WeWork Co-Founder Has Cashed Out at Least $700M Via Sales, Loans(wsj.com)
wsj.com
WeWork Co-Founder Has Cashed Out at Least $700M Via Sales, Loans
https://www.wsj.com/articles/wework-co-founder-has-cashed-out-at-least-700-million-from-the-company-11563481395?mod=rsswn
173 comments
good for him
I really hate this sentiment. The "if it makes you money it's good" mindset is the core of most corporate moral-rot.
I don't care if what he did was legal, or if it benefitted him as a capitalist. It's unethical, and makes us all question the value of the WeWork ecosystem.
I don't care if what he did was legal, or if it benefitted him as a capitalist. It's unethical, and makes us all question the value of the WeWork ecosystem.
[deleted]
I think WeWork is just a real estate company somehow.
They are really just trying to price the risk spread of taking on long term debt (their leases) and re-lending with short term leases at a higher interest rate.
I would guess this is super high beta (overall market exposure). When the next downturn comes we'll see if they have the capital to survive the credit event.
I would guess this is super high beta (overall market exposure). When the next downturn comes we'll see if they have the capital to survive the credit event.
honestly pretty sure they can buy whatever they want given their funding.
whether that pays off for investors is another story
whether that pays off for investors is another story
[deleted]
Has this model ever worked for long? I wonder how many of these business models are going to survive the next recession.
There is no bad debt, just bad prices. Of course there may be no demand at the correct price. We’ll see how we work did
It's actually the reverse of how a bank makes money, they take on sell long term debts and buy short term debts.
Not exactly encouraging given the failure rate of banks before deposit insurance.
When there’s an economic downturn I would think freelancers and new, small companies are probably going to get hit hardest. Seems like a tough position for WeWork to be in. Even leases on normal office spaces would be getting cheaper.
Why? I see this argument all the time without real backing. The CEO is renting some of his apartment to wework, and that makes wework a real estate company how?
Paywall... alternate link?
It says he's investing the money in real estate and start ups, why not invest in his real estate start up?
Because his real estate start up isn't making a profit, so he can't personally profit from it.
[deleted]
I take your point in principle (founders ought to be committed to their company), but I also see the other argument not to put all your eggs in one basket, so to speak. Of course, I certainly wouldn't put money into a company the founder of which does not believe it will succeed and profit.
I can understand not wanting a founder to protect their nest egg and play it safe.
But at 700M the founder, his children and his children's children can live a life of luxury and will never need to work again.
That seems like it's a little beyond hedging the normal startup risks.
But at 700M the founder, his children and his children's children can live a life of luxury and will never need to work again.
That seems like it's a little beyond hedging the normal startup risks.
Same reason bitcoin millionaires should not buy more bitcoin.
https://www.investopedia.com/investing/importance-diversific...
https://www.investopedia.com/investing/importance-diversific...
Because his paper net worth is more than $10bn, and it's safe to say you might want to take a bit off the table and diversify.
At least he plows it back into his industry... "Since 2013, Mr. Neumann has bought four homes in and around New York City and last year paid $21 million for a 13,000-square-foot house in the Bay Area with a guitar-shaped room."
I always thought the “job creators” need all that money so they can invest in new industry that creates even more jobs. Not sure if buying houses helps with that.
Sounds like you may be onto something novel here...
Sounds like the trickle was patched up.
Sounds like the trickle was patched up.
I heard he purchased a bunch of real estate and then lease them to WeWork and made a killing.
Maybe he would later sell those real estates whose price have been inflated because of WeWork's presence.
It is indeed a real estate company.
Maybe he would later sell those real estates whose price have been inflated because of WeWork's presence.
It is indeed a real estate company.
I would like to see a source for this because I heard the same thing, but don’t want to spread disinformation.
If it’s true, that’s not a good look for him or the company.
If it’s true, that’s not a good look for him or the company.
https://www.wsj.com/articles/weworks-ceo-makes-millions-as-l...
> One of the landlords behind the building was no ordinary owner: It was Adam Neumann, WeWork’s chief executive, who leased the property to WeWork after buying it, according to people familiar with the situation.
> Mr. Neumann has made millions of dollars by leasing multiple properties in which he has an ownership stake back to WeWork, one of the country’s most valuable startups. Multiple investors of the privately held company said the arrangement concerned them as a potential conflict of interest in which the CEO could benefit on rents or other terms with the company.
> One of the landlords behind the building was no ordinary owner: It was Adam Neumann, WeWork’s chief executive, who leased the property to WeWork after buying it, according to people familiar with the situation.
> Mr. Neumann has made millions of dollars by leasing multiple properties in which he has an ownership stake back to WeWork, one of the country’s most valuable startups. Multiple investors of the privately held company said the arrangement concerned them as a potential conflict of interest in which the CEO could benefit on rents or other terms with the company.
So he found a way to make money by buying a few places and renting it to his company. A lot of CEOs seem to find similar tricks. Does it mean that he is the landlord of all the locations of wework? No. Does it mean wework is a real estate company? Certainly not if they are only renting.
