"Among the possibilities they discussed was SoftBank serving as an anchor investor in the IPO by buying a significant portion of the roughly $3 billion to $4 billion the company is expected to raise. They also discussed whether SoftBank might invest a chunk of money that would allow We to delay its IPO until 2020, people familiar with the conversations said."
It's weird how the people who are best-informed here seem to be the latest to the party as far as that realisation goes. Why did they (by that I mean, We), even decide to kick the whole IPO process off? Surely they didn't need to do this now?
I think losing $1.9 billion on $1.8 billion in revenue in 2018 (yes, I know it's more complicated than that) has made getting additional capital more difficult. At the same time a self-dealing CEO gives the appearance to investors that he might not be confident that his normal compensation/stock will be worth that much, hence the extraction of value in other ways, leading to concerns about corporate governance that makes private capital more reluctant still. So the IPO is necessary to raise capital, not just to give early investors a soft exit. Now its catching up to them a bit too soon for a maximal IPO, so they're rethinking and perhaps a bit desperately (my interpretation only) going back for more private money.
Yup, which to an outside observer is pretty shocking, given how grossly deficient the S1 is. Another commenter in a different thread posted this informative Jason Calacanis podcast about WeWork:
One part that really resonated is when Calacanis is arguing that, once you become super rich, you need to rely on your authentic, pre-rich friends to give you candid advice (because after you become super rich, you can't really trust new friends when so many folks want a piece of your wealth). Calacanis' idea, which makes sense to me, is that Neumann didn't have a strong enough social base, so that he didn't have anyone candidly telling him stuff like "Umm, you know, this We trademark licensing deal is completely batshit insane and analysts will see this as a giant, bedazzled red flag" before he went ahead and did it.
Insightfully, Calacanis predicted Neumann would walk back the licensing deal, and actually talks about Masayoshi Son being one of the only people that can give Neumann the harsh dose of reality he needs.
I think this is all kind of a moot point, though. It's like WeWork jumped out of an airplane without a parachute and is now going "How do we fix this??" I'd put money down on some form of either (a) a restructuring or (b) essentially being taken over by the major lenders/investors as inevitable.
Softbank cannot let either scenario S or B happen. Masatoshi-san needs the plates to stay in the air for his second fund to come together. He is a man who doubles down until broke. It is both what has made him so successful, and also why I do not buy softbank stock.
[1] The parent reference is to the catch line in Scooby Doo, for those that aren't familiar. And quite well fitting to the situation. https://youtu.be/mbXxgQLlF08
I'm not sure what you mean by late to the party. They were the first ones at this party. WeWork has grown through the charisma of its CEO. Based on past performance, it has worked every time.
They're on the extreme end of "startup realizes public markets will call them on their shit" but you can see why they'd be confident they could pull it off.
Yes, and it caught up to them just a bit too soon for the IPO. Had the CEO been a little less brazen in his self-dealing, they might have pulled it off with more success.
With all the financial strangeness with WeWork and inside deals and etc I would think it doesn't look like a great investment anymore ... is SoftBank just "in too deep" and as far as they're concerned they have to double down?
Patrick McKenzie (twitter.com/patio11) has been relaying some of the bull case, though I don't know whether he's endorsing it, or just relaying it. I don't have time to find his tweets right now, but they're in the past few weeks of his timeline.
Basically:
1) if remote work continues to grow, they become an easy magnet because every company will pay for WeWork reimbursements more readily than some random local expenditure.
2) like AWS, they allow a big financial change: real estate moves from CapEx to OpEx, which is desirable for companies.
The WeWork spaces I've been in have been more professional than most tech company offices I've been in. I'm not a fan of WeWork but I don't think this is at all a fair criticism.
The WeWorks I've been also have quiet facilities, with dedicated offices and conference rooms --- in fact, on a smarter, better tiny-office plan than open-office and cubicle offices. I don't like WeWork, but again, this isn't a valid criticism.
We must have been to different facilities. The dozen I've been to are all primarily open-office spaces with a small handful (literally countable on one hand) of offices and conference rooms.
For Regus, the opposite is true--most of their spaces are cubicles/offices with only a handful of locations offering "open-office" style spaces.
