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After WeWork, SoftBank’s Startup Bookkeeping Draws Scrutiny

bloomberg.com

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Re: After WeWork, SoftBank’s Startup Bookkeeping Draws Scrutiny

#11

Post by castratikron »

carrozo wrote: post #3

When SoftBank buys shares in a startup and then invests again at a higher valuation, Son says he has made a profit. That is legal under accounting standards, but SoftBank receives no money. The only change is that SoftBank has boosted the value of its original stake from, say, $1 billion to $2 billion by raising the value of the startup. In SoftBank’s income statements and return calculations, at least some of the ad…

That's known as unrealized capital gains, which is a totally normal thing to measure. But what's important is how the value is determined. With a company on the public market you theoretically have millions of actors constantly evaluating the price of something using the same information (10K, etc.). If it's a house you have an appraiser from the government to tell you what it's worth. These two examples are considered securities in the US and so everything is federally regulated. But when it comes to valuation of a private company you can pretty much do what you want (see: "community adjusted EBIDTA"). So it's totally possible for a company to be irresponsible and overvalue itself, to the extent where it might be considered fraud if the company ever went public.

Re: After WeWork, SoftBank’s Startup Bookkeeping Draws Scrutiny

#12

Post by chvid »

alexnewman wrote: post #2

Easy dumb money like SoftBank is the greatest enemy of innovation and progress. Just take a look at the first deck. Companies like Uber, Softbank, WeWork all having trouble with funding is an important step in our economy

Dear commenters on HN. Don't bite or spite the hand that is feeding you. The recession will come soon enough.

Re: After WeWork, SoftBank’s Startup Bookkeeping Draws Scrutiny

#13

Post by chewz »

carrozo wrote: post #3

When SoftBank buys shares in a startup and then invests again at a higher valuation, Son says he has made a profit. That is legal under accounting standards, but SoftBank receives no money. The only change is that SoftBank has boosted the value of its original stake from, say, $1 billion to $2 billion by raising the value of the startup. In SoftBank’s income statements and return calculations, at least some of the ad…

Everyone is really doing this. GAAP allows for this. Making value out of hot air. Generating paper profits through re-valuation of assets, especially intangible assets or where there is no mark-to-market.

Softbank had been a little bit more creative then usual (arranging large loans to founders to lead another round of financing) I must admit.

At some point the music stops and then you have a quarter or two of really funny quarterly reports where everyone is taking all skeletons in the closet and repricing them down "due to unpredictable external factors like recession in Botswana or extreme solar activity". And then the game continues.

Re: After WeWork, SoftBank’s Startup Bookkeeping Draws Scrutiny

#14

Post by CalChris »

thetruthwillout wrote: post #4
alexnewman wrote: post #2

Easy dumb money like SoftBank is the greatest enemy of innovation and progress. Just take a look at the first deck. Companies like Uber, Softbank, WeWork all having trouble with funding is an important step in our economy

On the other hand, you can think of dumb money like SoftBank as desparate money and the jobs it creates as workfare in everything but name. Lots of people who would otherwise not get the chance, are getting paid and stuffing their resumes working for these places. These doomed companies are essentially allowing investors to pay for the training of employees who will be adding value to the not-doomed companies that wi…

Workfare. I agree it provides employment but it also bids up salaries. Moreover, anti-unicorns like WeWork make it more difficult for real startups motivated by survival and profit.

Re: After WeWork, SoftBank’s Startup Bookkeeping Draws Scrutiny

#15

Post by claudeganon »

Traster wrote: post #8

The more I hear about this the more it looks like this entire scheme has turned into a pyramid scheme. Pouring more money into investments to try and boost the valuation. Using previous investments to invest and boost the value of new investments, guaranteeing massive loans in order to get others to invest at huge valuations. It just looks more and more like laundering money through all sorts of different mechanisms…

I think that you’re correct and what is happening is that, in our era of extreme inequality, pyramid schemes are being forced farther up the food chain.

