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Comment by wayoutthere | Hacker News Reader

As has been called out by other analyses, the problem here isn’t really WeWork, it’s SoftBank. They thought they could run a pump-and-dump like Goldman did with Uber, but sorely misjudged the market’s view of WeWork.

WeWork is probably legitimately in the $15B range, but SoftBank has really tied themselves in a knot with such a high valuation paired with the downside insurance. They‘re in for an 11-figure loss no matter what, because liquidation preferences and huge losses scare off any serious investors they could potentially find.

My guess is that WeWork ends up getting massively scaled back and sold to one of its smaller competitors for under a billion. They’re just way too overextended to have any value beyond the brand.

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>the problem here isn’t really WeWork, it’s SoftBank

No: WeWork is a huge part of the "problem", with crazy org structure, self-dealing, a "cult of CEO" structure, and a business model that may not be that defensible. Softbank is an enabler.

Let's hope this his "peak hubris" and we're back to more sensible tech IPO attempts.

Softbank are the ones who drove the valuation that high. I agree with the cult of the CEO thing and all, but I’ve always felt the smart money in the valley knew to stay away from WeWork. It was a sucker’s gambit from the start.

Wikipedia is saying that the 2016 round valued We at 16bn which was before Softbank invested. It was already overvalued before Softbank and the corporate governance issues were there before as well.

There is a difference between 20% overvalued on the expectation of future growth and 400% overvalued.

WeWork should be valued around the same as Regus

All of this is true, but it was the SoftBank capital flow that made this all possible until now. The reconinging and reform would have happened sooner with WeWork if SoftBank was not providing "free jet fuel."

>Softbank is an enabler.

Enabler is true, but a lever requires both the rod and the fulcrum the rod pivots on. Without the enabler the lever would not exist.

>No: WeWork is a huge part of the "problem", with crazy org structure, self-dealing, a "cult of CEO" structure, and a business model that may not be that defensible.

Sounds just about par for the course of any SV startup, the only difference is, the critique seems consistent with outsiders criticizing SV startup IPOs, only the shoe is on the other foot and SV is criticizing outsiders for the very concepts it seems to promote within its own little bubble.

WeWork takes this much further than other SV companies. In their S-1 filing, they had to disclose something like 100+ related party transactions: https://www.forbes.com/sites/alapshah/2019/08/19/just-how-un...

Wow, those filings make it seem like the founder was using WeWork as his personal piggy bank. Did I understand it right that he took out a loan from WeWork then used a bonus from the company to pay it back?

He sold the company a trademark for the word "we" for $6M. It was eventually rolled back after media exposure.

There are millions of poorly run shady businesses, it's a problem that takes care of itself if you don't have infinite money coming in.

Not sure that it's a problem now though. Like Matt Levine suggested[0], WeWork did a lot of weird shit when they were private, but now they want public money, they need to behave more like a responsible company. It's kind of what's supposed to happen because of the disclosure, it's just that most of the time companies take care of governance issues before the S-1.

[0] https://www.bloomberg.com/opinion/articles/2019-09-13/we-is-...

I think an under-appreciated aspect is that you can't just have a CEO who's engaged in extremely questionable practices like WeWork's did just flip a switch and say "Ok, now we're public, so I'm going to cut all that out and be honest". It's a pretty big fucking signal that he's not trustworthy.

Neumann's past behavior is still a problem.

Absolutely. Traditionally the move for a company in this situation might be to replace the CEO if they plan to raise public money and he has a history of bad behaviour.

In WeWork's case it's probably impossible to remove him both legally and because the whole company is built around his personality cult.

I mean... this should lower the valuation into the ground, companies built around personalities will collapse - possibly when the personality retires/dies but more likely just due to implosion over crazy antics.

A company is something "we" build, it isn't something "one" builds, and this misunderstanding is causing a lot of social pains in the US right now.

>A company is something “we” build

It is deeply ironic that the company that elucidates this exact philosophy in its IPO is such a good example of a company built by “one.”

> WeWork is probably legitimately in the $15B range

How do you arrive at that number?

I've seen comparisons to firms like IWR / Regus that imply a much lower number would be appropriate, even if WeWork was as profitable as those firms (which it isn't even remotely... it loses money hand over fist).

You have a point; $15B is on the high side and I can’t defend it. But they do have a brand, which is what makes an undifferentiated service like office space valuable.

I still contend that most of the value of Uber is tied up in their brand, and I think the same is true of We. I’m not sure either of their operations are all that valuable.