The space we rented from in Chicago had an open-office first floor and then several stories of small private offices --- where the majority of the tenants worked. Everyone I've ever conf-called with who was in a WeWork, including our NY team, when they were in a WeWork in NY, was also in private offices†, or the WeWork phone booths, which are also better than what most private-office startups have.
I don't know what WeWork you're seeing, but the startup employee experience in WeWorks is generally better, from a professionalism and productivity perspective, than typical startup offices --- if only because they've found a way to scale up cost-effective small private offices.
We ultimately moved to a fairly large private office in Chicago (Chicago commercial space is cheap), and I like it more than I like WeWork, and I don't like WeWork the company at all. But the notion that WeWork isn't providing professional office space is just false; the space they provide is, by a wide margin, more professional than tech industry norms provide.
Unless WeWork outside of NY and Chicago is starkly different than WeWork everywhere else, I don't see how this is even a viable argument. I'm eager to see the counterexample you'll provide.
† (I'm not talking about the WeWork conference rooms, which are excellent and highly professional, so much so that people I knew in Chicago would borrow our WeWork conference credits to hold client meetings in even though they had their own non-WW offices)
I'm remote but my company works out of a WeWork and happy hour is a great time to have business development meetings. We also have an office for those that need quiet.
Didn't wework have to switch to kombucha after someone realized that a place where you pay money to hang out all day and drink is in fact a bar and you need a liquor license?
> Are you saying that having beer on tap is either unprofessional or not conducive to actual work? Color me shocked!
>> Didn't wework have to switch to kombucha after someone realized that a place where you pay money to hang out all day and drink is in fact a bar and you need a liquor license?
A "liquor" license and a "beer and wine" license are 2 different things. A beer and wine license is a few hundred bucks (depending on your location), and just requires some paperwork. A liquor license can be over $100k depending on your location.
What is being missed though: WeWork have actually built out a fairly comparable level of capacity to Regus. The difference is that WeWork are heavily concentrated in major cities, whereas Regus is diversified (they have locations in Mongolia and Nepal, I believe).
The reason why is simple: Regus made the mistake of overbuilding in major cities last time round. The US business went into BK, they aren't making that mistake again. In fact, even taking this very capital investment strategy, you can see that they still have substantial swings in their business.
WeWork have built out massive capacity which cannot be filled (in London, they actually have a meaningful market share of new office space). They did this because you can show great short-term results. BK is inevitable.
I would go as far to say: anyone who believes this isn't bullshit has identified themselves as an idiot too (at least, in terms of investment knowledge). This isn't remotely difficult.
>they still have substantial swings in their business
Not really surprising. Some uses--like a conference room for a big customer meeting--are pretty much business necessities. But things like an office for remote employees who mostly just prefer to get out of the house but not work out of free space somewhere are the sort of discretionary expense that companies will chop pretty quickly if they're tightening their belts.
I was curious and looked them up a while back, it was EXPENSIVE compared to other options.
I'm not at all sure how many companies filter "We'll pay for an office for you to work at WeWork... but not elsewhere." In fact most remote work that I've seen isn't interested in paying for any local office space... they want to save on that, not spend more / manage it.
every company will pay for WeWork reimbursements more readily than some random local expenditure
But why would they? Even wealthy companies now insist that most business travel is done in economy class. Big airlines can’t sell business-class seats just by making expense claims easy to file. So why does WeWork think it can sell flashy office space?
Yeah this is the argument I don't get. Tons of companies just give employees who travel a per diem for travel expenses. A per diem for remote work expenses to spend on whatever shared office space you want is not that hard. Filing expenses is trivially easy now and there are tons of apps/services out there that do text recognition on receipts and credit card statements to make the value addition of something like this very close to zero.
Imagine you work for, say, IBM, and your badge grants you a desk, on-demand, at any WeWork office. Or, let’s pretend that you, still at big blue, want a dedicated space for a small project, you work with your WeWork rep to secure a secure dedicated space for the timeline.
At no time in those examples did I have to exchange funds, pass my corporate card, etc.
Speaking as a home remote worker (Salesforce/Heroku not IBM or WeWork) that likes to visit offices sometimes and travels quite a bit, having the option of on-demand access to working spaces with other humans, and a facility-access processes I can rely on, and a facility I can mostly assume will work would be a pretty great upgrade to my work experience.
Expense reports suck. It’s not just the process burden, but making that the norm rather than an exceptional process means that today’s automated-scanning systems will probably put more false-positive-powered issues onto your already full plate.
