WeWork founder will get $1.7B to let SoftBank take over his company(theverge.com)
theverge.com
WeWork founder will get $1.7B to let SoftBank take over his company
https://www.theverge.com/2019/10/22/20926583/wework-founder-adam-neumann-softbank-takeover-payout
45 comments
This will inspire generations of future businesspeople to do the same. Start a business, paint it like a tech firm, get snowballing investment, and don't worry too much about whether the business can ever actually work.
* was inspired by
* generations of prior businesspeople doing
Let's not forget that Enron, Theranos and WeWork propagated a form of corporate fraud that is not foreign to the modern corporate investment system. There are always opportunities to bolt on corporate structures that juice the plausible metrics and existence of an "investable" moat, but at least in more public markets oriented world of yesteryear, SEC regulations could be put in place to plausibly protect main street investors. In the current engorged state of private capital, many private investors will have to learn due diligence the hard way, or they will lose their shirts to exceedingly savvy hucksters and grifters masquerading as trailblazing mavericks.
* generations of prior businesspeople doing
Let's not forget that Enron, Theranos and WeWork propagated a form of corporate fraud that is not foreign to the modern corporate investment system. There are always opportunities to bolt on corporate structures that juice the plausible metrics and existence of an "investable" moat, but at least in more public markets oriented world of yesteryear, SEC regulations could be put in place to plausibly protect main street investors. In the current engorged state of private capital, many private investors will have to learn due diligence the hard way, or they will lose their shirts to exceedingly savvy hucksters and grifters masquerading as trailblazing mavericks.
> Let's not forget that Enron, Theranos and WeWork propagated a form of corporate fraud
What aspect of WeWork was/is fraudulent?
What aspect of WeWork was/is fraudulent?
Let's start with Community-adjusted EBITDA as far as the more egregious ones go. That was the alarm bell for me.
I think as they dig in to the numbers more there maybe some fraud or very shady accounting that starts to pop up.
That might happen, sure, but the point was rather that you just need to look like you're gonna be something to get paid. This will make everyone who wants to start a business at least tempted to spend more time building a facade than an actual business.
Let's hope WeWork is enough of a cautionary tail for investors that they're much more on guard against this sort of thing.
I don't think being "tech" is the primary thing that's been exploited here. This is an example of "any indicator or metric will be gamed, no exceptions."
For quite some time the standard thesis of VCs has been to "invest in the founder" before other concerns. Look for a dynamic, resourceful, magnetic, go-getter founder and invest in them and the business is secondary. All VCs don't follow this thesis but it's been very popular among less technical VCs probably because less technical VCs are less competent to evaluate aspects of the business other than the founder's personality.
This heuristic is going to give you two sets of people: highly motivated and resourceful visionaries, and sociopathic con artists. The latter far outnumber the former, and without looking at anything but the founder it's hard to tell the difference. In my experience sociopathic hustler types are probably going to look better according to this heuristic since they are generally better at manipulating people and projecting a superficial aura of power and competence. Even the most dynamic looking visionaries are generally spending more of their time being creators and organizers than perfecting their ability to fake being creators and organizers.
This investment thesis gave us Theranos and WeWork among others.
Repeat after me: any indicator or metric will be gamed, no exceptions. If any investment thesis becomes popular it will be exploited by con artists who will learn to fake whatever indicators are being sought. No exceptions. If "invest in introverted nerds with cool tech" became the popular thesis, that too would be gamed. You'd see a lot of sociopaths pretending to be introverted nerds with whiz-bang sounding snake oil "tech." (This has in fact happened in other areas... look into free energy and medical quackery for examples.)
The even more general principle here is that there is no formula that can act as a substitute for constantly engaged and applied intelligence. I think this is a broad principle. If such formulas existed in any domain then the human brain with its high metabolic cost would never have evolved.
If I were a VC my investment thesis would be "each potential investment is entirely unique and must be evaluated by reasoning from first principles." There are patterns of course, but any pattern that's existed long enough to be recognized as such is already "priced in" and is also probably in the process of being exploited. If you see the pattern you are probably too late to profit from it.
For quite some time the standard thesis of VCs has been to "invest in the founder" before other concerns. Look for a dynamic, resourceful, magnetic, go-getter founder and invest in them and the business is secondary. All VCs don't follow this thesis but it's been very popular among less technical VCs probably because less technical VCs are less competent to evaluate aspects of the business other than the founder's personality.
This heuristic is going to give you two sets of people: highly motivated and resourceful visionaries, and sociopathic con artists. The latter far outnumber the former, and without looking at anything but the founder it's hard to tell the difference. In my experience sociopathic hustler types are probably going to look better according to this heuristic since they are generally better at manipulating people and projecting a superficial aura of power and competence. Even the most dynamic looking visionaries are generally spending more of their time being creators and organizers than perfecting their ability to fake being creators and organizers.
This investment thesis gave us Theranos and WeWork among others.
Repeat after me: any indicator or metric will be gamed, no exceptions. If any investment thesis becomes popular it will be exploited by con artists who will learn to fake whatever indicators are being sought. No exceptions. If "invest in introverted nerds with cool tech" became the popular thesis, that too would be gamed. You'd see a lot of sociopaths pretending to be introverted nerds with whiz-bang sounding snake oil "tech." (This has in fact happened in other areas... look into free energy and medical quackery for examples.)
The even more general principle here is that there is no formula that can act as a substitute for constantly engaged and applied intelligence. I think this is a broad principle. If such formulas existed in any domain then the human brain with its high metabolic cost would never have evolved.