I would be interested to see if Jamie Dimon or Jeff Bezos could slip by owning a JP Morgan office building or Amazon warehouse, respectively. You pass it off like it is the norm. If it is normal, please cite several examples that come to mind. The examples cannot include private companies where the CEO is the 100% owner.
Isn't this exactly how McDonald's did it?
To some extent this makes sense for a franchise. It allows McDonalds to use it’s real estate expertise to negotiate the best possible deal, then pass on the deal to the franchisee. If this wasn’t the case, every franchisee would have to become a real estate expert just to open a restaurant.
In the case of WeWork, this isn’t a franchise, WeWork has the ability to own the property outright and lease it out. The CEO owning the property effectively guarantees him a good return on his investment and his rent profit goes into his pocket while WeWork the company passes him the profit.
If there are holes in the logic please elaborate. That is the best I can compare the two.
I’m sure McDonald’s makes a bit of profit off of leasing to a franchisee, although I can’t say. In the case of McDonald’s it seems it is providing a valuable service to a franchisee. No need for a franchisee to try to negotiate property deals, nor put up real estate capital to own the land. McDonalds is effectively cutting out a 3rd Party landowner middleman that could arbitrarily raise rent once the restaurant is opened.
In the case of WeWork, this isn’t a franchise, WeWork has the ability to own the property outright and lease it out. The CEO owning the property effectively guarantees him a good return on his investment and his rent profit goes into his pocket while WeWork the company passes him the profit.
If there are holes in the logic please elaborate. That is the best I can compare the two.
I’m sure McDonald’s makes a bit of profit off of leasing to a franchisee, although I can’t say. In the case of McDonald’s it seems it is providing a valuable service to a franchisee. No need for a franchisee to try to negotiate property deals, nor put up real estate capital to own the land. McDonalds is effectively cutting out a 3rd Party landowner middleman that could arbitrarily raise rent once the restaurant is opened.
When McDonalds is the landlord it also gives them the power to evict the franchisee if they are not following the franchise rules.
Compare to Subway, which also franchises but doesn’t lease property, to see what difference that makes.
Compare to Subway, which also franchises but doesn’t lease property, to see what difference that makes.
So is Subway the good guy or the bad guy in your comparison? I can’t tell based on your phrasing.
I'm not sure there's a good guy or bad guy, but anecdotally, I've been in a lot more poorly-run Subways than poorly-run McDonalds, which is maybe the point the OP is getting at?
Subway has other ways of getting rid of people when it suits them. There was an article posted here recently about the underhanded methods Subway regional managers have used to shut down competing franchisees within their territories. [1]
McDonalds is a much stronger company just based on their ownership of some of the most valuable real estate across the USA.
[1] https://news.ycombinator.com/item?id=20307988
McDonalds is a much stronger company just based on their ownership of some of the most valuable real estate across the USA.
[1] https://news.ycombinator.com/item?id=20307988
Yes I've heard this too. The franchise agreement states that you are behest to wherever McDonald's decides to let you lease. Unable to corroborate though.
How does the analogy "WeWork Founder" ~ "McDonald's Corporation" work precisely?
Ray Kroc is analogous to Adam Neumann.
They both expanded a marginally profitable (and hard to grow) business by expanding a few locations than leveraging the capital to buy real-estate, which allowed them to stop caring about the original and individual franchised business success. Using the massive income of being commercial property landlords, even if the franchises failed, they had revenue growth. Now that Kroc is gone, the reference to McDonald's as a corporation is convenient, since the history is understood and available.
The movie "The Founder" might clear things up.
They both expanded a marginally profitable (and hard to grow) business by expanding a few locations than leveraging the capital to buy real-estate, which allowed them to stop caring about the original and individual franchised business success. Using the massive income of being commercial property landlords, even if the franchises failed, they had revenue growth. Now that Kroc is gone, the reference to McDonald's as a corporation is convenient, since the history is understood and available.
The movie "The Founder" might clear things up.
Did Kroc leased his own real estate to the company he managed? I don’t think so, but I could be wrong.
From what I understand he purchased real estate and then leased it to the franchisees.
https://money.howstuffworks.com/mcdonalds2.htm
Just googling the history, so you can understand what happened, is a minimum when having a discussion about history. Whoever went so far as to wasting a point downmodding me, didn't even do that.
Just googling the history, so you can understand what happened, is a minimum when having a discussion about history. Whoever went so far as to wasting a point downmodding me, didn't even do that.
Please help me understand what happened.
Who owned the real estate? Ray Kroc?
According to https://www.moaf.org/publications-collections/financial-hist... Franchise Realty Corp was owned by McDonald’s.
Who owned the real estate? Ray Kroc?
According to https://www.moaf.org/publications-collections/financial-hist... Franchise Realty Corp was owned by McDonald’s.
> Who owned the real estate? Ray Kroc?
From wikipedia: At the closing table, Kroc became annoyed that the brothers would not transfer to him the real estate and rights to the original San Bernardino location
Regardless of the legal agreements, the intent was the same. Since the beginning of this thread, it looks like nitpicking to avoid concession, so you can believe what you want. GL with that.
