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After WeWork, SoftBank’s Startup Bookkeeping Draws Scrutiny

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

#61
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 wonder what Masayoshi is doing these days.

Trying to invest the rest of the Vision Fund v1, so that he can raise Vision Fund v2.

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

#62

The press’s thoughtless repetition of headline valuations didn’t help. Even in this article, WeWork’s $7.8bn expected valuation is quoted unadorned. It’s a number that was derived by the same people and processes as the $47bn, yet one is ridiculed and the other presented as fact.

I agree, seeing those numbers repeated over and over was bad, but as it wasn't a public company, the only information available was from the horse's mouth.

Usually stories did mention their mounting losses and relatively small revenue, once that info became available.

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

#63
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, sover…

Don’t forget “cryptocurrency”

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

#64

Earlier quoted context omitted.

> 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 to create paper gains that don't reflect reality. Is this uncommon? E.g. I don't have any inside info…

Was earn.com acquired at a higher than fair valuation? If so the shareholders of coinbase.com should sue.

It's possible it was "sold at a loss" but the early investors made money.

e.g. by investment round:

   A: $1m for a $10m valuation
   B: $5m for a $40m valuation
   C: $12m for a $100m valuation
A "fire sale" of $15m would yield a profit for Series A investors, a probable loss for B, and a certain loss for C.

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

#65
post #25

"Yet it turned out that Agarwal [founder and CEO of a SoftBank-backed startup] had borrowed $2 billion to finance his share of the purchase" According to a recent article in the Economist, SoftBank encourages its own employees to do the same with SoftBank shares. There is a chance that things go well and they will look like geniusses (like Michael Dell who took his company private in 2013 and returned to markets last…

Dell looks like a great story because the market is up almost 100% since 2013. It's hard to say it was a good decision on Michael Dell's part. He could've bought anything else with leverage in 2013 and it probably would've turned out equally well or better. Dell isn't exactly doing amazingly.

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

#66

The press’s thoughtless repetition of headline valuations didn’t help. Even in this article, WeWork’s $7.8bn expected valuation is quoted unadorned. It’s a number that was derived by the same people and processes as the $47bn, yet one is ridiculed and the other presented as fact.

Well the biggest problem is it's less of a $7.8bn valuation and more of a $3Bn minimum valuation (which is still probably far too high). Startups don't really have valuations like a public company. You don't have anywhere near the same liquidation preferences in public companies as you do with startups. I'm pretty sure the bankruptcy protections aren't as good either. And people keep making these valuation comparison…

> Startups don't really have valuations like a public company

Valuing complicated capital structures is well studied. (Many public companies have complicated cap structures.)

The wrong way to do it is take the top-of-the-stack share price, multiply it by everything outstanding, ignore debt, and equate it to enterprise value. That number means something, but the obsession with it in the Valley incentivised Vision Fund-style antics.

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

#67

Wow...finally. This is happening in public companies too btw. Draper Esprit, Scottish Mortgage Trust, Woodford (he was marking up his "genius" cold fusion play all the way...this is real life, 2019, amazing)...the way positions are marked is very suspect, and the general public just doesn't understand (they see NAV as cash in the bank).

Would you mind going into a little more detail? I'm intrigued, but I don't even know where to start learning more about this.

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

#68

Earlier quoted context omitted.

Was earn.com acquired at a higher than fair valuation? If so the shareholders of coinbase.com should sue.

It's possible it was "sold at a loss" but the early investors made money. e.g. by investment round: A: $1m for a $10m valuation B: $5m for a $40m valuation C: $12m for a $100m valuation A "fire sale" of $15m would yield a profit for Series A investors, a probable loss for B, and a certain loss for C.

Liquidation preference for later rounds might muck up that calculation.

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

#69
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, sover…

Interesting thesis. But I'd guess pyramid schemes (or MLMs) are still all over the food chain and over-represented at the lower tiers.

A variation on this theme, and this has basically been Matt Levine's take on SoftBank if I'm not mistaken: SoftBank, and Adam Neumann in turn, each spotted an opportunity for pyramid schemes at a higher tier of the food chain that hadn't previously been fully exploited. And they exploited it. Perhaps even unwittingly. They were incentivized by the market.

From Levine's 10/23 column:

Look, here I am speculating, and I don’t mean to speak for Neumann’s subjective experience of his WeWork career, but from the outside, in hindsight, objectively, one could describe it like this: He spotted a bubble in venture-subsidized fast-growing money-losing capital-intensive low-margin tech-adjacent companies, noticed in particular that SoftBank seemed to be on the long side of that bubble, and set himself up to profit on the other side—by raising money for his own ultra-unicorn, by setting up the governance of that unicorn in a maximally self-interested way, and by selling and margining a bunch of his personal shares. When investors like SoftBank were frenziedly buying unicorn stock, he was frenziedly selling it. He set himself up to profit from the collapse of the unicorn bubble, and accelerated that collapse. Lessons were learned, and he taught them. Now he’s rich.

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

#70
post #37

I am wondering, if Saudis really wanted to flush $100bn down the drain, wouldn’t it have been better spent to uplift poverty and reduce hunger ? At least that will give them positive news coverage to offset all the bad news.

> At least that will give them positive news coverage to offset all the bad news.

You know what really offsets bad news? Having your hooks deep into the economies of powerful countries to buy their tacit approval of whatever you do.

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