4 to 5 billion investment in a company with an 8 billion dollar valuation.
At some point you have to wonder when its better to cut your losses and scrap the entire thing.
At some point you have to wonder when its better to cut your losses and scrap the entire thing.
This is where the value of all that liquidation preference kicks in. At some point it becomes in SoftBanks interest to push for lower valuation, as it means they get to wipe out all the people that came before.
Many of the best companies look like risky bets at the start.
SpaceX likewise is also in a somewhat murky financial position, although I suspect they will come out doing great in the future. My limited understanding is they are avoiding an IPO because their financials are not up to snuff.
AirBnB was heavily derisked before serious investors took notice - YC loves talking about them as an example because they had so much trouble raising a seed round before they skyrocketed into their A round shortly thereafter. Also I suspect AirBnB is actually going to IPO at a lower valuation than their last round, but I realize I am very much an outlier with that assessment.
I understand high risk high reward, but sometimes investors are just being dumb. I feel like you chose terrible examples to make your point. And since all of your examples are private companies it is impossible for us to analyze their finances.
They were founded in 1992, were bought by Google and then sold to Softbank. I don't think that qualifies as "continually sold", particularly when the buy-and-seller was Google. I'm not as negative on Google's acquisition strategy as many here, but Google selling companies a few years after acquisition is hardly unheard-of.
Also this reason rings hollow with some of the other stuff Google has attempted with doing business in China.
My understanding is that they're avoiding an IPO because it would jeopardize SpaceX's mission of getting to Mars. When they're privately held, Musk can vet investors to be sure that they're aligned with SpaceX's mission, or ensure that they're powerless enough that they can't make problems if they're not (eg. no board seats). When they're publicly held, things like unveiling Starship when NASA is pissed about Crew Dragon not being ready yet is just inviting a shareholder lawsuit. Wall Street tends to take a dim view of long-term highly risky bets, and going to Mars with privately funded R&D is precisely that.
No, Musk is going to keep SpaceX private because he hates public oversight, like the kind he’s gotten with Tesla.
Uh, what?
A Hohmann transfer orbit (minimum energy) will get you there in nine months. SpaceX is targeting a higher energy, shorter trip that'll probably wind up being about six months each way (with Mars gravity in the middle).
What I haven't seen are actual solutions for how to deal with the radiation. Yes, there is ongoing research from NASA, ESA, JAXA and others, and lots of interesting proposals like hydrogenated boron nanotubes, electromagnetic force fields, lithium shields etc. But no solutions even close to implementation.
Here's from an ESA blog post on the topic earlier this year:
> As it stands today, we can’t go to Mars due to radiation. It would be impossible to meet acceptable dose limits.
http://esa.int/Science_Exploration/Human_and_Robotic_Explora...
Are we going to send astronauts who have accepted they will likely die from the mission? Is getting a person quickly to mars worth such a suicide trip?
The final issue I believe will be a hurdle is the psychology. It's one thing sending people to the moon for a few days, or to the ISS for half a yesr where they can look out the window at Earth every day. But I'm not sure the human mind is going to stand up well to the type of extreme isolation a trip to Mars requires. It's certainly never been tested before.
https://www.nytimes.com/2013/05/31/science/space/data-show-h...
"According to the National Cancer Institute, the lifetime risk of dying from cancer is 21 percent; the two-thirds of a sievert from a round-trip mission to Mars would raise that risk by three percentage points, to 24 percent."
Mars advocates like Zubrin argue the "acceptable dose limits" are exceedingly conservative, and that NASA willingly permitted far more dangerous operations (like the Shuttle) than radiation incurs.
> It's certainly never been tested before.
Sure it has. https://en.wikipedia.org/wiki/MARS-500
Liking 20% ownership at 50bn doesnt mean you like 70% ownership at $8bn. The value of the company had significant future growth/hype component which required other investors to pour additional money in to keep up the growth, that is now gone.
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Sure, but $20B valuation seems hard to achieve.
US commercial real estate market by revenue is ~$1.1T [0]
Office space by value is about 1/8th [1]
Regus gross margin is ~16% [2]
Real estate generally has good PE ratio but partly because they usually own the property [3], so let's be generous at 30x.
So if we value WeWorks as a normal real estate company AND weworks has %100 of US office real estate business we have a valuation of 1100 / 8 x 0.16 x 30 = $660B.
Now, weworks exists outside of the US, but the valuation you propose means they must have ~equivalent of all US office real estate.
[0]- https://www.ibisworld.com/industry-statistics/market-size/co...
[1] - https://www.reit.com/sites/default/files/chartjuly92019.png
[2] - http://www.annualreports.com/HostedData/AnnualReports/PDF/LS...
[3] - https://www.investopedia.com/ask/answers/052815/what-priceto...
So WeWork "only" needs to capture ~3% of the US market to be worth $20B
I'm a big fan of the WeWork concept, not commenting on specifics of how the business was run.
The way things worked in the past was just silly -- you signed a multi-year lease with no elasticity. I paid WeWork for personal space before and now my employer pays. It is expensive, but only on a unit basis. The model totally makes sense to me as a purchaser.
I guess the WeWork risk is the buy-long sell-short model which is always risky unless you are earning sufficient spread.
So it looks like they've already destroyed $4 billion+ in value. I'm curious how the more financially astute than I see this as anything besides throwing good money after bad?
In case any SoftBank homies are reading this, here you go. You are investing in the Concorde.
If even a small percentage of companies adopt the Gitlab model, WeWork is going to be extremely successful. And given Softbank's business model is designed for long term, strategic bets there is no way I would be cutting losses just yet.
That doesn't mean much if the market does not materialize, which is possible because remote work does not require shared office space. Currently the trend is that connectivity removes the need for an office entirely, not generate more demand for them.
And as Gitlab and others have found many people simply don't like working at home and want to be around other people. And also need infrastructure like meeting rooms on the odd occasion. WeWork provides that in almost every city. And 500,000+ people today currently see it as a useful service.
Requiring Gitlab doesn't translate into requiring office space either.
* Growth in remote workers = 9% per year.
* Percentage of remote workers who want an office = 20%.
* WeWork market share = 90%.
= 1.62% of all workers each year will potentially shift to WeWork.
[1]: https://smallbiztrends.com/2018/04/2018-remote-work-statisti...
I think that's where the error lies. WeWork has no lock-in, there's no good reason to choose them over a competitor and it doesn't take much capital to start a local competitor (and there are many already).
I was looking at offices like this recently and the most important factor was being close to home which had local competitors. When I look at WeWork locations, they're mostly in the CBD, so they're not even attracting anyone with a local office.
It's not even a new business model, just SV hype.