To recap, history. Ray Kroc is analogous to Adam Neumann. 2 founders who leveraged real-estate over the initial franchise business. Substituting McDonald's in name for Ray Kroc is a matter of a temporal situation (or laziness).
From wikipedia: At the closing table, Kroc became annoyed that the brothers would not transfer to him the real estate and rights to the original San Bernardino location
Regardless of the legal agreements, the intent was the same. Since the beginning of this thread, it looks like nitpicking to avoid concession, so you can believe what you want. GL with that.
To recap, history. Ray Kroc is analogous to Adam Neumann. 2 founders who leveraged real-estate over the initial franchise business. Substituting McDonald's in name for Ray Kroc is a matter of a temporal situation (or laziness).
Ray Kroc, who controlled McDonald’s, set up a scheme where one part of McDonald’s bought real estate and leased it to another part of McDonald’s (which in turn leased it to franchisees). That’s my understanding at least, it seems you don’t dispute it. The intent was for the company to benefit.
Adam Neumann, who controls WeWork, set up a scheme where Adam Neumann and relatives bought real estate and leased it to WeWork (no franchise model in this case, by the way). The intent was for Adam Neumann to benefit. The analogy is flawed and misleading, the conflict of interests is evident and this anomalous situation is being corrected.
A much better analogy to what McDonald’s did in the beginning is what WeWork intends to do now: https://www.bloomberg.com/news/features/2019-05-15/wework-wa...
“WeWork is creating an investment fund that aims to raise billions of dollars to buy stakes in buildings where it will be a major tenant”
(Still, it’s not exactly the same, I think, as it will be a fund partially owned by WeWork and partially by external investors; I don’t fully understand what was the structure for Franchise Realty but as far as I understand external investors provided loans to that corporation.)
Adam Neumann, who controls WeWork, set up a scheme where Adam Neumann and relatives bought real estate and leased it to WeWork (no franchise model in this case, by the way). The intent was for Adam Neumann to benefit. The analogy is flawed and misleading, the conflict of interests is evident and this anomalous situation is being corrected.
A much better analogy to what McDonald’s did in the beginning is what WeWork intends to do now: https://www.bloomberg.com/news/features/2019-05-15/wework-wa...
“WeWork is creating an investment fund that aims to raise billions of dollars to buy stakes in buildings where it will be a major tenant”
(Still, it’s not exactly the same, I think, as it will be a fund partially owned by WeWork and partially by external investors; I don’t fully understand what was the structure for Franchise Realty but as far as I understand external investors provided loans to that corporation.)
[deleted]
> The movie "The Founder" might clear things up.
The movie The Founder is mostly fake. It's unlikely to clear much up.
http://rayandjoan.com/the-founder/
The movie The Founder is mostly fake. It's unlikely to clear much up.
http://rayandjoan.com/the-founder/
Did Ray Kroc personally own any of the real estate McDonald's was leasing to franchisees?
Yup, it's in the movie: https://www.imdb.com/title/tt4276820/
Nope, it's not the same at all. Wework is the corporation and it's leasing from the founder. McDonald's is the corporation and it leases out to franchisees.
Watch the movie, you obviously haven't.
I have seen the (largely fictitious) movie.
It is not in the movie (which, again, is largely fictitious) that Ray Kroc took personal ownership of properties, and benefitted personally from the corporation he controlled (not counting the above-board appreciation-of-the-overall-corporation, which of course he benefitted from, but capitalists mostly don’t argue with this).
There was an intermediary acting as the owner, and there are no franchisees in WeWork’s case.
WeWork is vastly, vastly more sketchy.
It is not in the movie (which, again, is largely fictitious) that Ray Kroc took personal ownership of properties, and benefitted personally from the corporation he controlled (not counting the above-board appreciation-of-the-overall-corporation, which of course he benefitted from, but capitalists mostly don’t argue with this).
There was an intermediary acting as the owner, and there are no franchisees in WeWork’s case.
WeWork is vastly, vastly more sketchy.
"WeWork is a weird company because it is a real estate company that thinks it’s a tech startup; it seems to have the culture and New-Age-y patter and grandiose ambition and valuation of a tech company. But what if, deep down in its heart, it really is a real estate company?"
"Multiple investors of the privately held company said the arrangement concerned them as a potential conflict of interest in which the CEO could benefit on rents or other terms with the company."
Mr. Neumann "is WeWork’s largest individual shareholder and has voting control over the company, so it is not clear that the board can say no."
https://www.bloomberg.com/amp/opinion/articles/2019-01-16/we...
"Multiple investors of the privately held company said the arrangement concerned them as a potential conflict of interest in which the CEO could benefit on rents or other terms with the company."
Mr. Neumann "is WeWork’s largest individual shareholder and has voting control over the company, so it is not clear that the board can say no."
https://www.bloomberg.com/amp/opinion/articles/2019-01-16/we...
I totally respect what they've done to build such a large company. But tbh, they've never built any tech. My guess is they had such a hard time building the systems they needed that they acquired Meetup.com to address those needs. So deep down, tech-wise, it's really just Meetup.