> I still contend that most of the value of Uber is tied up in their brand, and I think the same is true of We. I’m not sure either of their operations are all that valuable.

What good is a brand if it's losing money?

Because a brand is all about revenue. The entire purpose of VC financing is to build a brand with outsized mindshare before the market is mature enough to have established players and then fix the operations later.

But aren't they still supposed to fix the operations before they IPO, or at least enough to convince investors it's a good buy? We're not talking about companies that hope to stay private for the foreseeable future - these are companies that are trying (and failing) to IPO or very recently had unsuccessful IPOs.

A brand is only so useful if it's attached to a money fire.

Absolutely agree, the whole WeWork IPO has been a dumpster fire. They should have had their house in order long before an S-1.

It is sort of amazing that this is still happening - when your brand is heavily reliant on network based social effects then taking a loss to build up that network is hard to swallow but potentially correct. But, if I were to build a steel mill and take this approach it'd be idiotic - some tech companies do benefit from network effects, but others do not. WeWork simply doesn't - if it'd been an office space renter with an emphasis on style and the social environment that had started in SF and spread organically it totally could have made it, but money was wrecklessly pumped into a business that shouldn't ever be in the red (outside of asset acquisition including software components, that's totally reasonable).

I completely agree with you. But the problem with markets with strong network effects is that those network effects usually aren’t obvious until you’ve struck gold. The markets with obvious network effects tend to be too heavily competitive to actually ever get there.

This is an interesting observation.

Can you share a link/case study?

Kind of makes sense, but curious of how you developed your certainty. thnx

Eventually: nothing.

That may take a while, though. As an example, check what the “Commodore” brand went through.

https://en.wikipedia.org/wiki/Commodore_International#Demise:

”Commodore declared bankruptcy on April 29, 1994, and ceased to exist”

https://en.wikipedia.org/wiki/Commodore_International#Post-C.... :

“In late 2004, Tulip sold the Commodore trademarks to Yeahronimo Media Ventures for €22 million”

That’s 10 years after they went bankrupt, and the story didn’t even end there.

Yeah, but Commodore did ~US$1B in sales per year in the early 80s. So, sure, there's some residual value in a well known brand, €22 million is a tiny pittance compared to the pre-fall valuation of the brand. Will C= become another multi-billion dollar company under Yeahronimo? Maybe, but given other resurrected nostalgia brands (see: Bell+Howell shilling crap flashlights on late night TV) I wouldn't bet on it.

Regus has more locations, owns the buildings instead of subleasing them, is profitable, and is valued at 3.6B. 15B would be not be a sane valuation for Wework even if they weren't bleeding money at an alarming rate.

Regus offices are soulless. If you try to run a startup out of one, you'll have a harder time hiring and everyone will want to go home at 5 pm.

The amazing thing about WeWork is that the offices are fun. The one I know in SF is an OK place to hang out in the evening.

So I disagree it's just a brand. WeWork's product is better.

Maybe other temporary office companies will figure out how to make their offices fun, but I sort of doubt it. Companies rarely learn how to be more fun if they didn't start off that way. If WeWork is the only fun office space, they'll be hugely profitable someday.

> everyone will want to go home at 5 pm.

You say that like it is a bad thing.

Like it or not, from a company owner's perspective, it is.

Also, it's not like a soulless or poorly configured office has negative effects only after 5pm. I know someone who's in a WeWork office temporarily - they love it, because the old space was poorly configured and amplified stress. Go figure, they've also mentioned they feel more productive and are getting more done.

But they're not they're any longer than they were before.

Actually a company owner with a brain doesn't want their people to burn out, so limits late nights and overtime.

> If WeWork is the only fun office space, they'll be hugely profitable someday.

The competitive moat of being fun is built on huge subsidies of cheap capital being injected into the company during funding. It's a great venue because the costs are being subsidized by Softbank. Absent that subsidy they would be losing even more money than they already have and would either have to raise costs or lower quality.

This may be a generational thing, but I prefer my workplaces to be for work, and my playgrounds to be for play, without blurring the lines between them.

Leaving work at 5 pm is the goal. Clock out. Go. Be free.

If I want a social club, it will be a separate organization. People staying at the office after hours is indicative of a toxic work culture (unless those folks always come in just as late on the other end of the workday). An effort to design a workplace as having the appearance of fun strikes me as disingenuous, at best, and at worst is a signal that the company is, as David Brent put it, "'aving a larf", at the expense of the investors.