Removing the process makes it a tool that more people will use. That’s the value prop I see.
The problem is WeWork would end up being just one of a ton of possible vendors who do this. The only thing that's hard to replicate about that business model is the up-front cost of acquiring the properties, but if it turns out to be a thing people value then CBRE and every other big commercial real estate company will dive in. In that environment where your IBMs now have competing products to choose from I don't see WeWork able to pull much in the way of margins.
They are economy class. I don't find them flashy at all. Their offices are tiny, glass enclosed, like fish bowls. I can't imagine working in one of them, and I've heard nothing but terrible feedback from others.
Not taking a position for or against WeWork but I'm not sure that they are particularly flashy, especially when it comes down to the actual office space away from the common areas stocked with beer. What they do offer is some level of consistency and predictability, and there's something to be said about that.
As a side note: The airline analogy isn't correct. Business and Premium Economy products are doing quite well with growth of those two offerings having been quite robust over the last 20 years. I'd say belt tightening did happen, but with respect to first class fares. Easy fix...just rebrand your old first as business!
Your business is still putting you on AA/Southwest/Delta/Etc. though, they're not putting you on some random regional airline. That's the argument as I read it.
I'm not sure flight paths really work as a comparison. There's a limited number of routes and flights. Regional airlines tend to have fewer flights and very specific routes.
Remote workers can often get some budget for a coworking space. Not enough to work there every day. But enough to get out of the house every once in awhile.
There is also just the contingency aspect of it- I had a scheduled power outage in my building when I was working remotely, I could either take off that day, or just find a coworking or other space, but I chose to try a coworking space. Power outages may not be common, but there were also days when I had family in town and such, and just didn't want the distraction.
So I actually have a free wework pass from my online masters degree program. I live about 3 blocks from a large wework that was built in the last couple of years. My company let's me work from home whenever I want. I have a 45 minute commute so I usually WFH on fridays or anytime I have an appointment.
I went a few times when it was novel, but after that I really only use it less than 1 in 5 of my work from home days. And on some of those WFH days, I'll walk to the coffee shop accross from the wework to get an espresso and then go back and work at my house.
Point being, I don't find wework to be a compelling remote work offering when it's free. So it seems unlikely to me that there's very much room to grow in that market.
Personally, I haven't really seen this. People need to get together in conference rooms from time to time for meetings and they rent space for that. However, on the video calls I'm on more or less daily, essentially everyone is in a company location, traveling, or at home. I've know people who did rent a co-working office but it's been the odd exception.
To be fair, most of the remote people I work with are relatively senior and that may make a difference. They probably care less about having the social aspect of an office and they probably tend to have more room at home for, e.g., a dedicated office.
On #2, how does this change from CapEx to OpEx? Unless there's actually a transfer of ownership involved, generally at the end of a lease, traditional releases are already considered operational expenses, not capital.
The issue with SoftBank is that there is only one possible angle: they corner the market, and sell out to everyone else at a higher price.
This implies that yes, they have to double down.
The only issue is that SoftBank appears to be unaware they need an angle. They are unaware that geometry exists. They are unaware that maths exists. They just seem totally unaware.
In my experience, it is often a complete waste of time to look at someone doing something stupid and think: "They probably know what they are doing".
In 95% of cases, near 100% in financial markets, that person is just an idiot.
Luck. Invested in Alibaba and Yahoo JP (and he funnelled money into the latter pre-2001 from other projects to boost revenue). Got money from banks that didn't close him out when they should have (this would have happened anywhere in the world bar Japan and, possibly, Germany).
Son's record as a VC is horrible. He raised something like 6 VC funds before 2001. None produced anything but busts. And he actually invested more capital on the way down.
His only quality is zealotry. This the absolute worst possible trait for an investor (he isn't an investor, he is a salesman).
My assumption has always been that they think over a long enough time scale their investments will become basic defacto infrastructure. Prob entirely wrong, but that's been how I've seen it
They account for half of the bonds issued to retail investors which is significantly smaller than the overall corporate market. Half of all corporates makes little to no sense for anyone who has a cursory knowledge of this space.
I don't really know the vc game. Is this a bit desperate or is it just another day at the office for these guys? To me it sounds like they're really getting nervous
This is a real mess.