but sometimes even for companies in their position they say enough is enough to the losses and choose to let them go into administration instead. I'd say its unlikely SoftBank will choose this but it is an option for them.

ummonk 7y ago

>Some of SoftBank’s cash could also be used by Mr. Neumann to repay hundreds of millions of dollars of personal bank loans, one of the people said. Why would they save his hide when the money could be used to cover more of We’s enormous unending losses?

detaro 7y ago
I'd guess he can block attempts to further take control from him, and they'd need to buy out parts of his shares or otherwise compensate him.
- bhouston 7y ago
  He has some type of captive control of SoftBank. Strange.
  - detaro 7y ago
    Not of SoftBank, but of WeWork (looked it up: chairman of the board, holding lots of shares). If SoftBank wants free reign to "fix" WeWork as they think is best, they need to buy him out or otherwise convince him that it's in his best interest to let them. EDIT: not majority of shares/voting power, he gave that up when stepping down
    - malandrew 7y ago
      I thought he already gave up the majority voting power a few weeks ago when trying to salvage the IPO. Does he still have that power?
      - detaro 7y ago
        Indeed, I apparently misread that. So probably still influential, but not majority.
      - wastedhours 7y ago
        He still has outweighted voting rights on his shares I think, but now at a non-majority level by the seems of it (I think the old model was 10 votes per share vs most other shareholders 1).

detaro 7y ago

not-paywalled article reporting about the submitted one: https://www.cnbc.com/2019/10/13/softbank-is-seeking-to-take-control-of-wework-wsj.html https://www.cnbc.com/2019/10/13/softbank-is-seeking-to-take-...

deleted 7y ago

[deleted]

FartyMcFarter 7y ago

Will the Vision fund still look like a smart investment if WeWork goes bust?

jazzkingrt 7y ago
Maybe not the Vision fund itself. But analysts seem to think that Softbank stock is really cheap when measured against its paper assets. https://www.barrons.com/articles/softbank-stock-wework-and-uber-51569019677 https://www.barrons.com/articles/softbank-stock-wework-and-u...
- ultraluminous 7y ago
  I’m not going to get into the specifics of this particular article, or public analyst reports in general, but FYI Barrons is possibly the worst source of financial information on planet earth. You’d be better served following WSB’s advice than take anything your read there seriously.
  - Judgmentality 7y ago
    Can you provide me with a source where I can better learn about the shortcomings of public analyst reports? I had never even heard of WSB before, so I guess I'm a bit in the dark here.
    - scarejunba 7y ago
      Wall Street Bets /r/wallstreetbets : the #1 argument against the wisdom of the crowds
      - notfromhere 7y ago
        there's an investment thesis to be made to invest in the exact opposite of whats trending on wsb
    - ultraluminous 7y ago

gnatman 7y ago

Is Softbank leveraged enough that a few investments going south at the same time could trigger a global recession?

jjeaff 7y ago
Softbank's funds are a drop in the bucket when compared to Total money in the market. And given that VC investing is inherently risky, I can't imagine their failure hurting market sentiment overall. It's not like a traditional bank failing, in other words.
- Judgmentality 7y ago
  The Vision Fund represents a huge share of the VC market though - at least 10%. https://news.crunchbase.com/news/softbank-dealt-in-tenth-of-worldwide-vc-dollar-volume-so-far-in-2019/ https://news.crunchbase.com/news/softbank-dealt-in-tenth-of-... It could trivially collapse the VC market as companies are largely failing to IPO, and depending on how it's leveraged (I do not know nearly enough details) it could absolutely have serious economic shockwaves throughout the world. > I can't imagine their failure hurting market sentiment overall. I don't see why it would be any different than 20 years ago and the dot com bubble. Everybody says this time it's different, yet the overwhelming majority of tech companies IPOing are hemorrhaging money. Look at Uber - losing billions of dollars per year with no end in sight and their stock continues to decline. And of course Uber was a Softbank investment.
  - freewilly1040 7y ago
    The bubble inflating money coming from private markets rather than public like 20 years ago is a pretty huge difference. Vision Fund’s collapse is bad news for SV techies but ranks far below other things like trade wars in terms of reasons for concern
    - Judgmentality 7y ago
      I agree with you the trade war is likely to have far more of an impact (at least an order of magnitude) than any of this, however as companies like Uber go public it no longer is only affecting private investors. And Softbank definitely propped up Uber for the IPO like they tried to do with WeWork, but I guess that was a one trick pony. Also let's not forget how many pension funds are tied up in VC portfolios, so while it may not have an immediate crashing impact on everybody it can ruin people's retirements.

