A story that has shaken the world of Silicon Valley venture capital is starting to draw to a close, as the co-working space company WeWork accepted a $9.5 billion bailout from the Softbank Group. Until recently, WeWork was considered the biggest “unicorn” ever: while achieving a $1 billion valuation as a startup company is so rare that investors refer to them as “unicorns” or “whales”, WeWork achieved the unprecedented valuation of $47 billion in January of this year. After many months of being courted by bulge-bracket investment banks, the company finally filed for an Initial Public Offering in April, followed by a public S-1 filing in August 2019.
The S-1 revealed enormous cracks in the company’s facade, however, culminating in an 80%+ reduction in valuation. Investors questioned how a company that burned through an astounding $1.6 billion last year could ever turn a profit; pointed out that WeWork was really a real estate company branding itself as a technology company; and began to regard WeWork’s valuation as untenable. Its founder, Adam Neumann had questionable management practices that ranged from leaving a cereal box full of marijuana in a private jet to changing WeWork’s name to the We Company (a name that Neumann had previously trademarked, which he charged the company $9 million for using).
The bailout brings Softbank’s share in the company to 80%; while it continues to have no voting control in the company, Softbank executive Marcelo Claure has been newly appointed as WeWork’s Executive Chairman. While Neumann has negotiated himself a $600+ million exit package, WeWork now faces a difficult road to financial health as it struggles with its enormous liabilities.
Softbank invested in WeWork through Softbank Vision Fund 1, a $100 billion dollar investment vehicle focused on leading growth-stage technology companies. The Vision Fund makes *minimum* investments of $100 million, is backed by exceptionally wealthy limited partners such as the sovereign Public Investment Fund of Saudi Arabia, and has a portfolio that includes Uber, Slack, Doordash, Cruise Automation, 10X Genomics, Guardant Health, NVIDIA, Vir Biotechnology, and Didi.
The Vision Fund’s resources are so unprecedented in scale that they are altering the entire growth equity and venture capital landscape in the Americas and around the world, contributing to the ballooning valuations that indicate bubbles in both the software and biotechnology industry verticals. With this power, however, comes sloppiness - under its pressure to invest such a massive sum of money, its investment team has amassed a reputation within the investment world as being sloppy, ineffective, and too easily influenced by trends in Silicon Valley. While some venture capital investors specifically pride themselves on investing the “right” amount of capital to efficiently help a company and its founders grow, Softbank appears to be so limited by its own size that some investors even consider it a red flag when a company is part of the Softbank portfolio.
Masayoshi Son, the CEO & Chairman of Softbank and a member of the Investment Committee of Softbank Investment Advisers, infamously rests his investment thesis on the idea that Softbank should invest in companies that may grow 300 years in the future. The way things stand now, it doesn’t appear that WeWork will be one of them.
- Arjun Kumar
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