And Meetup is a shit show, technically. Most of their features don’t work or haven’t been updated in years. Their iOS app require a superstitious pigeon dance to make the notification badge on the app icon go away. Etc, etc.
Levine does some really great working breaking down a lot of these current events.
It’s rare to find a founder being the one who is fleecing the investors instead of the other way around.
Not that rare. Ignoring cases like fraud (old ones - Enron, WorldCom and new cases like Theranos) there's still plenty of things like https://news.ycombinator.com/item?id=17239361
It’s still rare, that’s why Domo and Theranos have so much controversy. ‘Unicorns’ themselves aren’t even that common.
> "WeWork is a weird company because it is a real estate company that thinks it’s a tech startup; [...]"
This quote reminds me of something that was said in the movie The Founder (2016).
https://www.imdb.com/title/tt4276820/
(Spoiler alert, possibly.)
“You’re not in the hamburger business. You’re in the real estate business.”
This quote reminds me of something that was said in the movie The Founder (2016).
https://www.imdb.com/title/tt4276820/
(Spoiler alert, possibly.)
“You’re not in the hamburger business. You’re in the real estate business.”
That movie had some excellent scenes demonstrating systems thinking, particularly the idea of optimising parts a system to improve the productivity of its whole
Do the investors in WeWork just allow him to do this? Did he hide it from them? This seems like an obvious self-dealing situation any experienced investor would be watching out for.
Do investors care? If WeWork succeeds, he can cut into the profits, but it also means he's invested in the company succeeding.
It means precisely that he is not invested in the company succeeding - he makes money either way and can make more by overcharging the company.
"I heard he purchased a bunch of real estate and then lease them to WeWork and made a killing."
Clearly an ethical guy we're dealing with here. I'm sure this will all pan out well down the road.
Clearly an ethical guy we're dealing with here. I'm sure this will all pan out well down the road.
Heheh coughUber*cough
Seriously where’s the vetting VCs are supposed to be doing? Used to be you had to hustle AND have a good idea to have a VC ready company. Now it seems like all you need to do is hustle and be in the tight geographical location (Sillicon Valley) and you will get money for stupid things like this damned Coworking company with free beers.
Seriously where’s the vetting VCs are supposed to be doing? Used to be you had to hustle AND have a good idea to have a VC ready company. Now it seems like all you need to do is hustle and be in the tight geographical location (Sillicon Valley) and you will get money for stupid things like this damned Coworking company with free beers.
At least in the UK, this would not be considered unethical I don’t think.
It’s standard practice to buy a building personally and rent it back to your own company. It’s what accountants recommend you do.
It’s standard practice to buy a building personally and rent it back to your own company. It’s what accountants recommend you do.
That’s fine if you’re the sole owner of your company, but not so much when there are other owners who have collectively invested billions.
That's generally for relatively small businesses, particularly family owned ones - often the premises are owned by the company pension scheme, which is both tax efficient and allows the wealth to be passed onto future generations
It's also not unusual for some larger companies to have their head office owned by the founder / majority shareholder in a separate company, Monsoon and Arcadia in the UK are two examples of this
It's also not unusual for some larger companies to have their head office owned by the founder / majority shareholder in a separate company, Monsoon and Arcadia in the UK are two examples of this
Is he leasing them the properties at fair market rates? If so he might be preventing gouging by not forcing we work to bid against the rest of the market.
If it were strategically important for the company the company should have bought the properties. It's a direct conflict of interest - and one that has been serious enough that they've ended up having to build an entire corporate strategy to deal with. Also, this is not the only conflict of interest: WeWork bought part of an artificial surfing wave pool in 2016 and the only reason anyone can find to do that is the CEO likes surfing.
If this is true then I’m increasingly surprised at how bad VC returns must be for them to think this is a good investment.
It's perhaps the other way around. VC returns are so good that they can make lots of mistakes.
No it’s not:
“achieved an overall return of 11.1% for the year.”
https://globenewswire.com/news-release/2018/10/15/1621269/0/...
See also: https://techcrunch.com/2017/06/01/the-meeting-that-showed-me...
See also: https://techcrunch.com/2017/06/01/the-meeting-that-showed-me...
I might sound super ignorant. But isn't this standard business style for the former soviet nations? It seems unsurprising to me to see a complete capitalization of the opportunity in every legal or legally gray way. Ie. The long game is super risky. Take everything that isn't bolted down while you still can.
Maybe these things are exactly what happen everywhere and I'm just applying a perception of corruption-as-usual.
Maybe these things are exactly what happen everywhere and I'm just applying a perception of corruption-as-usual.
I agree with your assessment. This may be have always been the norm in the USA as well, my naivete maybe be showing here, but this absolutely feels like self-dealing[0]. This seems unethical at the very least. This is the kind of thing that we made nihilistic jokes about in my former home, a Soviet satellite nation.
[0] https://en.wikipedia.org/wiki/Self-dealing
[0] https://en.wikipedia.org/wiki/Self-dealing
Yeah, the big question is why would Masayoshi Son bankroll a super overpriced REIT-like company. That dude is not your random retail investor that couldn't see it for what it is.
