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SoftBank to take control of WeWork: Sources
- moneywoes 7y agoWow, what a fall from grace. Weren't they valued at 72 billion earlier?
- WalterSear 7y agoIt's not grace if it's mostly smoke and mirrors: it's hubris.
- xenospn 7y ago46B. Still insane.
- onlyrealcuzzo 7y agoIf you sell a pig to yourself for $72Bn, does that make it worth $72Bn? It was valued at $20Bn in 2017 based on a $4.4Bn investment from SoftBank (where they were the sole investor). It was then valued at $45Bn in 2018 based on another $3Bn investment from SoftBank (when SoftBank was already the largest investor -- by far). Then, SoftBank made ANOTHER $1Bn investment later in 2018 "valuing" WeWork at $47Bn. WeWork was ever valued at $72Bn. Maybe you're thinking of Uber.
- buboard 7y agoI keep reading about that real estate company - make up your minds is it a tech company or not?
- mdorazio 7y agoBetter article in [1]. From the unconfirmed report: - SoftBank to invest $4-5 billion - Pre-money valuation at $7.5-8 billion - SoftBank will end the deal with ~70% control of WeWork - SoftBank's Marcelo Claure to take over as chairman of We - No confirmed word on additional job cuts, asset sales, or clawbacks from Neumann [1] https://www.cnbc.com/2019/10/21/softbank-to-take-control-of-wework-sources.html https://www.cnbc.com/2019/10/21/softbank-to-take-control-of-...
- newfangle 7y ago4 to 5 billion investment in a company with an 8 billion dollar valuation. At some point you have to wonder when its better to cut your losses and scrap the entire thing.
- threeseed 7y agoWeWork is the dominant player as the overwhelming trend in business is towards flexible and remote working. If even a small percentage of companies adopt the Gitlab model, WeWork is going to be extremely successful. And given Softbank's business model is designed for long term, strategic bets there is no way I would be cutting losses just yet.
- bduerst 7y agoSoftbanks model isn't proven yet. They overinvest and create unicorns in the expectation that the 10x extra cash will cement market leadership for the startup. That doesn't mean much if the market does not materialize, which is possible because remote work does not require shared office space. Currently the trend is that connectivity removes the need for an office entirely, not generate more demand for them.
- threeseed 7y agoSoftbank's model won't be proven for decades. It invests in brands that they believe will dominant their industry and still be around in 50 years time. And as Gitlab and others have found many people simply don't like working at home and want to be around other people. And also need infrastructure like meeting rooms on the odd occasion. WeWork provides that in almost every city. And 500,000+ people today currently see it as a useful service.
- neural_thing 7y agoThis is your annual reminder that Masa Son once lost $70B
- ekianjo 7y agoAnd that he is far from being the genius investor the Japanese media tries to make him
- arcticbull 7y agoI suddenly feel better about some of my underperforming assets lol
- semiotagonal 7y agoI believe Son is underwater on Uber as well, and if Slack falls somewhat below $10, would be eating a loss even there. https://www.cnbc.com/2019/09/07/uber-wework-and-slack-public-valuations-show-softbank-vision-flaw.html https://www.cnbc.com/2019/09/07/uber-wework-and-slack-public...
- deleted 7y ago[deleted]
- threeseed 7y agoAnd is now worth $23B. So I would assume he knows a little about business.
- lasgsf 7y agoDoes this mean then all the common are wiped out due to the liq preference that existed before?
- qeternity 7y agoEssentially yes. Not wiped out per se, but underwater. If they can grow the business beyond the high water mark, then there’s a shot at getting paid. But I’d say in a best case that’s unlikely.
- tempsy 7y agoNo it doesn’t. Read the deal. SoftBank will buy up to $3B in stock from existing shareholders, including employees. They are bailing out employees and investors. People will at least get something.
- Traster 7y agoIt's very difficult to see how SoftBank breaks even on this new deal. They're investing $5bn now, with the hope that it's worth more than that when they IPO, but several things have killed that idea. Firstly, their brand is tarnished. Secondly, the growth play will be gone by the time they IPO. Thirdly, the charismatic leader is gone, so the message of "Disrupting" and "We're a tech play' is gone. They've put $5bn into a company that's roughly the same size as a public company that's got a $4Bn market cap, but only got 70% equity as a result. I think I'm at the point where I think that Softbank is throwing billions into wework to save face. That is a very bad move.
- asfarley 7y agoI took a look to see if Softbank was hiring any vetting-watchdogs to prevent this in the future. They had one open position. It required all applications to have an extensive history at a prestigous VC firm, i.e. they are looking for people from the in-group. I think a less-incestuous vetting strategy would give more honest results. Too bad, I think there's a lot of people on HN who would excel at this position despite not having worked at a big VC.