Do not make your offices fun. Levity and gravitas can co-exist, but at work, the latter should have the greater weight.

I've upvoted more comments (including this one) among these responses than I have for the entire year previously. I think this goes to part of what creeps me out about WeWork, generally.

I suspect they are selling to founders who are rich enough that they want to startup mostly for the social interaction

There’s a reason why every landlord is an asshole. It’s a cutthroat business all about minimizing costs. Fun is fickle, expensive and requires ongoing investment. It’s leaving money on the table, which is why few people do it.

> Regus offices are soulless

> everyone will want to go home at 5 pm

> WeWork is that the offices are fun.

> is an OK place to hang out in the evening.

That is because outside of SV, work is where you work, not "hang out in the evening". And that is a good thing. Work-life balance is important for long term health

> The amazing thing about WeWork is that the offices are fun. The one I know in SF is an OK place to hang out in the evening.

I've worked in a few WeWorks in NYC and I can emphatically say that is not the case in any of them. I don't doubt what you're saying, but that you're overestimating WeWork's product consistency. Most of my WeWork experiences have been more or less as soulless as a Regus office, only with "Hustle Hard" and "Always crunching" LED signs on the walls (I don't think those are the actual phrases but the real ones are so vacuous that I can't even remember them). On the plus side, their free coffee is excellent.

(even all this aside, if your office space is so fun that people don't want to leave it then I'm afraid your employees probably aren't all that productive. It is not a good thing to optimize for and if WeWork did they'd be turning off potential customers that live outside the SV bubble)

If you pay a monthly premium rent, the coffee ain't free. I've been at a WeWork and a smaller coworking space in Seattle and couldn't really tell which one had a multi billion dollar evaluation.

Everyone is going after the 'go home at 5 pm' part, but missing the point.

The moment HN hears about people staying past 5, everyone is up in arms, but... what if I'm staying past 5 so I can leave earlier the next day? Or past 5 for a week to get something done on time, and then taking off early for the next week when there's less to do? Personally, I'd prefer to do that in a nice office. It works for me, and for the company!

Even just in general. The effects of an office are far more than just 'do people stay past 5'. Even within a strict 9-5 work period, there is a huge amount of variance. If the office is depressing and soulless, it will have knock on effects on productivity and employee happiness. Again, good for the employees and the company.

But no, according to these comments an office people stay at longer is always evil.

> But no, according to these comments an office people stay at longer is always evil.

You're projecting here. No-one is suggesting that being in the office at 5:01pm is a capital offence, but that workplaces with a consistent expectancy that you stay late (something many of us have an experience of) are a bad thing.

Supercool offices are a negative signal when I'm interviewing. I need fewer distractions when I'm trying to get work done.

Regus offices are soulless.

Well...they're (in my experience using them in the SE US) generic, quiet, generally well run. So, about as soulless as any office. Which was pretty much what I want.

WeWork's product is better.

Excepting Regus being profitable, having a better financial structure and management that's not a liability. But I understand that's not the only measure of 'better'.

The one I know in SF is an OK place to hang out in the evening.

I can't imagine anything I'd less like to do after work than hanging out drinking beer with a couple of dudebros with nowhere else to go after work than...work.

If WeWork is the only fun office space, they'll be hugely profitable someday.

I'm certain there's a market for work-space-as-life-substitute, but my own equally unsubstantiated feeling is that when people look for "workplace" they have one thing in mind, and when they think "fun", they're looking for something very, very different. At least for me, I don't want to try and work someplace where other people think it's for fun; fun is distracting.

It seems that in the last batches of adults we got there has been a growing minority that doesn’t subscribe to the „go home at 5“ mentality. From personal experience WeWork type locations are an excellent thing for such people whereas anything focused and tied to classical careerism just doesn’t work for them.

I also think this is cool.

People in these places (not necessarily only WeWork) seem to be often interested in finding true purpose through work. It is a nice idea. Work, like sleep, is a large part of our life. Might as well be fulfilling in itself not by side effect.

It's a false dilemma to assert that only people who work excessively find purpose in work. Plenty of people at large companies enjoy and value their jobs. They just make reasonable delivery schedules and go home to their families at 5PM.

I don't disagree completely, and I acknoeledge there's a need for something like what WeWork pitches, but I would make a couple of points:

- I guess I'm from a previous batch of adults. The idea that we all have a "go home at 5" mentality is a fallacy. I don't check out promptly at 5 (or any other time) every day. None of my employees do. Very few people I know do (and the ones that do aren't in technology). Maybe there's that impression because we've got enough experience to have realized that "you are your work" is not the better alternative it's sometimes presented to be.