In my opinion, SoftBank is a below average VC firm (I used to work for one of their companies and was actually a fly on the wall for some of the strategic fundraising conversations). They just have way more money than everyone else, which is important. But I'm pretty sure they're going to lose money in aggregate. Don't forget this guy famously lost more money than anyone in history.
https://arstechnica.com/information-technology/2012/10/how-s...
https://arstechnica.com/information-technology/2012/10/how-s...
Can you talk about in general terms what you heard that makes you think SoftBank isn't that good at what they do?
The company I worked at was a clusterfuck, to put it mildly. It was going to shut down (this is not public knowledge, and very few of the employees are aware of this) before SoftBank injected a stupid amount of capital into it. I fully understand VC portfolios are about the aggregate, but I do not see how a competent firm could possibly see that as anything other than a waste of money.
When you have that much cash and are expected to deploy it into venture capital, its almost bgg impossible to not put it into companies like wework. You need hugely overvalued companies. You cant sit in your money because your investors (sovereign wealth funds etc) demand to see their money put to work, and you cant invest in strong seed stage companies because they don't move the needle. It means they almost have less power here since they absolutely deploy capital, and Son does not have the sort of goodwill from partners that someone like Buffet has to sit on a giant pile of cash until good investment opportunities emerge.
> Son does not have the sort of goodwill from partners that someone like Buffet has to sit on a giant pile of cash until good investment opportunities emerge.
That sounds like a recipe for disaster.
But yeah, big money doesn't have to be very smart, in principle. Like this pitch, 45 minutes for $45B dollars from the Saudi prince: https://www.economist.com/business/2019/03/23/masayoshi-son-...
This article has another good quote:
> The stockmarket, for its part, values SoftBank itself at a steep discount to the sum of its listed constituents (see chart 1), despite a $5.5bn share buy-back in February. Worries that Mr Son is paying over the odds are thought to be a big factor. Take WeWork: when Mr Son slashed his investment to $2bn, SoftBank’s shares leapt by 6%.
That sounds like a recipe for disaster.
But yeah, big money doesn't have to be very smart, in principle. Like this pitch, 45 minutes for $45B dollars from the Saudi prince: https://www.economist.com/business/2019/03/23/masayoshi-son-...
This article has another good quote:
> The stockmarket, for its part, values SoftBank itself at a steep discount to the sum of its listed constituents (see chart 1), despite a $5.5bn share buy-back in February. Worries that Mr Son is paying over the odds are thought to be a big factor. Take WeWork: when Mr Son slashed his investment to $2bn, SoftBank’s shares leapt by 6%.
I definitely think that it is a recipie for disaster. Son already lost the most money if any person ever. He's the most qualified person I can think of to do it again.
It reminds me of the movie about McDondals start. Not the same mechanism but similiar modus operandi.
It seemed even more ingenious/mischeviois, because in exchange for franchise deal they leased land to franchisers, not even the parent company. So they didn't milk their company.
Im not sure if thats the whole of mcd corporation income structure, but the movie hinged on this one.
Hope I didnt spoil too much, there's more to the picture anyways.
It seemed even more ingenious/mischeviois, because in exchange for franchise deal they leased land to franchisers, not even the parent company. So they didn't milk their company.
Im not sure if thats the whole of mcd corporation income structure, but the movie hinged on this one.
Hope I didnt spoil too much, there's more to the picture anyways.
The CEO of Hootsuite did this too.
Can you please clarify / expand? The CEO of Hootsuite did what? How?
Hootsuite's CEO bought a block of land where Hootsuite was in partnership with a real estate developer, then got it beneficially upzoned for 'tech' and is now building a tech campus on it.
https://www.theglobeandmail.com/news/british-columbia/vancou...
https://www.theglobeandmail.com/news/british-columbia/vancou...
How is WeWork valued at $47 billion? Is that a value based on business fundamentals, or on what various finance people will collectively play along with?
basically SoftBank said so
Is there a way to get out how much $ in property they own?
47 billion is a lot for an app startup, but if they owned say 40 billion in property, it's a lot less of a stretch...
47 billion is a lot for an app startup, but if they owned say 40 billion in property, it's a lot less of a stretch...
I wasn't able to find hard numbers but every article I find says they have long term leases, they don't buy.
EDIT: This article claims they own no property at all:
https://www.ie.edu/exponential-learning/blog/finance/wework-...
EDIT: This article claims they own no property at all:
https://www.ie.edu/exponential-learning/blog/finance/wework-...
They don't own any of their property in fact a lot of it is owned by the CEO.
How is anything valued today?
https://thereformedbroker.com/2019/06/13/when-everything-tha...
https://thereformedbroker.com/2019/06/13/when-everything-tha...
Wow thank you for sharing this, very interesting read and certainly paints an interesting perspective on the market cap value of WeWork.
Though the growth stocks have traditionally been tech with high margins, or massive markets, it's interesting to see with an eventual IPO if WeWork will fit into this narrative, or if investors will see through that.
