It's funny how it's named Vision Fund and invests in a company like WeWork. I'd be more forgiving if they have lost money investing in companies working for techonological breakthrough like nuclear fission or drug research for incurable diseases. Instead they invested in a real-estate office space sharing company trying masquerade itself as a tech company.
Yet somehow people still seemed to defend the strategy ("you underestimate biotech ROI" or "investing in moonshots was not the point of the fund").
Most criticism is invalid because it misses the underlying flaw of the Vision Fund: If you're going to waste $24+ billion on the Adam Neumann's of the world, you could not have performed any worse by taking on riskier projects.
It was obvious to everyone that WeWork was going to flop (even if Softbank got some money back from an IPO, the ensuing stock price crash would've tarnished their reputation and who knows how quickly they could've exited) and that Adam Neumann was a con. So the return there was going to be heavily negative.
I doubt $10+ billion into drug research would've yielded as negative of results, especially in this era.
The only valid critique of our approach I've heard is that it's a logistical pain to try and spread and manage $100 billion around $5 million at a time.
He made lots of investments but made all his money on Alibaba. In my opinion, he's actually a below average investor, and that bar is pretty fucking low. And it really shows when you look at how horribly the Vision Fund is performing. He got lucky once and has cultivated a personality around it, and people were dumb enough to believe him. He's not the brilliant investor that Warren Buffet is, he's the talented con man that Adam Neumann is. Maybe that's why he was happy to give him so much money.
He got lucky in a big way twice. The reason he was able to lose more money than anyone in history, is because the first time he got lucky like that was with Yahoo when a relatively small investment became worth tens of billions of dollars. He failed to sell though and Yahoo of course didn't have a sustainable position (unlike Alibaba). The epic boom in his Yahoo position is what initially made him famous during the dotcom bubble. It started the mythology of Masayoshi as a finder of those types of investments.
Masayoshi Son seems like someone who started believing like Midas, that anything he touches would turn to gold.
I heard the guy speak, and he seemed full of himself.
And he's taken Saudi money, I would not want to be in his shoes to say the least.
> Masayoshi Son seems like someone who started believing like Midas, that anything he touches would turn to gold.
It is so incredibly common in the investment world to mistake extreme luck for skill and cling to flawed methodologies as if they were gospel because they worked once by chance.
Your typical investment "strategies" are hardly better than someone bringing his lucky shoes to a gambling den.
He is still way better off than your average hs commentor. It will be easy to pivot into anything.. flower shop.. ebay jeans store the sky is the limit.
No. Yahoo US was once worth ~$125 billion ($200b today) and Masayoshi's SoftBank owned 28% of it during the peak bubble days of 1999-2000. [1] Yahoo was a very big deal at the time, it was briefly an Internet juggernaut. That's a key reason why he was so rich during the dotcom bubble. That single position propelled his image and made him famous.
To put into perspective how relatively massive SoftBank's Yahoo position was considered to be at the time in the tech world (and more broadly): if you go back to early 1995, it's a sum comparable to what Microsoft was worth ($30-$35b), and more than Intel was worth. The notion that a tech company could be more valuable than the old industrial giants like GM was still a rather confounding premise.
"WeWork was an opportunistic infection highlighting the poor judgment of SoftBank. Oyo is the beginning of the end for Vision 1 as its brand moves from incompetent to malefactor.
(And he's referenced it several times in other pieces.)
Edited to add the quote from the linked OYO piece.
I read it and thought it interesting and entertaining.
He missed out on one global hotel brand, though, which covers the whole spectrum of cheap lodging to shameless luxury and does so successfully.
Accor[1], offers the whole spectrum from Ibis Budget (used to be Formule 1 and ETAP) up to its Soffitel hotels and does so successfully.
Personally I'm a fan of Ibis. Their offer is consistent and while the rooms are small and cooky cutter generic the beds are always good and the bathrooms work. Plus, they are usually well located and relatively cheap.
So it is possible to have a successful budget hotel chain as part of your global brand and not even compromising your luxury offerings in the process.
That said: You won't catch me dead in an OYO hotel,after seeing a few of those dumps in Malaysia.
I had absolutely worst experience at Oyo. I had an overnight flight from Delhi to SFO and went there to get a few hours of sleep but ended up shouting frequently at their unprofessional staff for making too much noise. I could not get any sleep and thought I could have been better served by just reaching the airport early instead of staying at Oyo. Just adding my feedback here to illustrate that they have absolutely no oversight to maintain the quality standards at the hotels being booked by them.
Ritesh Agarwal the CEO of Oyo, is a bigger con-artist(1) than his fellow Neuman. Now if you indulge me, I propose that he will attribute his failure to Covid-19 and be forgiven unlike his fellow Neuman who didn't had that luck. Oh and an intereting fact, Sequoia just sold all its shares in Oyo, a few months back with a good ROI. Sequoia does make money even with con-artist founders. They are good.
There literally is no Oyo. They took hotels from the bottom x% of hotels, and guaranteed them revenue and got the Oyo sign slapped on the front door.
Who could have thought this would work? Like starting a banana company by white labeling the bottom 1% of bananas in quality with your brand name. All the smelliest, most rotten bananas infested with bugs.
> Who could have thought this would work?
Some enterprising person on Airbnb! Trashy trailers repainted and rebranded as cabins around Redwood National Park. I'm not going back there, but there will be enough suckers if the traffic's heavy.
Incredible that someone actually thought a new splash of paint and a big red brand can make up for the complete lack of culture, training, and motivation at the bottom rung of India's hotel industry.
Did no one realize that they're in the hospitality industry?
I don't think there is any startup with more ill will among customers than Oyo. The brand is completely toxic now, especially among India's younger millennial customers.
It's true Adam Neumann is a con - being a con, though, is not industry specific. Elizabeth Holmes is a con and investors still wasted their money on Theranos, which was more moonshot-esque emerging technology than some office buildings.