- Conversely, I think the issue with "the last batch of adults" is that they have been feed the idea of "don't go home at 5" as an ideal, even a requirement, and saying "I have a life outside of work that I want to maintain" is what people who don't have what it takes to succeed say. Sure...there's Jack Ma, but Jeff Bezos has breakfast with his kids every day and Larry Ellison still ditches Oracle to go sailing.

- Work, like sleep, is a large part of our life. Might as well be fulfilling in itself not by side effect. Work can (and should be) fulfilling. Work does not have to be the totality of fulfillment in life. If it is for you, mazel tov; but it's not a moral failing to say "nope".

> But I understand that's not the only measure of 'better'.

I think there's a space in the market for a Regus-like company where the offices are 'Affordable Luxury' like Google offices, rather than 'Standard' which Regus provides.

You know, free food and soft drinks, ergonomic chairs, things like that.

The fact WeWork aren't making a profit, there are major governance problems, they have bad share structure, arbitrating long-term and short-term space leases has substantial downside potential, and the fact they're over-valued, mean I won't be investing of course.

The amazing thing about WeWork is that the offices are fun. The one I know in SF is an OK place to hang out in the evening.

This sounds like my worse nightmare. Fake “fun” at work. I don’t go to work to have fun. I go to work to get a paycheck.

And for startups inducing “fun” is just another way to get young gullible employees to work crazy hours for less than the market rate and the promise of equity that statistically won’t be worth anything.

> This sounds like my worse nightmare. Fake “fun” at work. I don’t go to work to have fun. I go to work to get a paycheck.

Well said. I can understand "fun after work" (which I don't want as I prefer to go home). But what this all rant about "fun at work" ? all valley cult. Remember 'enjoying work', 'good work environment' are completely different than 'fun at work'.

WeWork is that the offices are fun. The one I know in SF is an OK place to hang out in the evening.

This is so SV. In the real world CEOs aren’t so into paying a premium so that their employees can chug “free” brewskis at work. Going home at 5 and coming in at 9 is the norm.

As a startup founder/CEO, I want my employees to come in, work hard, and then go home.

Professionalism and separation are important to a work environment. It creates balance and a better culture with more productivity and satisfaction for everyone involved, especially those with families and other commitments that take up their evenings.

An office that's also a personal hangout is blurring the lines and always leads to problems.

I am not sure the product is really any better. There are a bunch of cute little old things around the printer, they have cool signs and I don't mind the fruit water. There are some other goods things like being able to build a virtual network of devices and things like that, which would be much more problematic without a single provider.

But I would settle for wifi that always works (been working on this in our own little corner of WeWork for a couple of weeks) and coffee that was ready before 9. It would be great if we could just scan our badge at the printer.

I feel like they provide insufficient attention to the basics and really focus on what they think provides differentiation. Maybe in a year I will think differently but if I had to pick a different office space today I don't think I would be any more likely to rent a WeWork given their brand.

What's wrong with going home at 5pm? Ever heard of work-life balance? Your start-up won't run better when you run everyone into the ground. Build sustainable businesses over shattering yourself.

They do have a brand, but it's a brand that comes with a lot of baggage.

So the problem of these companies that are many billions of dollars having "most of their value tied up in their brand" is that the brand becomes... kind of inextricable from the operations.

Who would buy a $10B brand? Much less a $30B one or whatever? The answer is almost exclusively "companies that already have a better brand than you do." Like, Apple could buy Uber, and then do its own ride-sharing service, and brand that ride-sharing service Uber... but they don't need to. They're Apple.

Any potential ride-sharing service that would like to build its own operations and the bootstrap itself to wider name recognition by buying Uber's brand won't be paying tens of billions of dollars.

So what's left? We and Uber need to reform their own operations to make money, which is the exact problem that nobody thinks they can do. What does their supposedly powerful brand get them?

>Who would buy a $10B brand?

Phillip Morris (a cigarette company) paid over $13BN for Kraft Foods, the vast majority of which was simply for the "Kraft" brand. And this was a long time ago.

Brands have enormous value.

It wasn't for all the money they make from selling food products? Kraft generates predictable revenue and profit.

>It wasn't for all the money they make from selling food products? Kraft generates predictable revenue and profit.

Not really for that, no. In GAAP accounting "goodwill" is the generic term for "extraneous stuff that we can't quantify" i.e. the brand - the vast majority of the purchase price for Kraft was labled "goodwill" in the public accounting statements Phillip Morris issued.