If I were a VC my investment thesis would be "each potential investment is entirely unique and must be evaluated by reasoning from first principles." There are patterns of course, but any pattern that's existed long enough to be recognized as such is already "priced in" and is also probably in the process of being exploited. If you see the pattern you are probably too late to profit from it.
Usually these tricks only work once, or for one generation.
How is it possible that they couldn't get a better deal out of Neumann?
What was he not going to take a quarter of that? If softbank walked his and We's value would have dropped through the floor.
This is so bizarre it feels like there has to be fraud somewhere.
What was he not going to take a quarter of that? If softbank walked his and We's value would have dropped through the floor.
This is so bizarre it feels like there has to be fraud somewhere.
This will put his cash earnings from WeWork at $2.4b+. This man is a genius.
It's not that he is a genius but that his investors were complete idiots.
The odd thing is the main investor, Masayoshi Son has a reputation for being pretty smart. Guess he got carried away?
People were seen as smart for investing in the "new economy" until about 2000.
Thats this guy everyone is talking about. He lost $70B in 2000.
Relatively a genius...
Some chunk of that was loans secured by stock. Presumably the $500M line-of-credit is to refinance.
[deleted]
Have there been any allegations of criminal behavior from the founder? This level of bamboozlement usually includes actual crimes being committed.
The beauty of his "con" is that he did it all in plain view and tacit approval by the board. He didn't need to do anything criminal when he's controlling the company's voting shares.
Even if he owned the majority vote and posts the minor share holders or lenders can demand "proper" business conduct. But getting thorough a court case can be quite an effort and be risky.
almost certain he also got SoftBank /WeWork to defend him in any future case.
Is Masayoshi Son in his own personal 'Brewster's millions' situation somehow?
Ha great reference
How is it that a trainwreck like We* slips past a major financial player? I've seen posts here that were skeptical of We from the beginning, and so many of Adam's financial moves have appeared to be self serving even to laypeople.
Was SoftBank blind to the issues? Was it some form of willful ignorance?
Was SoftBank blind to the issues? Was it some form of willful ignorance?
Uber and lyft are trainwrecks as well. They IPO’d a business that burns money without any hope for profit. We are just witnessing the slow bursting of the current bubble and people are waking up to basic economics again.
It seems to me that Uber's endgame goal is to replace drivers with a reliable, matured self-driving technology. If and when that happens, they can purge their massive fleet of drivers thereby eliminating their largest overhead cost.
Unfortunately there is no realistic way their money will stretch that far into the future.
and also gain an enormous new overhead cost in having to actually own the cars.
Yeah, it's crazy. It's like Softbank's team wasn't even running basic financial models. And once Wall St wouldn't touch it, Softbank never really even made a counterargument in favor of its valuation. It seems like they cut a $10 billion check just based on emotion, but that is just hard to believe. And the bankers on the IPO must have known that it was going to be DOA and took the business anyway just to grab some fees.
[deleted]
The ultimate failing up
This makes me sick. This is not the type of behavior that should be rewarded.
This dangerous trend is growing. Value creation and true innovation are not being rewarded as they should, while corrupt thieves thrive.
This dangerous trend is growing. Value creation and true innovation are not being rewarded as they should, while corrupt thieves thrive.
If I'm clear that the 1.7B is:
$1B in stock purchase $500M in a line of credit $185M consulting fee?
I wonder what the valuation is for the $1B in stock purchase?
$1B in stock purchase $500M in a line of credit $185M consulting fee?
I wonder what the valuation is for the $1B in stock purchase?
It's going to be wild in twelve months when we have the "Bad Blood"-ish book, the attendant sale of the movie rights, and the conservative-libertarian thinkpieces that vaguely defend him.
But also, fuck this guy.
But also, fuck this guy.
This guy got fucked all the way to the bank.
This guy is pretty far left (to the point that he banned meat in his offices). I doubt conservatives and libertarians are going to be bending over backwards to defend him.
There have been multiple articles defending Elizabeth Holmes, and her personal politics are just as liberal.
It's not about defending the person, it's about defending this vague entrepreneurial ideal of the renegade founder, the Jobsian inability to accept the status quo.
It's not about defending the person, it's about defending this vague entrepreneurial ideal of the renegade founder, the Jobsian inability to accept the status quo.
If it turns out this was all an elaborate way to demonstrate the follies and flaws of capitalism, and he takes all his cash and puts it into founding some left-wing movement etc etc then sure maybe then I'll believe he's left wing.
But having a set of [very publicly expressed] personal beliefs that correlate strongly with left-wing positions covers a hefty chunk of the élite (hello various conservation topics, vegetarianism, etc etc). He has, now (and more than likely from now onwards, as will his family), awesome personal wealth and the attendant power that buys, he will get nice things written about him.
But having a set of [very publicly expressed] personal beliefs that correlate strongly with left-wing positions covers a hefty chunk of the élite (hello various conservation topics, vegetarianism, etc etc). He has, now (and more than likely from now onwards, as will his family), awesome personal wealth and the attendant power that buys, he will get nice things written about him.
Leftists are very against this sort of exploitative and unethical behavior. In fact, socialists push for employee ownership (and thus decision-making power) of corporations, precisely so that some schmo at the top can't strip the company and leave (and so people are paid in proportion to the value of their labor).
so they really want his ass out of there.
I bet Neumann was all “ok cool guys I’ll walk away with my $700m and you can write down We to $0 and enjoy that.”
Turns out, SoftBank needs We to be not-dead-yet about $1.7B more than Neumann does.