Though the growth stocks have traditionally been tech with high margins, or massive markets, it's interesting to see with an eventual IPO if WeWork will fit into this narrative, or if investors will see through that.
I believe WeWork wants to compete with LinkedIn.
After initial signup, which includes charging your credit card, they force you to enter your personal information, your company information including company contact and phone number, and at least one skill on their list of approved professional skills before you are allowed to cancel.
After initial signup, which includes charging your credit card, they force you to enter your personal information, your company information including company contact and phone number, and at least one skill on their list of approved professional skills before you are allowed to cancel.
I am aware of a co working space/incubator with a number of sites in Australia making bulk $$ on selling information on the startups in residence to other firms.
The case that was described to me: a travel company paying around $100k pa for intelligence on travel related startups in residence- they use the data to determine rate of growth and strategic threats so they can either compete, ignore or make an offer to these new businesses.
If we work isn’t monetising their business intelligence then they would be leaving a lot on the table
The case that was described to me: a travel company paying around $100k pa for intelligence on travel related startups in residence- they use the data to determine rate of growth and strategic threats so they can either compete, ignore or make an offer to these new businesses.
If we work isn’t monetising their business intelligence then they would be leaving a lot on the table
Were that not disclosed to potential tenants, that could rapidly turn into a liability; from a PR standpoint but also from the fiduciary responsibility your landlord can't use their position to appropriate confidential information about your business and whore it out to all and sundry.
Why wouldn't you call them out (anonymously)? That sounds highly unethical.
It wasn’t my co working space/I wasn’t working there and I suspect it would have been buried in the t&cs.
I was in wework in sydney at the time and re read our t&cs, my reading was that they could probably do the same but it wasn’t explicit, and if they were they were being sloppy about it (ie they knew my headcount because we had to get passes each time, but there wasn’t a strong program of engagement to find out what each business did, just get on with your work).
This other space I reference actually had people in regular contact with the businesses habiting the space, in order to connect with industry, government grants and other programs etc, so it actually bridged the space a bit more between a coworking space and incubator (without being any specific program)
I was in wework in sydney at the time and re read our t&cs, my reading was that they could probably do the same but it wasn’t explicit, and if they were they were being sloppy about it (ie they knew my headcount because we had to get passes each time, but there wasn’t a strong program of engagement to find out what each business did, just get on with your work).
This other space I reference actually had people in regular contact with the businesses habiting the space, in order to connect with industry, government grants and other programs etc, so it actually bridged the space a bit more between a coworking space and incubator (without being any specific program)
They have a wonky social network web app built into the onboarding and booking process but it's not very good compared to linkedin, facebook, or even google plus. Their booking software itself is actually pretty bad compared to other room booking software out there.
I think you are really, really far off here.
The fact that WeWork sits on certain personal information, but NO information on past jobs, network, etc, should tell you enough.
The fact that WeWork sits on certain personal information, but NO information on past jobs, network, etc, should tell you enough.
thats 5% of his equity if sold at the same valuation of the last funding ($47B).
Its easy to point fingers at rich people, but this seems like a fairly logical cash-out.
More stakeholders means more legitimacy.
Its easy to point fingers at rich people, but this seems like a fairly logical cash-out.
More stakeholders means more legitimacy.
His net worth is listed at $4.1 Billion in Forbes, making this "cash out" about 25% of his net worth. Not 5%.
The concern is that he's cashing out a large $ amount ($700 million) before the IPO, more than he needs to live, which may signify that he values the cash now over holding the stock. Which is not a good look considering the IPO is trying to get people to trade their cash for stock.
The concern is that he's cashing out a large $ amount ($700 million) before the IPO, more than he needs to live, which may signify that he values the cash now over holding the stock. Which is not a good look considering the IPO is trying to get people to trade their cash for stock.
What number of red flags is going to be enough for the tech/business press to start asking questions about how WeWork is being run?
From the outside it looks like another Theranos waiting to happen.
From the outside it looks like another Theranos waiting to happen.
You rent a desk, and they get the money. I can assure you, the desks and the wifi included are real.
Are people spreading such FUD shorting Wework? They are selling a very real service and people seem to pay a lot of money for it. How is this not a good business?
Being a good business tends to involve making money. WeWork lost $1.9 billion in 2018, and expects to lose even more this year.
https://www.axios.com/wework-doubled-revenue-loss-2018-eec75...
https://www.axios.com/wework-doubled-revenue-loss-2018-eec75...
> He has also taken out loans of several hundred million dollars backed by his WeWork shares, people familiar with his finances said.
That's not really "cashing out". The portion of your shares that you've sold, sure, but leveraging investments is just an option that's available once you hit a certain point and it just makes sense to take advantage of it.
That's not really "cashing out". The portion of your shares that you've sold, sure, but leveraging investments is just an option that's available once you hit a certain point and it just makes sense to take advantage of it.
I would be interested in the terms of the loan in the event of a rapid depreciation of his WeWork stock (the collateral), or default. Borrowing against funny money (stock being valued by a non-independent entity, Softbank) isn't any more legit.
EDIT: To the replies, your home and publicly traded stock can be valued and are semi-liquid. WeWork stock is not in the same class of asset.