goatinaboat 7y ago

Some of SoftBank’s cash could also be used by Mr. Neumann to repay hundreds of millions of dollars of personal bank loans Neumann’s real genius is his ability to turn investor’s cash into his own, it’s astonishing that he gets away with it even now.

rdxm 7y ago

lol. time to take "We" out behind the barn......

H8crilA 7y ago

Adam Neumann is the most brilliant, but perhaps somewhat repulsive, [not short] seller of the unicorn bubble. People sometimes incorrectly assume that the proper way to benefit from overpriced assets is to sell them short. Truth is that any selling will suffice! Housing bubble? Build more houses, sell. Corporate credit bubble? Start a corporation, get credit. Tech unicorn valuation bubble? You got it, create a stupid startup, pay yourself huge salary and sell your stock on private markets. Bottom line is that supply follows demand - if there is demand then supply will materialize. This is the "magic" of capitalism. It's no different with WeWork, which is a consequence of investors chasing outsized returns in a low return environment. Matt Levine's column on the topic (scroll to "We We We"): https://www.bloomberg.com/opinion/articles/2019-10-02/the-trades-will-be-free-now https://www.bloomberg.com/opinion/articles/2019-10-02/the-tr... And if you don't believe that this is caused by chasing crazy returns see this interview with Masayoshi Son about how he secured $45B in 45 minutes from the Saudi prince (1:05). He said he wants to give him a $1T gift: https://youtu.be/Sa2_VBu0d7k https://youtu.be/Sa2_VBu0d7k Congratulations, this is a Michael Burry level of play. But not as "pure".

jjeaff 7y ago
I think the jury is still out on whether Nueman comes out ahead on this deal overall. He did some self dealing and got a bloated salary, but it also seems that much of his loans and stock sales were reinvested into wework.
- paxys 7y ago
  Neumann invested a big chunk of his money in real estate, so he should be good regardless.
Gibbon1 7y ago
My feeling is when you refuse to limit yourself to the one true and golden measure of inflation (basically cat food, toilet paper, and very sketchy imputed rents) and look at differential inflation. Becomes really obvious, there inflation in stock prices that isn't supported by any real economic growth. Makes sense then that if you can create bullshit stocks out of thin air and push them onto the market with all the other bullshit inflated stocks. Then you can make a lot of coin. Especially if you can get investors to swallow tech company valuations[1]. [1] Go ahead try and value any tech company as if it were a ordinary company. I dare you.

tytso 7y ago

My theory about what is going on, and why it's not totally insane that Softbank is throwing bad money after bad: By throwing in $3 billion more (after already having throwing $11 Billion into WeWork) this gives Masayoshi Son the following three things: (1) WeWork is able to secure the $6 billion loan commitment. (2) Softbank gains 51% voting control over WeWork, getting Adam Neumann totally out of the picture. (3) It avoids WeWork going bankrupt (and setting its value to zero), while Masayoshi Son is in the middle of raising money for Vision Fund 2. If it goes bankrupt a year from now, Softbank will have already raised money for their next VC fund, and like startup founders of failed companies, Masayoshi Son is probably hoping that people will forget about his prior mistakes / trash fires, and if Vision Fund 2 is at least halfway successful, he'll be able to continue to play his VC games. Being able to play the part of the visionary VC is probably well worth pouring another $3B into the WeWork firepit.