Every industry has snake oil salespeople, and the Vision Fund should have put in more due diligence with their choices.
I think the VCs that invested the money into Neumann and Holmes are also snake oil salespeople, hoping to to dump it off on the public markets during frothy times. Is anyone supposed to believe that the smartest people educated at the finest institutions in the world don't know how to do basic due diligence before throwing their money at businesses that don't scale, yet valuing them as if they do?
Or that wealth is not an indicator of anything and some stupid people are rich because of a fragile broken system which doesn't reward based on meritocratic standards always.
In my opinion very few of the smartest, most successful businesspeople attribute their success to anything they learned at an institution. There are essentially no traditional institutions that can teach you how to be a great entrepreneur, identify those people, or help them be successful.
A good entrepreneur knows how to navigate a downturn. A successful entrepreneur gets lucky (or puts themselves in better positions) and isn't afraid to gamble.
There must be some element of that. Wasn't there a company that promised to charge phones over the air with ultrasound? The basic math showed it would never work, but they had lots of VC backing.
Yes, but the con of Elizabeth Holmes was a case of blatant fraud. Obviously investors should work harder to do due-diligence that can uncover actively fraudulent behavior, but you can understand some people being caught out by it. There was very little in WeWork's model that wasn't visibly problematic on the surface.
In WeWork's defense -- and it's cray I have to say that -- you can, in a world where we aren't on covid lockdown, stroll into a WeWork and rent an office at the rates they advertise. I've even worked in one. It wasn't a great experience, but they're definitely not fraudulent or in any way really comparable to Theranos.
Not a good investment, but not fraudulent. Whether they can make money given their model is a matter for CPAs. But they sell a real product at least.
Not a fraud for the customers, at least in the short term. But I think it made even less sense as a business, so I think it's just as much of a con job for the investors.
Think of it as akin to a Ponzi scheme. Early Ponzi investors do fine. They get paid a real rate of return, and often can even withdraw their money. Does that make it less of a fraud? Nope. It just means the house of cards hasn't collapsed yet.
Fair, but did they lie to investors, or did they just sell a (really) optimistic story? Particularly that consumer/business preferences would change for tiny crappy loud pay-by-the-month offices?
If folks like Vision can't be considered sophisticated, and capable of making up their own minds about the likelihood of a financial model working, and whether they like a somewhat-self-serving ownership structure, I don't know who can.
I think a lot of scammers don't start out as calculated liars. They're people who are good at talking big and promising the moon, but they get in over their heads. They weren't sure what they were saying is false, but neither did they do the work to be sure what they were saying is true.
Ultimately, I don't think it matters. Whether they meant to or not, they're running a scam.
I think our disagreement is if there is a set of circumstances under which WeWork could have worked as a company. I think there probably is, albeit low probability. See also Blue Apron. Probably a dead company without covid; maybe rescued by our current circumstances.
edit: I also think my attitude is partly influenced by the fact that successful companies are often quite lucky. Why did facebook succeed when a thousand other social platforms died? Why did Youtube beat all the other video startups? Instagram ... etc. Some of those probably looked like scams that, in some path dependent way, happened to work out.
Successful companies are quite lucky, and YouTube is a fine example. But there was never any question that some company would achieve dominance in the market.
In contrast, there is no world in which WeWork would ever work as it was sold, and their failure does not open the way for somebody else to win. In theory, they weren't just going to rent desks to people; they were going to transform the very nature of work through technology and culture. In some hazy way that would allow them to gain the kind of pricing power that lets the FAANGs mint money. That didn't and couldn't happen; there's no natural monopoly to be had in offices, and their technology was nothing more than spray-on glitter.
WeWork was always, in the Frankfurt sense [1], bullshit. I don't know Masa actually fell for it or just spotted something that he could bullshit other people about. But again, I don't think it matters, especially at that scale.
I would say the way the founder structured the company and self-delt so highly in his own favor - selling the "We" trademark to the company from himself for several milion dollars, buying buildings himself and then leasing them by the company from himself, etc - was certainly fraudulent.
As in "claiming you're a tech company and inflating your valuation isn't fraudulent".
I believe the GP's point was that, if Theranos hadn't been a fraud, it was a story that investments made sense in. WeWork wasn't, it only "worked" because it was essentially a pyramid scheme where the guy at the top took the money investors brought in, pissed some off it away publicly and then used that to show potential investors how great his company was going.
According to experienced scientists with decades of experience and knowledge about testing blood, there were very clear problems with Theranos' claims.
Yeah there was no technical info on how they overcame the issues with actually maintaining the machines... and how they operated with so little blood.
Competitors and scientists were pretty skeptical. Word has it when they tried to pick up some traditional investors and started asking questions they just got BS and a lot of those investors walked.
From everything I've read and watched on Theranos they were committing major fraud. It's hard to blame investors where the company itself is creating false test results during meetings. As far as I can tell it's way worse than WeWork.
Somebody explain uBeam to me then. They're just a regular startup that everyone with high school-level knowledge of physics knows is bullshit, and yet they're still around.
I think the point was, if you're going to invest in someone reckless, you might as well invest in a reckless company where at least if they deliver what they claim, the returns will be substantial.
At least if Theranos had delivered what they claimed, they would have had a wildly valuable product. WeWork was always transparently just a middle man for real estate.
WeWork's fall wasn't because they failed to deliver what they promised; it's that what they promised wasn't even that valuable in the first place. That is an even more embarrassing miss for an investor to have bought into than to be wrong about tractability, as valuing a business model should be a VC's bread and butter, whereas tractability is a fundamentally hard and niche problem that's different for every business, and an easier place to be misled.
You can't short a company that never went public. I think there were enough skeptics though that would have raked in a few million when it's valuation dropped from $40+ Billion to wherever it's at now.