- jessaustin 7y agoI have no particular love for any of the big-name "prestigious" VCs, but ISTM they haven't had much influence at WeWork so far. Instead SoftBank just handed the keys to a crazy dude, with the thought that he would make it rain. Maybe it didn't rain hard enough, but the firm is still in business and now they've gotten rid of the crazy dude. Maybe SoftBank just sees this as a slightly more intense version of the traditional transition from founders to "professional" management? It seems likely to feature a great deal of the equity dilution that founders traditionally suffer...
- duxup 7y agoI don't see why someone with that history would necessarily do a poor job.
- OnlineGladiator 7y ago
- choppaface 7y agoSo is this effectively a triggering of the partial ratchet noted in the S-1 (i.e. SoftBank gets shares if valuation falls)? Or a whole new deal?
- bradleyjg 7y agoThere doesn’t seem to be any original reporting in this article. The link should probably be: https://www.cnbc.com/2019/10/21/softbank-to-take-control-of-wework-sources.html https://www.cnbc.com/2019/10/21/softbank-to-take-control-of-...
- deleted 7y ago[deleted]
- anm89 7y agoSerious question: given the monstrous scale of softbank, the not so great quality of many of its holdings, and it's ties into multiple world economies, could softbank be a systemic risk to the entire world economy? If Uber took a big write off at this point, not only would American and Japanese companies and Saudi Arabia take major losses but I would imagine big tech stocks in general would start to see a loss in confidence and a reversion to more normal P/E ratios. I would imagine at that point softbank would be such a dirty word that it would have to firesale as well. And certainly no second vision fund. And then you could go on and on about what would happen to pensions in the states and the rest of our systemically daisy chained over leveraged economy or whatever else if that happened. Do I have an overly active imagination? Does anyone else worry about this kind of stuff?
- troydavis 7y ago> could softbank be a systemic risk to the entire world economy? No. The Vision Fund itself is nowhere near large enough to be systemically important, even given a complete loss of all principal. Also, a lot (most?) of the the risk from SIFIs (https://en.wikipedia.org/wiki/List_of_systemically_important_banks https://en.wikipedia.org/wiki/List_of_systemically_important...) is that they're counterparties in tens of thousands to tens of millions of relationships, many of which assume the counterparty is completely reliable. That's not true here; all Softbank and Vision Fund shareholders understand their capital is at risk. Banks also almost inherently use leverage (https://en.wikipedia.org/wiki/Basel_III#Leverage_ratio https://en.wikipedia.org/wiki/Basel_III#Leverage_ratio) more heavily than most other industries. The other possible results you mentioned are market mechanics. For example, a reversion to more historically-normal P/E ratios is not something that SIFI tries to prevent (or encourage).
- dodobirdlord 7y ago> I would imagine big tech stocks in general would start to see a loss in confidence and a reversion to more normal P/E ratios. Most of the big tech companies have not particularly strange P/E ratios. > I would imagine at that point softbank would be such a dirty word that it would have to firesale as well. What's the mechanism here? Uber takes a large writedown leads to Softbank declaring bankruptcy? I don't follow the reasoning. > Do I have an overly active imagination? Does anyone else worry about this kind of stuff? Yes and no.
- xenospn 7y agoSo who exactly came to the conclusion that they were worth >40B just a few weeks before? How does that math even hold up?
- anm89 7y agoSimple, someone gave them money at that valuation (softbank). It doesn't mean the underlying value exists but it does give them that "valuation"
- xenospn 7y agoObviously - but why did Softbank think it was worth so much more? They were an investor - they knew that the company was a financial black hole.
- deleted 7y ago[deleted]
- tahdig 7y agoProbably to inflate the valuation, do a quick IPO of WeWork for 10x the actual value it should have, get their shares sold on high price, and wave to the fools that took the bait and bought an almost worthless stock. This whole ordeal was the best that could happen for the normal people, basically fell into the hole they themselves dug, because the economists etc. called their bullshit out loud. If you have not already, these are good reads from one of the critics of the whole scheme: 1. WeWTF - https://www.profgalloway.com/wewtf https://www.profgalloway.com/wewtf 2. WeWTF, Part Deux - https://www.profgalloway.com/wewtf-part-deux https://www.profgalloway.com/wewtf-part-deux
- anm89 7y agoPeople refer to this as the greater fool theory. Softbank never believed that valuation. What they believed was that there was someone dumber than them that they could trick into buying it from them leaving themselves with cash and the other person with the overvalued asset. In this case it turned out they were the first and final fool and they were left holding their own bag. And thus they essentially sacammed themselves(or really their investors) out of billions. You'll also hear this referred to as a pump and dump. Pump up the value of some asset and then dump it on someone else.
