I work in the commercial real estate industry, and WeWork has been a hot topic among industry vets for a LONG time. Most RE people I spoke to never understood the hype the company generated or how it was being valuated in the way that it was. Real estate people were talking about NOI and cap rates, while WeWork was talking about Membership Growth and Burn Rates.
In the end, WeWork was a real estate company masquerading as a tech company. Silicon Valley has gotten into this huge frenzy where growth triumphed over every other metric - even profit, and we've gotten to granting ridiculous, multi-billion-dollar valuations for companies that were bleeding money.
This frenzy of expansion and corporate excess was funded primarily by SoftBank, who poured billions and billions into the company because they were enamored with the companies growth (albeit unprofitable) & the companies charismatic leader). The fact that the basic economics of WeWork didn't make sense (take on fixed debt, for variable income) were tossed out the window.
In the midst of all this excess, Neumann and other execs ran WeWork like their own personal piggy bank. Do a little digging via Google and you'll find a laundry list of examples (private jets, outlandish parties, giving friends and family members C-suite positions and lucrative contracts, etc.). One of the more ridiculous stories was when Neumann decided to trademark the logo 'We' under his own name and sold it back to his own company for $5.9M! (this was later reversed after an investor outcry).
Eventually though, the raw numbers outweighed the hype and We Work reached a tipping point. When they announced their IPO and their accounting books were turned open for public market investors to review, the sham was revealed. The company’s value plummeted and what was once a company worth $47B is now on the brink of insolvency…
I think you’re right in saying that SoftBank is in sunk cost fallacy. I really see no way of them ever re-cooping their investment. They’re throwing good money after bad. But they have very few options – they can’t afford the consequences of telling their investors that they lost everything on WeWork. It would sink their entire investment fund program. So, the charade continues, and SoftBank is left to pray that they somehow make a miraculous recovery.
The only winner in this story is Neumann, who walked away with a $1.7B payout. There’s no way his shares are worth anything near that amount, but it doesn’t matter. He owned a majority of the voting shares, so SoftBank had no choice but to buy him out just to get him to step down.
What’s sad is there’s so many employees who are left with nothing. While Neumann sold his shares for $1.7B, their stock options worthless and they are on the verge of being laid off…
In the end, WeWork was a real estate company masquerading as a tech company. Silicon Valley has gotten into this huge frenzy where growth triumphed over every other metric - even profit, and we've gotten to granting ridiculous, multi-billion-dollar valuations for companies that were bleeding money.
This frenzy of expansion and corporate excess was funded primarily by SoftBank, who poured billions and billions into the company because they were enamored with the companies growth (albeit unprofitable) & the companies charismatic leader). The fact that the basic economics of WeWork didn't make sense (take on fixed debt, for variable income) were tossed out the window.
In the midst of all this excess, Neumann and other execs ran WeWork like their own personal piggy bank. Do a little digging via Google and you'll find a laundry list of examples (private jets, outlandish parties, giving friends and family members C-suite positions and lucrative contracts, etc.). One of the more ridiculous stories was when Neumann decided to trademark the logo 'We' under his own name and sold it back to his own company for $5.9M! (this was later reversed after an investor outcry).
Eventually though, the raw numbers outweighed the hype and We Work reached a tipping point. When they announced their IPO and their accounting books were turned open for public market investors to review, the sham was revealed. The company’s value plummeted and what was once a company worth $47B is now on the brink of insolvency…
I think you’re right in saying that SoftBank is in sunk cost fallacy. I really see no way of them ever re-cooping their investment. They’re throwing good money after bad. But they have very few options – they can’t afford the consequences of telling their investors that they lost everything on WeWork. It would sink their entire investment fund program. So, the charade continues, and SoftBank is left to pray that they somehow make a miraculous recovery.
The only winner in this story is Neumann, who walked away with a $1.7B payout. There’s no way his shares are worth anything near that amount, but it doesn’t matter. He owned a majority of the voting shares, so SoftBank had no choice but to buy him out just to get him to step down.
What’s sad is there’s so many employees who are left with nothing. While Neumann sold his shares for $1.7B, their stock options worthless and they are on the verge of being laid off…