Of course now everyone claims to have seen it for what it was from the start.
Definitely not me. WeWork was barely on my radar as a thing until the last exorbitant round of funding, to which my reaction was, "seems high, but I don't know much about their market competition or growth prospects." Though it took very little time at all after that for it to look sketchy: CEO paying himself to sell his work product, as CEO, back to the company was a bit of a sign that mass value extraction and/or strip mining was taking place.
Precisely. Hindsight is very 20/20. Although about 5 years ago I visited their office as a student and was quite curious to hear they had a multi billion dollar valuation and only a handful of office spaces...
Wag makes sense. There's a thesis that we've entered into an environment where the sole determination of customer acquisition success is the amount of money you have to burn and the sole determination of the success of a marketplace is acquiring more customers faster than your competitors.
Thus, there exists a winning strategy where you bully everyone else out of the market simply by having deeper pockets and a willingness to eat more pain than anyone else.
What you need to do to demonstrate credible commitment to this plan which involves splashing out way more than is reasonable for any marketplace business so that nobody else even bothers competing with you anymore. Once you've established your top dog post, you can just rake in the disproportionate profits until the end of time.
It's a high risk, high reward strategy but not one intrinsically unreasonable from the outset.
I mean this kind of "tech" really only has one trick: demand stimulation. Don't get me wrong it's a good trick. Facebook and Google are making a killing by doing it.
The idea is just to prove that latent demand for dog walking exists and what's holding it back is the fact that people who would pay for this service don't know how to find someone to do it. Not the craziest idea. There's plenty of stuff that I would gladly pay for if I had any idea how to find someone selling it.
Let's say the latent demand is there - once I've found a dog walker through Wag, why wouldn't the walker and I cut out Wag and spilt that 10% between the two of us?
Nothing, which is the problem with all of these uber-for-x platforms. For anything that happens on a regular schedule the intermediary will be squeezed out rather sooner than later.
Yup every contact we have made through HomeAdvisor, Porch, etc just leaves us their details and a cheaper rate. Churn+New users is clearly non-zero but seems smaller than the valuations suggest.
in return for what? I'd also like to take 10% off the top of some industry - let's say off of lawn mowing. Cool, so now invest 300 million dollars into my lawnmowing app. What value is it providing? what's going to justify that 10% of the lawnmower market? I've got to go and create a few billion more dollars in value before I can skim off some of it and justify a 300 million dollar investment. I've got to grow the lawnmower market by 11% or create 11% more value before the players in the space would find it worth it to give me 10% of it. I don't know if it was clear how a dog walking startup was going to do that.
Reducing the friction of finding a lawn care company to maintain your lawn for the customer and for the lawn care company, reducing the friction of finding customers. 1-800-dentist is a good example in a non-technology driven scenario. They paired potential patients with dentists for a slice of the pie. There are whole industries that just connect customers with people selling things like real estate.
Lawn mowing tech company's competitor is really other adverting platforms and mediums that lawn care companies use to acquire customers. Thats the pie they are eating. 1-800 dentists biggest competitor was the yellow pages in the phonebook.
>Reducing the friction of finding a lawn care company to maintain your lawn for the customer and for the lawn care company
What's the ongoing value? You find a lawn-mower or dog-walker you like, and cut out the middleman by paying them directly. Everyone wins (except your startup).
> You find a lawn-mower or dog-walker you like, and cut out the middleman by paying them directly
and how do you know someone else is willing to walk/mow for cheaper once you start paying them directly? How do you solve disputes, like no-shows, and payment legislations (like GST/VAT etc)?
The platform reduces friction - that's not false. Whether the platform is worth it to reduce that friction is another matter. Esp. for low cost things like dog walking. The value generated by reducing friction must be big enough, relative to the cost of the thing.
What's the ongoing value of a site like Monster or Indeed? Or a cleaning service? There could be some amount of turn-over in these markets, or it could be something where almost all participants in the market only form long relationships. If there's high turnover, there's a decent market to be made being the matchmaker. Maybe not a >$300M market to be made, but there's probably some value in it.
Contracts... for dog walking? Here is the contract: "I give you a $20 bill and you walk the dog, deal? Let's shake on it."
That's how it worked for dog walking and lawn work when I was doing it as a teenager. No lawyers, no paperwork, no signatures, nothing needed to get notarized. No bullshit. KISS principle in action.
>Maybe it's just that companies went public at a much earlier stage back then.
This. My father worked for a few semiconductor startups in the 80's, e.g. Xicor. Liquidity events were trivial compared to now. Small company's with competency and focus could exit with a proprietary tech play which satisfied everyone all around (founders, vested employees, investors, industry). Rinse and repeat for two-three decades and we get the foundations for Information "Tech" startup culture.
Generally actual tech startups don't have a lot of patience.
The tech that Silly Valley was originally built on was hardware with multi-year development cycles. “Tech” as a synonym for “ad supported website” is a very recent thing.
1998 is not that recent any more, to be honest. Though admittedly it wasn't called 'tech' back then, but "dot com". Still, it was the same thing: web service startups.
I am working with several medical tech companies. It is "true" venture funding. The main company has bone implants technology and is a "Billion dollar company" in seven years if everything goes well. Even after four years of R&D revenue is still 18 months away. And that is in the thousands not millions. Full commercial production is about four years away.
Great to see someone else on HN enjoying the special nature of medtech (I consult and advise a few as well). Would love to share notes -> chris(at)medlaunchnow.com
For the past few years it was not unusual for a company to ipo within 12 months of raising a seed round in biotech. In my experience, biotech investors are still using 5 year fund horizons etc which make them far far more impatient than tech investors. Tech has had private markets willing to pour billions in to allow companies to stay private for over a decade (airbnb, uber, etc) at huge valuations, while biotechs have been pushed to IPO ASAP
I work with several biotech companies, I've observed project decentralization also become a large barrier to return on investment. Startups often develop a "go virtual" mindset prior to a lot of their products being ready for deployment. This coupled with the relative complexity of novel biotech products can burn through runway and make big investments riskier than an ad-revenue supported web product.