Judgmentality 7y ago
> while Masayoshi Son is in the middle of raising money for Vision Fund 2 I just can't imagine why anyone would put money into the Vision Fund 2 after watching what happened with the Vision Fund 1. I don't have billions of dollars to invest though, so I guess I'm not his target audience. The man is even famous for losing the most money in history, and yet people seem to be rallying for him to do it again. https://arstechnica.com/information-technology/2012/10/how-sprints-new-boss-lost-70-billion-of-his-own-cash-and-still-stayed-rich/ https://arstechnica.com/information-technology/2012/10/how-s... Apple and Microsoft signing up as LP's for the new fund seems weird to me. I realize they are sitting on enormous piles of cash and want to find new ways to invest it, and they can comfortably put billions behind extremely risky assets, but even then it makes no sense to me. I just don't get it, but maybe that's why I'm not a billionaire.
- freewilly1040 7y ago
  Do we know how much Apple and Microsoft are actually putting in? I can't find anything about it. To put numbers on "enormous piles of cash", Apple books $20 billion in profits a quarter [1] and $245 billion cash on hand [2]. My guess is that if they are looking for risky plays, there just aren't a lot of options for the amount of cash they have. [1] https://www.reuters.com/article/us-softbank-group-vision-fund/softbank-groups-108-billion-vision-fund-2-draws-in-microsoft-apple-idUSKCN1UL01F https://www.reuters.com/article/us-softbank-group-vision-fun... [2] https://www.cnbc.com/2019/01/29/apple-now-has-tk-cash-on-hand.html https://www.cnbc.com/2019/01/29/apple-now-has-tk-cash-on-han...

pfarnsworth 7y ago

Softbank has completely destroyed the natural order of things and we will all pay the price for it. Companies that should have died already are instead valued in the billions. I use the term "valued" loosely because valuations are just VCs circlejerking each other off and selling snake-oil to retail investors like mutual fund companies chasing returns. Anyone who believes the "valuation" numbers they read on Techcrunch deserves to lose all their money investing in them. These zombie companies are buying their customers with Softbank money and will keep doing this until they believe they have created a new market. It's an absurd waste of money that will cripple things once things revert back to the natural order. Silicon Valley is going to have a huge, huge reckoning when the Vision funds collapse, which they will. Masayoshi Sun got lucky once, by betting big on Alibaba, and now he thinks he can do it again, with more money. Already his fund is a failure with his terrible investments that have mostly lost money once it hits the real markets, so as the money pulls back, lots of companies will die quickly and painfully. It will cause real estate to plummet in the Bay Area and mass unemployment like what we saw during the dot com bust. I'm not sure if this will cause a global recession, but with hundreds of billions, it very well might.

Traster 7y ago

It's very interesting to me whether this behaviour is because SoftBank still believe significant value can be wrung from the corpse of WeWork or whether this is simply an exercise in hiding losses in order to pave the way for the other funds SoftBank are work on. So let's examine the first condition - SoftBank needs to put around $3Bn into the company to get through the year. Let's say that's right, it's going to cost them that amount, and over the next year they completely stop the burn rate. That essentially means you end up with a IWG sized company, with more debt, arguably a huge hangover of extra over-head, and broken processes. IWG has a market cap of $3.5Bn. So let's assume neutrally WeWork can get back into a normal situation for an office rental company- that is a bad investment, you're better off letting the company go bankrupt.. So the second situation seems more likely. WeWork is trying to hide the scale of its problems until the next fund has been completed. I can't help but think that people are going to catch on to that - they caught on to WeWork and now SoftBank are really going to be subject to way more scrutiny.

TheOtherHobbes 7y ago

As a reminder, WW has gone from a $47bn valuation - higher according to some interested parties - to skirting bankruptcy in less than two months. The WGS law firm mentioned are better known for Chapter 11 "restructurings." The Saudis who were persuaded to put money into Softbank are better known for this kind of thing: https://en.wikipedia.org/wiki/2017%E2%80%9319_Saudi_Arabian_purge https://en.wikipedia.org/wiki/2017%E2%80%9319_Saudi_Arabian_... Interesting times for Vision Fund 1/2 and SB.

olingern 7y ago

It seems like SoftBank has money in so many places and I was surprised when I read [1] how many 1+ billion dollar investments they have and have made. 1 - https://www.businessinsider.com/running-list-softbank-investments-2017-7#eleme-3-billion-56 https://www.businessinsider.com/running-list-softbank-invest...