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SoftBank to take control of WeWork: Sources

cnbc.com

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Re: SoftBank to take control of WeWork: Sources

#31

Post by threeseed »

OnlineGladiator wrote: post #16
thedudeabides5 wrote: post #15

Earlier quoted context omitted.

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.

They can also wipe out themselves by throwing good money after bad.

Same could have been said for AirBnb, Boston Dynamics, SpaceX etc.

Many of the best companies look like risky bets at the start.

Re: SoftBank to take control of WeWork: Sources

#32

Post by paulsutter »

Traster wrote: post #12

It'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 in…

WeWork had so many excesses, like paying 100% commission to real estate agents. Softbank can cut out such nonsense, not just the tequila and private jets.

Softbank also has full access to the company’s financials and will be in a position to restructure. It’s safe to say they are a lot better informed than we are.

Re: SoftBank to take control of WeWork: Sources

#33

Post by nihonde »

Traster wrote: post #12

It'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 in…

Only time will tell, but SoftBank has the ability to combine WeWork with competing brands and unify the global strategy to unlock Asian markets. Also, getting rid of the old leadership is a net positive, IMO. There’s still a business case here.

Re: SoftBank to take control of WeWork: Sources

#34

Post by threeseed »

bduerst wrote: post #30
threeseed wrote: post #18

Earlier quoted context omitted.

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.

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.

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.

Re: SoftBank to take control of WeWork: Sources

#35

Post by bduerst »

thedudeabides5 wrote: post #15
newfangle wrote: post #11

Earlier quoted context omitted.

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.

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.

Also makes the sale possibility much more likely for the brand and whatever it is they call all that IP that they have.

Re: SoftBank to take control of WeWork: Sources

#37

Post by hari_seldon_ »

philip1209 wrote: post #25
Traster wrote: post #12

It'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 in…

I don't think their brand is "tarnished." The only people they are beholden to are their LPs, who I assume endorsed this deal. None of the actions they have taken as an investor should make others view their money "toxic." WeWork is just going to have to transition from wartime to peacetime. Ben Horowitz has a great article about what this looks like [1]. They're going to clean up the books, stop making risky acquisi…

Can you explain why you think they are not going to be forced to remain in “wartime?”

Re: SoftBank to take control of WeWork: Sources

#38

Post by nihonde »

ivalm wrote: post #23
thedudeabides5 wrote: post #15

Earlier quoted context omitted.

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.

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 gro…

They basically bought control of the company for ~$15B. Any valuation north of $20B ought to put them in the black.

Re: SoftBank to take control of WeWork: Sources

#39

Post by OnlineGladiator »

threeseed wrote: post #31
OnlineGladiator wrote: post #16

Earlier quoted context omitted.

They can also wipe out themselves by throwing good money after bad.

Same could have been said for AirBnb, Boston Dynamics, SpaceX etc. Many of the best companies look like risky bets at the start.

How do you consider Boston Dynamics successful? They are continually sold to new owners because nobody knows how they can generate a profit.

SpaceX likewise is also in a somewhat murky financial position, although I suspect they will come out doing great in the future. My limited understanding is they are avoiding an IPO because their financials are not up to snuff.

AirBnB was heavily derisked before serious investors took notice - YC loves talking about them as an example because they had so much trouble raising a seed round before they skyrocketed into their A round shortly thereafter. Also I suspect AirBnB is actually going to IPO at a lower valuation than their last round, but I realize I am very much an outlier with that assessment.

I understand high risk high reward, but sometimes investors are just being dumb. I feel like you chose terrible examples to make your point. And since all of your examples are private companies it is impossible for us to analyze their finances.

Re: SoftBank to take control of WeWork: Sources

#40

Post by bduerst »

threeseed wrote: post #34
bduerst wrote: post #30

Earlier quoted context omitted.

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.

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 se…

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.

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