I have one question related to this - when we are talking these astronomical figures (10s or 100s of billions) - is there actually enough room to create new investment opportunities in such field or would it just bid up the prices on the existing ones and possibly screw up the price/return ratio ?
Biotech does not sound like computer programming - I can't turn my hobby project in to a product or train myself to enter the field in a relatively short amount of time ?
Let's say you redirect a huge amount of money in to biotech startups - are there really that many opportunities waiting to be invested in ? The way I see it is best case scenario is you bid up the market price and drive interest in the industry - but that's going to lag years and there's no reward for the people going in ?
On the other hand real-estate/financial speculation seems almost infinitely scalable in comparison.
Many biotech startups sell themselves for 8-9 figures before their drugs or therapies reach full market maturity, so that they transfer remaining risks to larger pharma companies. If we quantify the post acquisition capital spend by the big pharma then we can get a picture for what kind of follow on investment market is available.
It was obvious to anyone that was looking as of about a year ago.
It was so flagrantly obvious that it didn't even get the chance to make it to the public markets to flop, because it was clearly visibly a bad enough idea for everyone to run screaming before that was able to materialize.
The vision was to create a global monopoly by killing off competitors with artificially low pricing. They tried the same thing with Uber, with some 'driverless fleet' pipe dream thrown in for good measure.
Their tiny little fund isn't powerful enough for that. They can try that when they have a multi trillion dollar fund. The reason why the vision fund failed is pretty obvious. They dump their money into late stage companies without actually checking if the business is viable. This strategy works with very young companies because initial investments are very low. One million here, 5 million there. If 95% of companies fail it doesn't matter because there will be a unicorn or two. With something like Uber or Wework most of the crazy gains are already gone. They are way beyond the seed stage. When you invest into them you must be careful and check that you are spending money on a company that can actually net a return. When you are spending more than a billion each loss hurts a lot.
In a way the "global monopoly" vision does not seem very different from the Hunt Brothers trying to corner the market for silver in 1979/80. The plan is to buy up enough supply to create artificial scarcity. [1]
The problem with this approach is that there just aren't that many robust, natural monopolies. I think that's been a defect in VC investment strategies in Silicon Valley for at least a decade.
Crazy as it sounds, that seems to be the plan. WeWork is already the largest tenant in New York, Washington, D.C., downtown Chicago, and central London.
Uber almost killed Lyft. Had it not been for the 2017 #DeleteUber campaign that started in 2017, Lyft might have ran out of money or forced to concede more US markets.
I exclusively use Lyft ever since I asked an Uber driver if he also drove for Lyft and he casually mentioned that he couldn’t pass their background check...
yup I feel like even in the best case possible, what's the sort of civilisational progress you get out of the sharing economy? I guess okay you can remove some friction and maybe at the end of the day everything is more modular and you're 20% more efficient, but isn't something that has an alleged "300 year vision", supposed to invest into things that change the world fundamentally?
I think it's deeply depressing if one takes a look at the list of most valuable startups how much of them is just consumer goods or services.
I wish there was a bigger role for engineering and science labs like Bell Labs at their peak rather than the dominance that the commercial sector has.
I think part of the problem is that the people who get into an industry to make the world a better place understand that they need to maintain long-term control of their company to achieve that goal, and see that traditional VC funding is somewhat antithetical to that objective. There's no big payout for a VC that takes a minority stake in a company that may never go public and whose goals are probably to provide low-cost services to poor people in developing countries.
If you're bright enough to change the world, you're probably wise enough to anticipate the collision of these two worlds.
Look at Chamath palihapitiya‘s description of social capital. This is what he states he’s attempting to address.
The counter argument is addressed in a debate between Reid Hoffman and Peter Thiel where Hoffman’s pov is that change occurs incrementally and what may not be considered revolutionary today (twitter, etc...) would be considered revolutionary 100 or so years ago.
The problem is that only four companies could bring the technological improvements you talk about to market. They are the only ones because they have achieved monopoly status and should be broken up.
Under the current regime, what is SoftBank to do? Buy four stocks and call it a day? Or pretend to find unicorns that aren’t even tech companies?
This is bar none the saddest comment I have read on HN in recent memory. Do that many of us feel that helpless and useless? Almost every tech we use was started by a single talented and/or dedicated person with the support of a small group of similar people.
This is that small group of similar people, and you may be that person.
the vision fund is like $100 billion right? you don't think that's enough resources to bring about some big change? why are only 4 tech companies capable?
Add Facebook too. But basically hardware is really difficult and we plucked all the easy fruits long way back. A small misstep will kill you (eg: Intel and 10nm).
> But basically hardware is really difficult and we plucked all the easy fruits long way back.
Remember the old saw "You only use 10% of your brain."? Yeah, that's wrong, but what is almost completely true is "You only use 1% of your transistors."
We have a zillion free transistors and they spend all their time idle--even on tiny, battery powered electronics. We haven't even scratched the surface of what to do with all these transistors.
I have two entire Linux machines that communicate in such a way merely to open a door. And I only feel slightly guilty about being that wasteful. :)
Everybody programs embedded hardware with dongles with underpowered microcontrollers. Why? Put an entire Linux computer behind it (RPi or Beaglebone)--now what can you do?
The current failure of tech is lack of imagination. Or, perhaps more charitably, lack of competent implementors (hardware and software) with imagination.
Transistors are free--now let's build something out of them.
