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4 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 en

4 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 ago
WeWork 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 ago
  Softbanks 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 ago
    Softbank'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.
    - bduerst 7y ago
      Which is still to my point: Softbanks Vision Fund model is not proven yet. It is just as probable it is more a vehicle to find a place for Middle Eastern money to sit than a true 10x fund strategy, which is becoming more evident since they're already working on Vision Fund 2. Requiring Gitlab doesn't translate into requiring office space either.
      - threeseed 7y ago
        Back of a napkin: * Growth in remote workers = 9% per year. * Percentage of remote workers who want an office = 20%. * WeWork market share = 90%. = 1.62% of all workers each year will potentially shift to WeWork.
        gbear605 7y ago
        You think 9% of all workers will switch to being remote every year starting now? By that logic, there won’t be any non-remote workers left in 15 years. The current number is only about 3% [1], so a more reasonable growth number (although still large) is 0.25%, which means (by the rest of your numbers), only 0.045% of all workers (in the US) each year will switch to WeWork. [1]: https://smallbiztrends.com/2018/04/2018-remote-work-statistics.html https://smallbiztrends.com/2018/04/2018-remote-work-statisti...
        flukus 7y ago
        > * WeWork market share = 90%. I think that's where the error lies. WeWork has no lock-in, there's no good reason to choose them over a competitor and it doesn't take much capital to start a local competitor (and there are many already). I was looking at offices like this recently and the most important factor was being close to home which had local competitors. When I look at WeWork locations, they're mostly in the CBD, so they're not even attracting anyone with a local office. It's not even a new business model, just SV hype.
        ohashi 7y ago
        90% market share of office space? That's hilarious
thedudeabides5 7y ago
I mean, if you liked 20% ownership at 50bn, you prob love 70% ownership at $8bn. This is where the value of all that liquidation preference kicks in. At some point it becomes in SoftBanks interest to push for lower valuation, as it means they get to wipe out all the people that came before.
- ivalm 7y ago
  But the reason they liked 20% ownership at $50bn is presumably because they thought they can cash-out at $80bn+. This cash-out valuation was not value-based but growth/hype-based. It seems that weworks will no longer be valued on growth/hype, which means that the value of weworks is much lower. Liking 20% ownership at 50bn doesnt mean you like 70% ownership at $8bn. The value of the company had significant future growth/hype component which required other investors to pour additional money in to keep up the growth, that is now gone.
  - nihonde 7y ago
    They basically bought control of the company for ~$15B. Any valuation north of $20B ought to put them in the black.
    - antaviana 7y ago
      Probably less if we take into account tax credits.
    - ivalm 7y ago
      Big Edit: multiplying is hard, forgot to multiply by the PE ratio! Actually, potential valuation is 660B.. so 20% would mean 3% of US office real estate business. At a less generous pe of ~10 (perhaps more appropriate given they don't own the buildings), it would be about 10% of real estate market. ------ Sure, but $20B valuation seems hard to achieve. US commercial real estate market by revenue is ~$1.1T [0] Office space by value is about 1/8th [1] Regus gross margin is ~16% [2] Real estate generally has good PE ratio but partly because they usually own the property [3], so let's be generous at 30x. So if we value WeWorks as a normal real estate company AND weworks has %100 of US office real estate business we have a valuation of 1100 / 8 x 0.16 x 30 = $660B. Now, weworks exists outside of the US, but the valuation you propose means they must have ~equivalent of all US office real estate. [0]- https://www.ibisworld.com/industry-statistics/market-size/commercial-real-estate-united-states https://www.ibisworld.com/industry-statistics/market-size/co... [1] - https://www.reit.com/sites/default/files/chartjuly92019.png https://www.reit.com/sites/default/files/chartjuly92019.png [2] - http://www.annualreports.com/HostedData/AnnualReports/PDF/LSE_RGU_2017.pdf http://www.annualreports.com/HostedData/AnnualReports/PDF/LS... [3] - https://www.investopedia.com/ask/answers/052815/what-pricetoearnings-ratio-average-real-estate-sector.asp https://www.investopedia.com/ask/answers/052815/what-priceto...
hn_throwaway_99 7y ago
Furthermore, according to https://craft.co/wework/funding-rounds https://craft.co/wework/funding-rounds, WeWork has already received $12 billion plus in equity investments (not counting debt raises). Softbank alone has already put in $9.4 billion in equity + $1 billion in debt. So it looks like they've already destroyed $4 billion+ in value. I'm curious how the more financially astute than I see this as anything besides throwing good money after bad?
- ian0 7y ago
  The underlying value of a company can diverge from its valuation. While obviously this happened when they pitched a $50bn valuation, it could also be happening here. IE Softbank thinks the value is way higher than 8Bn but forced a low valuation as to buy up as much stock as possible.
- JohnJamesRambo 7y ago
  It seems like they haven’t even read the Wikipedia for Sunk Cost Fallacy. In case any SoftBank homies are reading this, here you go. You are investing in the Concorde. https://en.wikipedia.org/wiki/Sunk_cost https://en.wikipedia.org/wiki/Sunk_cost
  - dodobirdlord 7y ago
    I don't think that's really relevant here. The $11B is sunk, the question is whether buying control of WeWork is worth $5B.