- pacetherace 7y agoIn the last 4-5 years, Softbank basically caused hyperinflation in the startup world.
- cookie_monsta 7y agoI don't really get the ongoing obsession with We/Softbank. I kind of got the whole schadenfreude side of it when it all came tumbling down but now it's just turned into a story of a big company trying to dig itself out of a hole created by some dumb decisions it made. Is there some larger relevance that I'm missing?
- rattray 7y agoFor one thing, I'd argue it's important for startups to understand how Softbank behaves as an investor, since they are a fund many companies might consider taking money from. They have an outsize quantity of capital to invest, so this is more worth watching than other funds' behaviors might be.
- cookie_monsta 7y agoDo you think that Neumann feels like he got a raw deal?
- rattray 7y agoI bet that he regrets doing business with Softbank, yes. An anecdote I heard (unsure if true) was that Softbank had strongly encouraged Adam to focus on growth at the expense of profitability to a much higher degree, shooting for the stars much more than he otherwise would have done. If I was Icharus and someone else had given me wings and told me fly much higher, I'd have myself to blame but I'd still be upset and filled with regret.
- wastedhours 7y ago> some dumb decisions I think the relevance is in the definition of some. Lots of people had an inkling it was a lot of smoke and mirrors, "tech company this" "we're a platform that", with a lot of weirdness alongside - but then the IPO dropped and confirmed every single assumption and it turned out truth was more ridiculous than fiction. The larger relevance is how completely unworthy businesses are sprung into a position by cheap VC cash when the foundations are made of custard and spaghetti. Wrap in the "cult of personality" with a seemingly deluded founder and you have the SV equivalent of a soap opera. Alongside that, it's also a dramatic pantomime as to how said investors are trying to optimise an acquisition without the optics of a failing business. We was a poster child for the Vision Fund, and Softbank has to play this game delicately. It's fascinating to watch it play out - this isn't just a case of a large business that's fallen on hard times. This is a story about a (hopefully) unique company that should never have worked in the first place, somehow navigating a black swan moment, and potentially turning into a real business.
- rmm 7y agohow on earth does a company go from getting ready to IPO to being cash-strapped and needing an infusion in such a short space of time? Never saw the numbers in the prospectus, but surely there was some indication?
- 55555 7y agoIt's crazy that it's not basically fraud to do what they did. They put out a 100-200 page document saying "Our business is great" so that retail investors could make an informed investment decision and then 2 months later are like "actually it's relatively worthless and we have no money left and if we can't raise money right now, we will die". Did the people involved really believe that glowing 100+ page report? The difference between this and a pump and dump is simply intent, and I think it's most likely that the intent was there.
- thesausageking 7y agoThis has to be tough for all of the WeWork employees who were paper millionaires and now have stock options that likely won't survive all of SoftBank's preferences when and if WeWork finally IPOs.
- xenospn 7y agothousands of people crushed. Really awful.
- deleted 7y ago[deleted]
- dannykwells 7y agoI'll be honest here, cry me a river. Everyone who joins a pre IPO company should value their stock at 0.
- AbrahamParangi 7y agoThat seems uncharitable given the CEO looks to be walking away with ~$900M total from the endeavor while everyone else gets... nothing? Probably?
- icotyl 7y agoEvidence why people should value their stock at zero.
- DebtDeflation 7y ago>the CEO looks to be walking away with ~$900M total from the endeavor How much of the previous $700M did he actually walk away with though? Everything I've read suggests that he only sold a small portion of the $700M in stock, and the majority he kept and borrowed against to buy the buildings he leases back to WeWork. In one of the negotiations post IPO collapse, he agreed to give any profit he makes off those leases back to WeWork. Also, at what valuation level for WeWork is $700M for his equity even based on?
- mrnobody_67 7y agoOther news sources are reporting that Adam Neuman will be paid $200m to resign from the board of directors... just, wow.
- luckydata 7y agoafter a few years in silicon valley I learned that's essentially the right way to make it here. Building successful companies is for suckers, you just make a big ball of excrements, package it real well and then hand it to someone else before it falls apart. The VC system rewards that more than any other skillset.
- bitflipr 7y agoI guess Adam will get those margin calls on his $700m in loans on WeWork shares after all. Hope he can cover. https://www.ft.com/content/a9254a70-f1a8-11e9-bfa4-b25f11f42901 https://www.ft.com/content/a9254a70-f1a8-11e9-bfa4-b25f11f42...