The belief that offices are going to get more fungible is rapidly approaching I think, the problem is the "vision" that WeWork was selling wasn't actually going to be achieved by their business plan. It reminds me of California City, California, a master planned city that few wanted to actually live in. Tack on the other "We" companies which were clearly there to create an ecosystem.
The problem I think still comes down to margins - WeWork couldn't figure out how to actually make buildings vastly more efficient.
I find that even in the workplace, amongst people who are not billionaires, there is a clear tendency for people to be utterly disinterested in technical work. Everyone has a reason for the things they do, and I don't think the answer is often: "Gosh, this is so interesting."
To me, this translates into: "I want to invest in the amazing next big thing, but actually I am not interested in how to get to the amazing next big thing." So the billionaires are just the same as the ones who are not billionaires.
Sadly they just followed online+offline trends. Thought WeWork is barely a software company. Their soft is very low and horrible feels like it's been written way before WeWork was actually funded.
$100bn is a lot- but not as much as you seem to think. It's not the amount to move the needle on something like nuclear fission and drug research, which have a multiple of this budget annually. They picked verticals where production deployments were already feasible and the diff between dominating the space was a capital moat- ride sharing, office sharing, etc.
I'm actually not happy with this news. They are the only one interested on some of the long term researchy projects especially in robotics area. In my opinion, this would be one of the highest impact area in next 10 years given all the advances in computer vision and reinforcement learning. It will take time, but imagine, one day, freeing up humanity from the burden of all the repetitive mind-numbing boring low paying jobs. You might say that people will lose jobs but I think we will be fine. If you ask where is the $1T business opportunity that would be powered by AI, I would point to this rapidly evolving field. To our misfortune most of the big tech with big wallet have strangely disorganized, if any, efforts. SoftBank is one of the biggest long term game in this area which believes in this promise.
That is how the Vision Fund sold themselves. In practice though, most of the businesses they invested in looked a lot more liked non-innovative, monopolistic, Shock & Awe plays.
He probably means fine in the long term. Nobody laments the loss of farm laboring or a coal mining jobs now that they are (mostly) gone. In fact the farm jobs that haven't been mechanised yet (picking apples etc.) are mostly done by immigrants with no other options.
I did apple pruning one hot summer. Trust me, nobody will miss that job when machines take over.
Tell that to the coal mining communities that were affected by the closing of coal mines by Thatcher in the 80s. From the reduced expectations of the multi-generationally unemployed, to the social isolation that a lack of community services brings, to the paucity of opportunities for both young people and those who want to change career. 40 years later those communities are still dealing with the consequences of these actions.
One thought is that, say, in semi-utopian world robots do infrastructure, farms, mining and even building houses. In that world, basic necessities will become much more cheaper and it might be even possible to institute universal basic income. In fact, I think this is the only few scenarios where UBI can actually become practical without causing inflation. Second point is our economy is slowly but steadily drifting away from these basic necessity jobs to entertainment, entrepreneurship, online services and finance. With UBI in hand, it might be more easier to pursue these high paying jobs. About 100 years down the line, we should expect people to work on more full filling jobs than bagging the grocery, assembling phones or bringing cooked dishes to people.
Some people don't seem to realize there is a limit to how much of added value a low skilled person can bring to the market. Plenty of people are essentially unable to contribute anything more complicated than their muscle power, others can contribute vision and recognition (professional drivers) - and this goes on and on in a continuum. There already is a class of people - low skilled, low IQ, poor mental health - that are essentially unemployable unless you need to dig trenches by hand. And the bar will keep rising and rising.
Moral of the story: extreme wealth is a function of luck, assuming otherwise will only make you look foolish. Masayoshi Son has tried to prove otherwise and largely failed. Appreciate your luck, not your ego, you won't make as many stupid decisions that way.
This is not a good moral. You’re generalizing from one example.
Warren Buffett has made many successful investments for example, over a damned long period. There’s clearly skill in his story. Skill that Masa didn’t have.
Yeah, its insane to claim talent isn't orders of magnitude apart. I'm probably a better programmer than 99% of the population, but then I see those insane luajit or llvm people and realize I'm just another noob.
I think you're misunderstanding talent. You always have to compare yourself to people who invested an equal amount of time training the skill.
For example I go to the gym regularly (at least before the pandemic). I'm probably in the upper 10% of the population when it comes to strength. But compared to the regulars in the gym I'm below average.
> Are you saying they're all 10,000x smarter than us?
You don't make billions by being billion times smarter than other people, but by either deploying raw materials, or labor or capital to scale billion times more.
But in order to do that, you can't be 1x of the average person (generally speaking), but you don't need to be billion times better either.
That’s different than what your article claimed. It said it was all luck.
I have no trouble believing that there is someone theoretically more talented than Warren Buffett who a less lucky life. I have great difficulty believing Buffett is untalented.
Any of his investments could've gone bad through no fault of his own. You can be the smartest person in the room and still get punched in the face, metaphorically, when an unknown unknown presents itself. Buffett himself bet $1 million that index funds were superior to active management (and won) [1].
Buffett did have losses! And made mistakes. And you’re missing the point. I’m not arguing Buffett himself didn’t have luck. He himself has written extensively about this.
But he also had skill. Luck + skill. Why some believe it must be one or the other and not both baffles me.
Sort of. I'd say the best things he got from his father were:
* A good upbringing
* Early exposure to stock brokering (his dad ran a small brokerage)
* Being sent to university and having his costs covered
Warren actually made the bulk of his early money himself, I think. He ran an enormous paper route operation, and also repaired and sold pinball machines at a large profit.
He started all this around age 11 and it grew from there. He had amassed $5,000 by age 14.
But not having to take money out for university made a lot of difference I expect. It would have cut his compounding. I don't remember him getting much in the way of inherited wealth from his father though.
It's been over a year since I read his bio, so perhaps I'm misremembering. Happy to be corrected if you have specific info.