EDIT: To the replies, your home and publicly traded stock can be valued and are semi-liquid. WeWork stock is not in the same class of asset.
I'm pretty sure it'll be personally guaranteed. The bank takes a flyer that the stock will be worth something, but they are in first place to get paid back if things go south.
It's no more "funny money" than me taking out a HELOC against my own house. WeWork clearly is worth >0% of its current mark-to-market, so as long as the bank picks a good ratio of loan-to-asset-value (10% of a 1B asset? Maybe), it's a decent risk for their loan capital.
It's no more "funny money" than me taking out a HELOC against my own house. WeWork clearly is worth >0% of its current mark-to-market, so as long as the bank picks a good ratio of loan-to-asset-value (10% of a 1B asset? Maybe), it's a decent risk for their loan capital.
It's funny money in the sense that the value of your home hasn't increased by thousands of percent in the past couple of years. Also, a large portion of the real estate industry doesn't consider your house valuation to be one of the greatest boondoggles in real estate history.
It won't be personally guaranteed. Overcollateralized, sure. Maybe he can take out a $3-400m loan against $1bn worth of stock. Also mind that these loans were taken out before the company was valued at $47bn.
Someone who built up that much wealth, even on paper? Every single bank will want to lend him money, at competitive rates. He's going to need / want debt for life to do future deals, even after his WeWork days. You want to be the preferred bank to that person.
Banks would much rather lend out $100m than $1m 100x, as it takes a lot less effort. Hence they like these clients. I think you'd be surprised on the terms he got on those loans.
The more money you need, the easier generally it is to do a deal.
Someone who built up that much wealth, even on paper? Every single bank will want to lend him money, at competitive rates. He's going to need / want debt for life to do future deals, even after his WeWork days. You want to be the preferred bank to that person.
Banks would much rather lend out $100m than $1m 100x, as it takes a lot less effort. Hence they like these clients. I think you'd be surprised on the terms he got on those loans.
The more money you need, the easier generally it is to do a deal.
It does take less effort, but it sure doesn't diversify your risk very well.
And if they are giving excellent rates, it makes you wonder if they really have such a surplus of money that they can't find enough good risks to loan smaller amounts to at much higher rates.
I think it's more, as you mentioned, getting in the good graces of someone that is going to be wealthy the rest of their life.
And if they are giving excellent rates, it makes you wonder if they really have such a surplus of money that they can't find enough good risks to loan smaller amounts to at much higher rates.
I think it's more, as you mentioned, getting in the good graces of someone that is going to be wealthy the rest of their life.
Yes, banks have too much money (I'm not even kidding here, they have too much money and not enough good transactions to lend money for). So if they find someone potentially great (think Elon Musk, Patrick Drahi, John Malone, or this guy) they are all over it.
In all honesty, small businesses are super high risk. This is generally lower risk, because the legal / due diligence / etc will have been done better. Also the likelihood of plain fraud is less.
It's a combination of both. At the end of the day, there are always things that need to be financed. That's whether you're worth a million or a billion. So might as well build up a good relationship. It's easier to establish those relationships with big accounts, but it's also a more competitive environment (so you need to give good rates and not waste time with bullshit offers -- like they often do in retail).
In all honesty, small businesses are super high risk. This is generally lower risk, because the legal / due diligence / etc will have been done better. Also the likelihood of plain fraud is less.
It's a combination of both. At the end of the day, there are always things that need to be financed. That's whether you're worth a million or a billion. So might as well build up a good relationship. It's easier to establish those relationships with big accounts, but it's also a more competitive environment (so you need to give good rates and not waste time with bullshit offers -- like they often do in retail).
"WeWork clearly is worth >0% of its current mark-to-market"
I don't think that's at all clear. They own very little, so what they are "worth" is largely in the form of goodwill. They already have a lot of debt, and the viability of the company for the near future hinges on their ability to continue take on more debt. There are multiple plausible scenarios where the company's value goes negative, including the debt markets turning against them for reasons specific to WeWork or for some more global reason.
I don't think that's at all clear. They own very little, so what they are "worth" is largely in the form of goodwill. They already have a lot of debt, and the viability of the company for the near future hinges on their ability to continue take on more debt. There are multiple plausible scenarios where the company's value goes negative, including the debt markets turning against them for reasons specific to WeWork or for some more global reason.
WeWork certainly could end up being worthless in a few years, but there's also a very good chance that it's not. The current price of a company should be more or less a weighted average of possible outcomes. The only way WeWork would be worth nothing today is if it's guaranteed to go out of business, which is not the case.
It's called collateral. Most illiquid assets are "funny money" until you go to sell -- including a home. Banks determine an intrinsic value (and risk) and lend accordingly.
It's not the cashing out that's unusual. In a vacuum, sure, using investments as collateral for loans is SOP.
Using the controlling share of a company that's planning to IPO in less than six months? That's a bit more unusual. It makes you wonder about the terms, or fuels your imagination with who's fronting the cash for something that risky and what types of situations justify it.