4 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 ago

WeWork 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 ago
Softbanks 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 ago
  Softbank'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.
  - bduerst 7y ago
    Which is still to my point: Softbanks Vision Fund model is not proven yet. It is just as probable it is more a vehicle to find a place for Middle Eastern money to sit than a true 10x fund strategy, which is becoming more evident since they're already working on Vision Fund 2. Requiring Gitlab doesn't translate into requiring office space either.
    - threeseed 7y ago
      Back of a napkin: * Growth in remote workers = 9% per year. * Percentage of remote workers who want an office = 20%. * WeWork market share = 90%. = 1.62% of all workers each year will potentially shift to WeWork.
      - gbear605 7y ago
        You think 9% of all workers will switch to being remote every year starting now? By that logic, there won’t be any non-remote workers left in 15 years. The current number is only about 3% [1], so a more reasonable growth number (although still large) is 0.25%, which means (by the rest of your numbers), only 0.045% of all workers (in the US) each year will switch to WeWork. [1]: https://smallbiztrends.com/2018/04/2018-remote-work-statistics.html https://smallbiztrends.com/2018/04/2018-remote-work-statisti...
      - flukus 7y ago
        > * WeWork market share = 90%. I think that's where the error lies. WeWork has no lock-in, there's no good reason to choose them over a competitor and it doesn't take much capital to start a local competitor (and there are many already). I was looking at offices like this recently and the most important factor was being close to home which had local competitors. When I look at WeWork locations, they're mostly in the CBD, so they're not even attracting anyone with a local office. It's not even a new business model, just SV hype.
      - ohashi 7y ago
        90% market share of office space? That's hilarious

thedudeabides5 7y ago

I mean, if you liked 20% ownership at 50bn, you prob love 70% ownership at $8bn. This is where the value of all that liquidation preference kicks in. At some point it becomes in SoftBanks interest to push for lower valuation, as it means they get to wipe out all the people that came before.

ivalm 7y ago
But the reason they liked 20% ownership at $50bn is presumably because they thought they can cash-out at $80bn+. This cash-out valuation was not value-based but growth/hype-based. It seems that weworks will no longer be valued on growth/hype, which means that the value of weworks is much lower. Liking 20% ownership at 50bn doesnt mean you like 70% ownership at $8bn. The value of the company had significant future growth/hype component which required other investors to pour additional money in to keep up the growth, that is now gone.
- nihonde 7y ago
  They basically bought control of the company for ~$15B. Any valuation north of $20B ought to put them in the black.
  - antaviana 7y ago
    Probably less if we take into account tax credits.
  - ivalm 7y ago
    Big Edit: multiplying is hard, forgot to multiply by the PE ratio! Actually, potential valuation is 660B.. so 20% would mean 3% of US office real estate business. At a less generous pe of ~10 (perhaps more appropriate given they don't own the buildings), it would be about 10% of real estate market. ------ Sure, but $20B valuation seems hard to achieve. US commercial real estate market by revenue is ~$1.1T [0] Office space by value is about 1/8th [1] Regus gross margin is ~16% [2] Real estate generally has good PE ratio but partly because they usually own the property [3], so let's be generous at 30x. So if we value WeWorks as a normal real estate company AND weworks has %100 of US office real estate business we have a valuation of 1100 / 8 x 0.16 x 30 = $660B. Now, weworks exists outside of the US, but the valuation you propose means they must have ~equivalent of all US office real estate. [0]- https://www.ibisworld.com/industry-statistics/market-size/commercial-real-estate-united-states https://www.ibisworld.com/industry-statistics/market-size/co... [1] - https://www.reit.com/sites/default/files/chartjuly92019.png https://www.reit.com/sites/default/files/chartjuly92019.png [2] - http://www.annualreports.com/HostedData/AnnualReports/PDF/LSE_RGU_2017.pdf http://www.annualreports.com/HostedData/AnnualReports/PDF/LS... [3] - https://www.investopedia.com/ask/answers/052815/what-pricetoearnings-ratio-average-real-estate-sector.asp https://www.investopedia.com/ask/answers/052815/what-priceto...

hn_throwaway_99 7y ago

Furthermore, according to https://craft.co/wework/funding-rounds https://craft.co/wework/funding-rounds, WeWork has already received $12 billion plus in equity investments (not counting debt raises). Softbank alone has already put in $9.4 billion in equity + $1 billion in debt. So it looks like they've already destroyed $4 billion+ in value. I'm curious how the more financially astute than I see this as anything besides throwing good money after bad?

ian0 7y ago
The underlying value of a company can diverge from its valuation. While obviously this happened when they pitched a $50bn valuation, it could also be happening here. IE Softbank thinks the value is way higher than 8Bn but forced a low valuation as to buy up as much stock as possible.
JohnJamesRambo 7y ago
It seems like they haven’t even read the Wikipedia for Sunk Cost Fallacy. In case any SoftBank homies are reading this, here you go. You are investing in the Concorde. https://en.wikipedia.org/wiki/Sunk_cost https://en.wikipedia.org/wiki/Sunk_cost
- dodobirdlord 7y ago
  I don't think that's really relevant here. The $11B is sunk, the question is whether buying control of WeWork is worth $5B.