The biggest advantage wealth affords that it allows you to fail, and then get up to try again, because you haven't lost your basic life security (a roof over your head, good food, education, community, healthcare when you're sick or injured).
You get the freedom to experiment without fear of dire consequences, whether that's by building a paper route, repairing pinball machines, or expanding your family's business partnership to buy a textile mill called Berkshire.
If, however, you are child who has to work to put food on the family table, or pay the rent, you're playing a whole different game, one that has life and death implications.
Of course Buffett isn't unique in having the advantage of a financially stable and prosperous family and household. Clearly his entrepreneurial streak started early. But compared to the average person of his time, he did have extraordinary advantages, including a university education, and exposure to investing from an early age through is father's brokerage firm. His experience is not directly comparable to that of most Americans.
This exactly. The amount of money that you are willing to throw away at an investment without any internal resistance is what makes a difference. For many people even though talented, this amount is close to zero. Even more so, if you grow up with this mentality, it is a lot harder to change when you are e.g. in your 30s and already have some buck behind your back to eventually invest in something other than education/property.
Not if you go broke on your first or second hand. Most of us only have enough cash to play one or two hands. If you're the son/daughter of a million/billionaire though, you get to play way more hands, and thus have a much better chance of being successful.
Talent doesn't increase surface area, it increases the probability of success. Wealth is the only thing that can increase surface area. See the problem here?
To continue the metaphor, the table stakes at the tables that provide the big payoffs require the average person to go "all-in".
Whereas a billionaire usually gambles on the margins of their wealth. They definitely don't gamble with the roof over their head or their next meal, or their childrens' security. They can make any non-ergodic game appear ergodic for longer since they can survive many losing hands for far longer than others.
You're right, not pure luck -- it's 99% luck and 1% talent. If Buffet was born the child of a goat herder in Azerbaijan, he would not be anywhere near the position he is today.
Basically, if Buffet's father was anything other than a US Rep and businessman, he never would've stood a chance. He would be working 40 hour weeks making someone else rich like the rest of us.
Correct me if I'm wrong, but I don't think Buffett got all that much money from his family. Probably the best part of his upbringing was early exposure to stocks at a time they were not popular, and having school expenses paid. Lucky, but not like he was handed $1 million, which seems to be what you're implying.
He made his early money repairing and selling pinball machines at a profit, and running a massive paper route operation. He started around age 11 or so.
He got something worth more than $1M. A father who was a US Representative who was smart enough to be operating his own investment firm, and who was probably able to guide him to the right schools and network of people to magnify odds of success. Knowing the right people is such a huge lever in the investment business, especially back in those days without computer trading and internet.
"99% luck and 1% talent" essentially means Buffet's success is down to luck.
There are many many people who were born as privileged as Buffet was, who got as many doors opened as he did, but there is only one Buffet. He may be extremely lucky, or he is a genius. It's impossibly hard to quantify the reasons.
> Basically, if Buffet's father was anything other than a US Rep and businessman, he never would've stood a chance. He would be working 40 hour weeks making someone else rich like the rest of us.
Mark Cuban was a counter example. Or Oprah Wilfrey. They stood a chance despite not having rich parents.
The problem with "luck not skill" people is that they are defining all the elements of skill as a matter of luck.
Bill Gates made Windows which was used by millions of people all over the world, well he got lucky because he was born at the right place in the right time (a point made by Malcolm Gladwell).
Elon Musk/Thiel made billions, well they happen to be at the right place at the right time with Paypal. Once you make billions, then making more billions is super easy, that's not luck, but a function of wealth.
Cope - That's the only explanation for people attributing the success of other people as luck. If it's luck then you're not a failure, just unlucky, but if it's skill then you have to be responsible for your actions and failure.
I don't think there are two camps "luck not skill" and "skill not luck". Most smart people realise it takes both. To become Bill Gates level of success you need luck.
You could argue that middle class to millionaire path could be described as mostly skill and focus, with the luck of not getting wiped out by a disease, jail, lack of motivation or whatever.
The reason to attribute these successes to luck is its fundamental to a lot of industries and particularly to software that success is self-fulfilling. It's not luck that a company became the dominant operating system company in the 90s - it was inevitable, economies of scale and the advantages of a software ecosystem built on top of one common operating system are enormous. It was luck that that operating system happened to be MS DOS/Windows and not one of the dozens of other basically interchangeable operating systems - hell, a different CP/M clone would've ended up on the IBM PC.
You can say it's some sort of coping mechanism, but actually I believe that most of my own success is luck. I would say I'm successful, I'm good at what I do and I'm rewarded very well for it. Skill and hard work are a prerequisite of my success but the success itself is largely down to luck. Skill and hard work are table stakes.
To put the equally uncharitable interpretation of your view of the world: The fact is that most success is significantly down to luck, but people don't like that because everyone wants to be the hero in their own story rather than just someone who got lucky.
> Elon Musk/Thiel made billions, well they happen to be at the right place at the right time with Paypal. Once you make billions, then making more billions is super easy, that's not luck, but a function of wealth.
If anybody thinks building a Space and a Car company is 'easy' is just delusional.
Space in particular has messed up many billionair investors.
I don't think I've ever heard of someone "failing upwards" who's history starts with this:
SoftBank was founded in September 1981 as a SOFTBANK Corp. by then-24-year-old Masayoshi Son, originally as a software distributor. They went into the publishing business in May 1982 with the launches of the Oh! PC and Oh! MZ magazines, about NEC and Sharp computers respectively.[19] Oh!PC had a circulation of 140,000 copies by 1989.[20] It would go on to become Japan's largest publisher of computer and technology magazines and of trade shows.