There is a pretty good writeup on this in Naiomi Klein's book "No Logo"

Brand names matter more in food and health verticals. People are far more brand driven when it comes to putting things in their body than they are about ridesharing or office space

Brands only have value if they can be used to create customers and profit. Apple, Microsoft, Google are massively valuable. Blockbuster, Sears, Theranos are not.

WeWork is a bubble about to burst. Uber is still unknown. The value of both brands is complete speculation and highly inflated by hopes and dreams.

Does the brand really matter for office space? I can’t think a company, even a small one, not shopping around for such an important matter, and also not looking for facilities that are convenient in term of location rather than going to the other side of the city because it is a well known brand.

How does WeWork massively scale back? They have $47.2B worth of obligations. How do they get rid of those?

The problem with blitzscaling is, you can blitzscale into shit.

Most of those obligations are through special-purpose entities for each location. They just walk away from all but the most profitable ones and leave the landlords holding the bag.

That's fine if they never plan to sign another lease. It's like saying oh, you can't service your debt huh, just declare bankruptcy! Sure, if you don't plan to need credit in the next 7 years.

Corporate bankruptcy doesn't work exactly the same as personal bankruptcy. WeWork declares bankruptcy, it's officers find a couple of new, untainted folks to hold key corporate officer positions, and suddenly YouSlave, Inc is open for business and looking to rent space. Might need to polish your D&B a little, but that's easy enough.

Mightn't it be possible to pierce those subsidiary corporate veils to reveal (make liable) the parent corp?

Even if not, they are in for some expensive lawsuits. It won't be a matter of simply walking away.

Re: "special-purpose entities":

Why would landlords agree to this? "Hey guys, we'll sign a 25 year lease with you but only through a special purpose entity, so we back out at anytime and you can't do anything!". Given how choosy and patient commercial landlords are (eg. letting properties stay vacant for years to find the right tenant), why did they make an exception for wework?

They probably signed triple-net leases with WeWork, meaning that WeWork pays rent, property taxes, utilities, and upgrades/maintenance.

If WeWork walks away, they leave behind nice offices that the landlord can rent out to another tenant with minimal investment beyond a few months lost rent (that could theoretically be recouped from WeWork).

Yup. My wife worked in commercial real estate (contracts and billing, before the crash in that biz) and she surmised exactly the same thing.

I think most real estate folks learned their lessons in the dot-com bust. Lot's of folks were making stupid office space deals with tech companies in return for warrants, etc., which ended up being worth less than nothing.

Owners of office buildings aren’t stupid. If WeWork created a special entity to rent each building, rent would go up significantly, or the landlord would require the parent company to guarantee that rents would be paid.

Or did WeWork pay for refurbishing the building, so that, if they stop renting early, the building’s owner ends up with a better building than what it had before?

The latter. They invest heavily in FF&E and the landlord gets to keep the improvements no matter what

Then, the mother company can indeed get out fairly easily, at the price of some goodwill, making it, IMO, a (possibly only slightly) less risky investment.

We will have to leave the glass walls and wood floors, but the other stuff should be movable and liquidated to help We's balance sheet.

"FF&E are movable furniture, fixtures, or other equipment that have no permanent connection to the structure of a building or utilities. These items depreciate substantially but definitely are important costs to consider when valuing a company, especially in liquidation."

https://en.wikipedia.org/wiki/Furniture,_fixtures_and_equipm...

I would be amazingly disappointed if

1. WeWork got away with this no matter how stupid those landlords were

2. Landlords actually signed out leases with no collateral considerations.

Though, to be honest, assuming WeWork doesn't actually stiff them on time the space was in active use and a bit of a margin... then I'm less disappointed, since the land lords will have lost very little actual value.

I suppose this is the next step after saying executives at companies shouldn't be held accountable. Now companies shouldn't be either, only those funding them.

Wild.

WeWork is probably legitimately in the $15B range

No. Scale to the same PE ratio as IWG/Regus and knock off a fudge factor for poor governance. You’re lucky if it’s worth $1B. Or anything if you accept that the only legitimate reason to own it was to flip it to a sucker, and everyone knows about it now.

It's the founder's responsibility to accept responsible funding terms that facilitate the next round.

Softbank’s MO seems to be making big bets on lots of competing companies and letting the chips fall where they may. I’m guessing (pure speculation) that they have a stake in some, if not all, of the Asian companies that will operate in WeWork’s vacuum.

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