It used to be that you could make a pretty penny soaking the lower classes directly with things like MLMs. But as their wealth was hollowed out by globalization and the Great Recession, you have to shift your predation upward to things like their pension funds, sovereign wealth, etc. While the people managing these resources can sometimes be more savvy than your average sucker signing up to a pyramid scheme, it’s very easy to pull one over on them with stories about “technological innovation” (counter to logic or evidence of profitability) because this is the grand, wishful story of our era.

Re: After WeWork, SoftBank’s Startup Bookkeeping Draws Scrutiny

#16

Post by saiya-jin »

chvid wrote: post #12
alexnewman wrote: post #2

Easy dumb money like SoftBank is the greatest enemy of innovation and progress. Just take a look at the first deck. Companies like Uber, Softbank, WeWork all having trouble with funding is an important step in our economy

Dear commenters on HN. Don't bite or spite the hand that is feeding you. The recession will come soon enough.

I'd claim that most folks here aren't directly in this area and couldn't care much. The mostly quiet majority I would call us. And recession? It won't be started by this but bigger forces. A correction might be even healthy for most in long term.

Re: After WeWork, SoftBank’s Startup Bookkeeping Draws Scrutiny

#17

Post by papito »

Traster wrote: post #8

The more I hear about this the more it looks like this entire scheme has turned into a pyramid scheme. Pouring more money into investments to try and boost the valuation. Using previous investments to invest and boost the value of new investments, guaranteeing massive loans in order to get others to invest at huge valuations. It just looks more and more like laundering money through all sorts of different mechanisms…

Thankfully the regulations saved the public before WeWork could enter the stock exchanges. As long as it stays this way, I really don't care if Saudi Arabia sinks billions of dollars into a turkey like I will sink my teeth into one tonight.

Re: After WeWork, SoftBank’s Startup Bookkeeping Draws Scrutiny

#18

Post by nabla9 »

Traster wrote: post #8

The more I hear about this the more it looks like this entire scheme has turned into a pyramid scheme. Pouring more money into investments to try and boost the valuation. Using previous investments to invest and boost the value of new investments, guaranteeing massive loans in order to get others to invest at huge valuations. It just looks more and more like laundering money through all sorts of different mechanisms…

SoftBank bonds account for half of the bonds sold to Japanese retail investors. Ordinary Japanese savers are going to bet burned if SoftBank collapses.

Re: After WeWork, SoftBank’s Startup Bookkeeping Draws Scrutiny

#19

Post by TaylorSwift »

Traster wrote: post #8

The more I hear about this the more it looks like this entire scheme has turned into a pyramid scheme. Pouring more money into investments to try and boost the valuation. Using previous investments to invest and boost the value of new investments, guaranteeing massive loans in order to get others to invest at huge valuations. It just looks more and more like laundering money through all sorts of different mechanisms…

I want to point out that a lot of these valuations are signed off by well-known accounting firms, valuation firms, and consulting firms. If it's really one big conspiracy to prop up valuations via recent financing, loans, or market comparables, then wouldn't one of these parties call it out (well, inherently a lot of these are paid by organizations to do their valuations, so true independence is a question here).

Additionally, corporate management theoretically exercise due diligence, along with the valuation committees and the board looking into the reasonableness of the models and associated inputs and outputs. It would be awkward to say that these valuations are wrong with so many people having their inputs.

Re: After WeWork, SoftBank’s Startup Bookkeeping Draws Scrutiny

#20

Post by papito »

alexnewman wrote: post #2

Easy dumb money like SoftBank is the greatest enemy of innovation and progress. Just take a look at the first deck. Companies like Uber, Softbank, WeWork all having trouble with funding is an important step in our economy

Dumb money makes you complacent and lazy. Every problem looks like a nail. Just add more money and stir, with a splash of arrogance.

Some hardship and tight money leads to innovation and creative thinking.

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