In 1994 the company went public and was valued at $3 billion.[20] SoftBank agreed in September 1995 to purchase U.S.-based Ziff Davis publishing for $2.1 billion.[21]
warren buffet wasn't making foolish decisions like Son. anyone with the vision fund, could've had a positive return by investing in sound businesses. you won't even need to be smart like Buffet
I haven't been impressed with Masayoshi Son. Although I think that the majority of successful people put hard work into their idea, a significant reason of why they got to the level that they're at is because of luck.
From the news articles I've seen I get the impression that aside from an early investment in Alibaba, SoftBank has a very poor track record. Is that actually true or typical for VCs, or is it just a bad impression from only knowing about them from headlines?
Sometimes VCs are a bit like hedge fund traders. They have a lot of terrible investments but one great one that made them some money and made more people want to invest. Often though there is little indication the initial one success was much more than just luck and they then proceed to lose a bunch of money for the investors that came in based on their “great track record.”
There are of course those that truly do have a great record over a long period of time but they are much less common. We’re coming off a period where VCs and others could probably have thrown darts at the wall and made a half decent return. Now that’s all changed so we’ll see who gets washed out and who can stand on their results long term.
As I think it was Warren Buffet once said, when the tide goes out is when you get to see who wasn’t wearing any pants.
As a bank you could probably hire 30 analysts who make random predictions over a few years. One of them would probably be right and you have your superstar who can attract clients.
Yeah, there's actually an old sports betting scam that works similarly. You send out letters to tons of potential gamblers saying something to the effect of 'The <team>'s games are fixed and I've got the inside info. To prove it, I'll predict the winner of the first n games' Then each week, you send half the group one prediction and the other half the other. Whichever half was wrong, you ignore, and the the 'correct half' you repeat with the next week. After n weeks, you have 1/(2^n) of your original group who've seen you be right each week, and at your desired n, you ask for money to keep going.
The modern version of that is writing a file for each possible outcome to a private Dropbox, and then delete all the wrong files. You can then make the folder public and tout how you clearly wrote it before the tournament began, because Dropbox wouldn’t lie just for you.
It's an interesting scam, but we all know how quickly n grows in this scenario. You'd need 66k potentials to have one correct guess, per team, per season in the NFL. And the "winner" of you lottery needs to have enough scratch to make your scam worthwhile, and be dumb enough to part with it for a peak of your post-season picks.
Yeah, not only you get a bigger pool of victims with a few predictions, and the idea is that you want there to be games left in the season, so they pay you money for the predictions of the rest of the season so they can gamble.
There is an old investment scam where you start with sending a few thousand letters with half saying gold is going up and the other half saying gold is downing down.
Initially, half the people got "good" investment advice. Send another letter to the people who got the "good" advice say the US dollar is going up or down spilt equally. Again, half the people got "good" advice, so send another letter to the people who got two lots of good advice ie a quarter of the original number. Continue to send letters to the "winners" with half saying buy a commodity and the other half to sell the same commodity.
If you started with 2,000 marks after four letters you have 250 people who would have made "a very large ROI" if you had followed our investment advice. Then you sell them some very bad shit or a subscription to your investment newsletter.
Morral: Past performance does not mean it will continue.
This can be done even easier these days. No need to target people. Just start a bunch of twitter accounts, then delete/hide the ones that are wrong. Promote the "correct" one.
I've seen magicians do similar things with prediction tricks.
What hedge funds are you referring to? I ask because in my experience, most hedge funds take a much different approach than VCs. While VCs bet on low probability outcomes with potentially massive payouts, hedge funds usually bet on higher probability outcomes with low payouts. There are some exceptions, but in general hedge funds aim for a consistent return stream. As the saying goes, "bond-like volatility with equity-like returns."
That doesn't happen in hedge funds. Most large funds fire traders after the first risk limit is hit. When you are graded monthly, there is no room for error.
Most of the grousing about hedge funds is because they failed to keep with the market...guess who had the last laugh? I know one fund in particular that was huge, had big outflows because they apparently were out of touch...up 20% this year. Another one converted to a family office...they have been up 50%+ every year. There is also a big difference between the big macro, multi-strategy funds and the equity funds that are basically run with no regard for risk.
I'm not sure I get that impression from their list of investments -- check it out here [1].
The impression I get is that they are into extreme betting so for all their good investments (and they have many good picks), the gains get canceled by a few extreme bets on bad ones. I suppose that qualifies as "bad at investing" by some definitions though to me it feels more like "bad at hedging risk".
VC investment is characterized by frequent losses with the occasional outsized return. From what I've seen, they have a pretty good record with this frame in mind. How do they compare, peer-vs-peer? It's almost impossible to say since so few VC funds are public and because accounting presentation standards can vary wildly.
No, they don't. The average VC does not even return the S&P let alone make significate returns.
You always hear about funds making huge profits but that is for one particular fund for one particular VC. Even the best of them struggle to match 10-year index funds due to their cost structure 2+20%.
Large fund make heaps of money for the GP but not for the investors.
> From what I've seen, they have a pretty good record with this frame in mind.
I've always wondered if this is true over the industry. Obviously the top line VC firms perform quite well, but I'd imagine there is huge survivorship bias here (much like the rest of the actively managed investment industry).
I think uber investment was also working out for them before the coronavirus hit (they paid $10B for 15% stake) . Apart from that I can think of Alibaba, ARM, Supercell, Flipkart that have been successful.
At least I remember them buying and quickly selling SuperCell off for a hefty profit. But that could be partly just luck. I feel they have had sound investment plans but they've also become victims of their own hype. Hype without reality is just delusion. And once you get engulfed with the feeling of self-satisfaction it is difficult to get rid of it.
They did great with Yahoo Japan. Also they pressured the government into guaranteed solar energy purchase rates and they built huge solar farms after the 3/11 Fukushima event.
How did their Sprint investment eventually turn out?