Using the controlling share of a company that's planning to IPO in less than six months? That's a bit more unusual. It makes you wonder about the terms, or fuels your imagination with who's fronting the cash for something that risky and what types of situations justify it.
My guess is they will have to include a few things regarding that in the disclosures.
Super tax efficient too. The loan is not taxed and the interest is often times deductible. You'll probably make money too, but if you don't you can still deduct the expenses you bought, and if it was an investment you can get capital losses against when he really does cash in the shares at a gain.
NY Times might say you "lost $700M" though, to sell some newspapers. Almost no benefit in explaining unless you want the law to get changed - which would benefit nobody.
NY Times might say you "lost $700M" though, to sell some newspapers. Almost no benefit in explaining unless you want the law to get changed - which would benefit nobody.
I don't see how the interest would be deductible. Except for the portion allowed under the mortgage exemption.
And sure, the loan is not taxed. But the money that ends up being used to pay back the loan will have had to be taxed.
And sure, the loan is not taxed. But the money that ends up being used to pay back the loan will have had to be taxed.
Unsure how the US works, but loans for investment purposes in Canada are deductible against the income that the investments make.
Interest is deductible if the loan was used for something profitable. What the loan was spent on can also be deducted if its for something thats intended to be profitable.
Have fun suck- I mean, investors. I don't have much sympathy for them since they had the means to assess this before piling in.
I know nothing about equity or cashing out, but a wework recruiter is trying very hard to get me to come write software at their new office in Utah. Would it be a good move financially? Could I make a bajillion dollars off it?
The only competition is a company with Amazing paternity leave that would really suit my skill set and life style.
The only competition is a company with Amazing paternity leave that would really suit my skill set and life style.
I mean, probably no.
If I could short wework I would.
Softbank is basically setting its own valuations because of the amounts it has to invest.
Wework has a ton of red flag.
Softbank is a major wework investor.
Could I short softbank?
Softbank is basically setting its own valuations because of the amounts it has to invest.
Wework has a ton of red flag.
Softbank is a major wework investor.
Could I short softbank?
Isn't Softbank way to diversified to make any shorting strategy close to impossible ?
Yes, Softbank has total balance sheet assets of approximately $335b, and their total investment in WeWork is ~$6b. But even that overstates it because a big portion of that investment was made via the Vision fund (i.e., other peoples' money).
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You theoretically could enter a short position on wework by creating a custom contract with a shareholder or option-holder
Whatever Softbank burns on this investment may be lost in the noise of the rest of their business.
I'll sell you WeWork shorts at a 40 billion valuation. We'll resolve the short 30 days after the IPO.
How much would you like?
How much would you like?
40 billion? Their last valuation was 47b and they will very likely price their IPO higher than that. Let me know if you want to sell shorts at the same price WeWork prices their IPO at.
Even if you are right and market is wrong, market can keep its view longer than you can afford to keep yours.
(There was a smart quote saying the same, can’t find it)
(There was a smart quote saying the same, can’t find it)
The market can stay irrational longer than you can remain solvent.
"Markets can remain irrational longer than you can remain solvent." -John Maynard Keynes
Though there is some evidence that the quite (like many) is apocryphal.
https://quoteinvestigator.com/2011/08/09/remain-solvent/
Though there is some evidence that the quite (like many) is apocryphal.
https://quoteinvestigator.com/2011/08/09/remain-solvent/
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Often attributed to Keynes, but appears to be an original quote from A. Gary Shilling:
"...the stock market can remain irrational a lot longer than you can remain solvent."
"...the stock market can remain irrational a lot longer than you can remain solvent."
You absolutely can find a private arrangement for a short position if you hold sufficient funds. This kind of thing is incredibly common.
I’ve been playing around with the idea of building on demand phone booth conference rooms (the ones you see in coworking spaces) but reservable in 15m blocks that open with a code from an app. Could partner with coffee shops or even cities for people who need some sound proof time while out and about to take a call, zoom into a meeting while out in public, etc.
Two person conference rooms with a fee would be in demand at any urban coffee shop, since tons of people meet and even do job interviews there.
The big question is real estate because most coffeeshops are already maximizing their space so you’d be limited to the bigger ones.
The big question is real estate because most coffeeshops are already maximizing their space so you’d be limited to the bigger ones.
Yep, true. The single person booths would still be interesting for most remote workers though and don’t take up much space at all
Interpreter booths!
https://www.congressrentalusa.com/equipment_rentals_sales/in...
https://www.congressrentalusa.com/equipment_rentals_sales/in...
What about the soundproof booths they have at airports? Those work wonders even though they are open
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This concept was on Shark Tank a while back:
https://www.prnewswire.com/news-releases/phone-booth-entrepr...
Yeah I’m referring to basically that, except it would be customized so that they’d be pay by 15m and put in public spaces or coffee shops instead of private offices. I have used them at companies I’ve worked for and they’re great, but thinking more about the remote worker or freelancer out in public (not at an office or coworking space) who might want to pay a few bucks in an otherwise loud public space for a quiet place to talk a call.
Goes back to an old New Yorker cartoon. Empty phone booth marked "Talk in Private - $0.25"