- H8crilA 7y agoThis saga will be a great read in a year or three. Hope someone writes a long article on this. Joining the great American predecessors of corporate failure like Enron or Lehman Brothers.
- ww520 7y agoActually SoftBank is getting a good deal, using $5B to get a controlling interest of WeWork at 70%, wiping out all the commons and other LP's. If they can cut out the slacks and focus on the core value proposition, WeWork can work after 4 to 5 years. The WeWork brand is unique and valuable. They did that to Priceline in the past. Priceline was almost dead at one point. Got sold at a fire sales. They hunkered down and executed, and look where they are now.
- skinnymuch 7y agoCould you say when this Priceline thing happened?
- kelnos 7y agoThe thing that's ironic is that the IPO market likely would have valued WeWork at $10B, maybe even $15B, but since that was so much lower than the $47B valuation it had during SoftBank's earlier investment, they balked and walked. SoftBank likely would have made out better in the near term had they just let the (disappointing, to them) IPO play out. WeWork would have launched with at least a $10B market cap (though of course that could have dropped on day one), would have raised a couple billion, and maybe would have even raised enough to meet the requirements for the loans they were planning on taking out. But now they've more or less gutted the company, killing anything that was even slightly interesting, turning it more or less into a bog-standard office real estate company. Which presumably will be able to turn a profit after a bit of retooling, but it hardly qualifies as "Vision Fund" material. This is definitely just Son and SoftBank trying to save face.
- yashap 7y agoI can actually see this working out. Comparing the first half of 2018 to the first half of 2019, WeWork roughly doubled revenue while keeping losses constant. Their losses went from ~2x revenue to ~1x revenue, which is still nuts, but improving quickly. They also had $1.5 billion in revenue through 2 quarters, and are growing at roughly 100% year over year. If SoftBank can really reign in spending, in 2 years we could be looking at a company that’s cashflow neutral, growing very quickly, with annual revenue in the range of $5-10 billion. From the outside looking in, this seems possible to me, and would result in a company with a valuation much higher than $8 billion.
- ChuckMcM 7y agoWow, that might be a record, IPO to cramdown in 3 weeks. I wonder if Softbank sees some way to convert some of the real estate into assets that it can sell off before the next recession hits to get its money back. I could not find a single thing in that article that suggested anything other than a liquidation that might favor the investors over creditors.
- tibbydudeza 7y agoI wonder what is going to happen to the wavepool company.
- goatinaboat 7y agoSo Softbank will have invested nearly $16Bn (10.5 already + 5 now) in something that even they think is only worth $8Bn? Am I reading this correctly because that makes no sense whatsoever. Except for Neumann who walks away with his $700Mn regardless!
- perlgeek 7y agoIf they've already invested $10.5Bn, that money is gone (especially if WeWork fails). If they truly think they will get $8Bn worth for investing 4-5Bn now, it's a rational choice. Adding your past investments to the tally is an instance of the sunk cost fallacy.
- mushufasa 7y agoWell, maybe you could think about it like this: If they don't intervene, they lose all their previous investment guaranteed. So just consider all of that previous investment gone (sunk cost). If they invest $5b they may make an $8b valuation. And they may still think there is upside beyond that. Not sure if that's what they really think, but a lot of posters here seem to accuse softbank of sunk cost fallacies without considering that they are surely aware of investing 101.
- goatinaboat 7y agoThe sunk cost fallacy has a name because people keep doing it, even knowing what it is
- baby 7y agoLet’s be honest. Wework is good business if they can become cash positive. They have a brand, more and more people are going remote, there is a bug market for pricey and google-like coworking spaces. It doesn’t matter if they had a bad CEO, or if they can’t IPO anymore, there’s no reason this wouldn’t become massively profitable in the next 10 years.
- Danieru 7y agoLots of voices ignoring how Son holds onto stakes. He has yet to liquidate his Yahoo Japan and Alibaba Holdings, and those were massive wins. An embarrassing mistake like WeWork is sure to stay on the books for decades. Selling would force him to mark down the private loss, so more so than winner he will hold I expect. Maybe WeWork can turn cash flow positive, in which case Don can easily justify holding it. So long as he is not forced to mark down then we can continue doubling down. Son is not a guy with an exit plan, he doubles down until bust then waits for the next cycle.
- monkeydust 7y agoDoes softback have strong financiers that can wrestle control over the companies expenditure and balance sheet? Given some of its recent investments at lofty valuations I don't think so. If they can close this gap then I think a turnaround is possible over time. The brand will recover.
- jamesfisher 7y agoLol at the title. Imagine citing "Sources" in a paper. If you can't state your sources, just leave out the citation.