I read an article a few years ago where it was explained that investment is a winner-takes-all market: the top 1% VC firms get 99% of the best companies to invest in, while the rest is left with scraps (numbers as an example, not real). I am pretty sure SoftBank is not in the 1%, no matter how much money they have.
Yeah especially when a recession hits and people lose their jobs so they can finally start freelancing from an expensive desk and pay rent twice instead of working from home while they are struggling to pay rent... oh wait
>According to Forbes magazine, Son's estimated net worth is US$23 billion, and he is the second richest man in Japan,[1] despite having the distinction of losing the most money in history (approximately $70bn during the dot com crash of 2000).[3]
Masa was given money and lost it again? Unthinkable. If he lives long enough to the next late stage bull market will he repeat his signature move? Will people let him? Those that read Irrational Exuberance know the likely answer.
While this is a great misfortune, consider how SoftBank advanced WeWork towards IPO. They were selling a pile of overvalued garbage, hoping that that the rest of the world was as brain dead as its own investors and not notice.
Honestly I was routing for for WeWork to IPO as I had most of my IRA lined up to short them. Yes you can't short in an IRA but I was going to buy near money PUTS against them. I was salivating for months waiting for this windfall, too bad it didn't come to pass :(
>The amount of $ 24,000,000,000 would have in 100 Dollar Notes a weight of 240.00 t (217.72 short tons). A single stack of money with 240,000,000 new banknotes would be 24.00 km (14.91 miles) high und would have a volume of at least 248,373.60 litres (262,453.46 quarts).
>For transportation, you should already have a fleet of trucks.
We Work failure was more to do with bad corporate governance and that was the primary reason Wall street shunned it.
The core problem of VF was pushing companies for growth at all costs which led to companies not focussing on unit economics, not caring about profitability and becoming too big to ever take care of those things. Fixing your unit economics when you are so big is akin to repairing a rocket and changing direction which it is hurtling aggressively to crash. I hope now entrepreneurs will try to build sustainable business hoping for an IPO rather than growing fast to come in eye of VF and take softbank money
The whole point of the Vision fund is to take large longer term risks. Whether WeWork belongs in that category is a matter of opinion (I think not). But you can't judge the fund on one investment or one quarter. People here complain about short termism usually don't they?
I worked at a company once where the ceo was enamored by Masayoshi (who had also invested in our company). He asked me to help him with a presentation he was going to give to masayoshi as part of some kind of competition to be his protege or something.
I remember thinking the whole thing was strange: why was the CEO spending his and my time on a personal competition instead of growing the company, but what did I know, it was literally my first few months in the tech industry. So I did my duty, got a thanks, and the CEO left the company a month later to parts unknown.
Him and masayoshi were hype men, and the latter is obviously good at it. But now we will see if he is great - it’s one thing to hype with unknown track record, it’s another thing to hype when you have some large losses.
Masayoshi has actually had a known track-record since about 2000 or so. He's been the man who's lost the most money in history since about the same. Seventy-billion dollars!
The problem is it's simply a whole lot easier to spend $100 Billion when you do it in large chunks. But then fewer bets means less diversification, more risk. It doesn't help that Vision has a few large correlated investments.
In particular, the "Change (C-A)" row of the table does not make sense to me. If it would say "Change (A-C)" (not "C-A") then the "Net sales" and "Income before income tax" columns would make sense but the rest still would not. Does anybody know how to read this?
Its in court, but softbank hasn't paid the corporate structures that controlled wework the money noted in their deal. Its pretty crazy that no one really talks about how weird the weWork corporate structure is: https://twitter.com/tomgara/status/1161762187590995974
All of the "deals with wework" are really deals with different parts of this weird structure.
softbank and son could've taken the monkey blindfolded approach from a random walk along wall street and won't have lost 24bn. hell they could've picked 10 kids and asked them to name coolest things they want and they wouldn't have lost money. you've to be pretty incompetent to lose 24bn
If you're throwing that much money around why not put it in companies like Stripe? Even just putting it in existing big players like Apple would have a good return.
Why dump so much of it in things like Wag?
Did they invest in anything that was actually interesting?
The $24B is a loss as a result of repricing assets and creating reserves. So it is just some virtual moves in the balance sheet of Softbank, a record in a computer essentially. Do not imagine stacks of dollars being burned on some altar.
It seems to me that you're describing the homeostatic feedback loop that prevents wealth concentration beyond a certain point. If the people with all the money were always the best at deploying it for further profit, the concentration of wealth would have no limits. It's because, and when, they screw up, that it stops.
This makes sense. Each person has limited bandwidth...
If the vast majority of the wealth becomes concentrated in very few hands, those hands will simply start making bigger deals.
When you divide an investor's total thinking capacity by the total amount of money they have to invest, you end up with less thought going into each dollar.
The average amount of thinking per dollar drops and you get less efficient allocation of each dollar...
Allocating capital is clearly very challenging and yet the argument which advocates for increased concentration of wealth relies on the assumption that people are getting better at it on a per-dollar basis.
All evidence would suggest that people are getting worse at allocating capital on a per-dollar basis. The more dollars someone has, the less they will care about each individual dollar. An increasingly complex world should require increasingly more thinking going into each dollar.
great exposition. many get so caught up on the government vs corporate dichotomy when considering excess and waste, but size and scope relative to human capacity is the better correlate.
Incredible, with that much money, they could have given every American a million dollars a month, and still have a lot left over. I feel like a million dollars could help a lot of families right now.
I was going to say, more like 13 cents a month, assuming 2% returns, but if you can't get risk-free returns that exceed inflation, then you can't really give anyone any amount per month perpetually with any amount of billions.
I think it's an interesting question, can you and should you even have the option of a risk-free real return? Why should anyone collect money for neither working nor taking risk? It's widely assumed that's what capitalists do, but maybe there is increasing evidence they don't these days because markets are becoming too efficient, and maybe they shouldn't?
