WeWork chases new financing as cash crunch looms • Hacker News Board

Re: WeWork chases new financing as cash crunch looms

#91

Post by btmills » Fri, Oct 11, 2019, 5:13 PM UTC

josephjrobison wrote: post #37

Interesting that Goldman Sachs pumped up their valuation to $60-90 billion at one point, but now won’t give them a lifeline: “ Goldman Sachs, one of WeWork’s investors, advisers and customers, had been among a consortium of banks willing to lend $6bn had the IPO succeeded but has so far sat out the new financing discussions out of concern about the level of uncertainty surrounding the company, one person said.”

Matt Levine at Bloomberg had an excellent explanation of the dynamics at play in his newsletter recently [1]. The bankers are incentivized to inflate the valuation in order to win the IPO mandate and all the fees that come with it. They then run into the awkward step of walking back that number to something that the market might accept.

[1]: https://www.bloomberg.com/opinion/articles/2019-09-09/we-mig...

Re: WeWork chases new financing as cash crunch looms

#92

Post by unaxk38 » Fri, Oct 11, 2019, 5:14 PM UTC

paulsutter wrote: post #90

unaxk38 wrote: post #87

Earlier quoted context omitted.

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 dimi…

He surely owns his stock outright, not as options, since he founded the company.

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-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.

Re: WeWork chases new financing as cash crunch looms

#93

Post by sieabahlpark » Fri, Oct 11, 2019, 5:17 PM UTC

unaxk38 wrote: post #92

paulsutter wrote: post #90

Earlier quoted context omitted.

He surely owns his stock outright, not as options, since he founded the company.

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-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.

When you found the company you own the shares. You divy out options when you, the founder, hire or make deals. You could alternatively also give actual shares (usually VCs get a share %)

Re: WeWork chases new financing as cash crunch looms

#94

Post by achow » Fri, Oct 11, 2019, 5:17 PM UTC

In the other news..

WeWork India looks to raise $200 million

https://www.livemint.com/companies/news/wework-india-to-rais...

Unlike other Asian markets such as China and Japan, We Co. operates on a revenue and profit-sharing model with its Indian partner...3 years ago it entered the country through a brand franchise agreement.

Re: WeWork chases new financing as cash crunch looms

#95

Post by htfu » Fri, Oct 11, 2019, 5:18 PM UTC

hn_throwaway_99 wrote: post #14

remarkEon wrote: post #8

Earlier quoted context omitted.

It seems like the value that they are offering is just outsourced-office-management then. Am I wrong in thinking that? It's hard for me to parse what WeWork was "trying" to become. A real estate company that manages offices? An office management company that also does real estate?

That's kind of exactly the point. IMO there are a lot of unicorns out there that have pretty decent business models (Uber/Lyft, WeWork, delivery services, etc.) The problem is they are probably worth much less than their investors paid for them, because everyone is discovering that once the VC subsidies go away after the "growth at all cost" mentality, these are actually pretty low margin businesses that don't warran…

Yup. Other issue for many of them (which WeWork actually should be less exposed to) is that, most of it hardly being rocket science, "blow money until monopoly" seems to forget that customer subsidies

A. aren't r&d/infrastructure,

B. will have to be earned back, and not just 1:1 either...

So even if whatever competition is knocked out, anyone entering the space after that, and not saddled with legacy funnycost, won't need your efficiencies and economies of scale to manage an edge in pricing. And market dominance can't negate lack of friction for eg drivers and riders to run a second, third, fourth app all at once.

But the sun appears to be settling on bizarro cargo culting Amazon being seen as a viable business model.

As a consumer I'll miss it!

Re: WeWork chases new financing as cash crunch looms

#96

Post by cameldrv » Fri, Oct 11, 2019, 5:23 PM UTC

cgh wrote: post #24

I don’t understand how this company employed 1500+ programmers, PMs and data science people. What did they do? I guess not much, as 500 of them got laid off recently.

What's more amazing is that as far as I could observe, the software that they had was terrible. As one example, in order to use a printer, you had to install this enormous, incredibly slow and invasive java program on your computer, which was very difficult to use.

They could have put a couple of developers on something that allowed you to upload a PDF to their website and have it be printed, and it would have improved the experience of their core product significantly.

Re: WeWork chases new financing as cash crunch looms

#97

Post by raiyu » Fri, Oct 11, 2019, 5:25 PM UTC

mlthoughts2018 wrote: post #85

raiyu wrote: post #54

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 w…

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 m…

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.

Re: WeWork chases new financing as cash crunch looms

#98

Post by thenightcrawler » Fri, Oct 11, 2019, 5:27 PM UTC

fjp wrote: post #71

dastx wrote: post #66

Earlier quoted context omitted.

I used to work for a startup bank. They used to always say "we're not a bank, we're a tech company with a banking license"..

Even when I interned it proto-dinosaur Allstate they called themselves "a tech company that happens to sell insurance". It does sound absurd and annoying, but for businesses like that it's good reminder that they'll probably get their market share eaten away if they don't stay on top of things by someone that can move faster or cheaper with their underlying technology stack.

Or they are hoping for a higher stock price by calling themselves tech companies?

Re: WeWork chases new financing as cash crunch looms

#99

Post by unaxk38 » Fri, Oct 11, 2019, 5:28 PM UTC

sieabahlpark wrote: post #93

unaxk38 wrote: post #92

Earlier quoted context omitted.

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-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.

When you found the company you own the shares. You divy out options when you, the founder, hire or make deals. You could alternatively also give actual shares (usually VCs get a share %)

See the axios article. The $400M was a loan to exercise stock options. You can acquire more options after founding a company as part of a bonus or additional comp...

Re: WeWork chases new financing as cash crunch looms

#100

Post by raiyu » Fri, Oct 11, 2019, 5:29 PM UTC

atdrummond wrote: post #56

raiyu wrote: post #54

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 w…

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

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.