SoftBank Is Selling Wag Stake Back to Company
bloomberg.com
bloomberg.com
> Wag was looking to raise $75 million. It went to SoftBank and was like “will you give us $75 million?” SoftBank was like “no haha we’ll give you $300 million,” because that is SoftBank’s whole thing, it loves to give startups vastly more money than they want or need. And so Wag took the money. And then like a year and a half later Wag will get rid of SoftBank by giving back, I don’t know, but I am going to say some number less than $225 million (“well below” the valuation at which it invested). Wag got the $75 million it needed for free.
But there are so many examples of folks with massive amounts of cash trying to hit it big(er) ... maybe at some point that big wad of cash really is better off in some index fund or some mixed fund that offsets risks or whatever. It seems like shooting for the moon makes people make bad choices because they feel they have to do things differently.. and ignore some obvious missteps.
The real problem with scale close to whole countries is that if your money isn't contributing to the growth of the entire economy, you can't really get a return at all.
You can't extract value out of an economy that is stagnant, if the money you are pumping in is merely recirculating in zero-sum mode.
At the small scale this can work, because there are enough small-time losers who lost money when you got it without hurting the balance of the economy, but at the large scale this cannot since there aren't enough losers to lose money to pay you off (or alternatively, there is a war going and/or the government is buying).
So any investment portfolio big enough which doesn't move the economy to be more productive is bounded by the entire economy and in general do worse, because the market might be reacting to the fund & preying on it.
Also "more productive" is a very weird term - giving people public transportation, fast internet or cheap child-care can make a society more productive. Underemployment of intelligent people into subsistence levels of productivity is basically a crime perpetuated by well intentioned folks from the pre-automation era.
You don't. If you're a multi-billionaire you can spend the rest of your life wasting millions a year on super-expensive toys and prestige houses and whatever else you feel like amusing yourself with, and you're not going to run out.
The irony is that this kind of gameified wealth chasing is itself paper-pushing makework. At best it's a financial version of Minecraft - building a pointless but showy thing just to prove you can - with the markets as the gaming environment.
WeWork, WagLabs, and most VC investments contribute absolutely nothing of value to the world. If they didn't exist, no one would even notice their absence.
Meanwhile real problems - climate change, political stability, creating a dynamic culture of scientific innovation and creativity - go unaddressed.
Calpers has a huge deficit, whereas Harvard has far more than they're likely to ever spend (especially considering the fact that colleges with the largest endowments also attract enormous donations from wealth individuals).
The irony of posting this on Hacker News...
Snark aside, to a first approximation, voluntary monetary transactions happen when one party gives another party something of value. If you move money around and end up with more than you started, that's because you moved money around in ways that provided real value to people. Now obviously this is an incredibly crude approximation, but the onus of proof is firmly on you to prove that VCs aren't providing value to the world. And please don't go the "I only said most investments contribute nothing of value" route, unless you also have a way to only pick startups that'll actually provide value (hint: if you knew how to do this, you'd be richer than Masayoshi Son).
In this economy you make the most money by creating the perception of value through psychological manipulation.
Actual use-value creation is different and economically secondary.
WeWork is a perfect example. It's an IPO-brand - barely failed, but it was close - instead of a sustainable business. Like competitor IWG/Regus.
This why branding and marketing are a thing. You use them to increase the perception of value. An unbranded widget or service can have identical use-value to a branded one, but the perception of value can be manipulated to make one far more expensive.
As for VCs - VCs are destroying value, because VC culture is geared towards unicorn farming and IPO cash outs, not stable-but-unspectacular business development.
See e.g.
https://techcrunch.com/2017/06/01/the-meeting-that-showed-me...
There's a huge amount of potential value being lost because sustainable but unspectacular businesses are starved of growth funding.
There's very little capital available anywhere for these businesses. Banks won't touch them, they can't go straight to IPO, and VCs aren't interested.
In fact VCs are mostly a subset of the investment industry, which makes its money from client fees, not from returns. Clients are tolerant of mediocre returns as long as there's the prospect of a lottery-winning unicorn jackpot somewhere in the portfolio.
As for Masayoshi Son - I have no idea what his game plan is. Nor does anyone else, clearly.
> If you move money around and end up with more than you started, that's because you moved money around in ways that provided real value to people.
If I drive the getaway car for my friend's bank heist in return for a 30% cut of the spoils, we can argue I'm moving money around in ways that provide real value to other people (where by "people" we specifically mean my bank-robbing friend).
> providing value to the world
By "providing value to the world" do we mean "providing value to at least one other person ignoring other parties who may have lost value"?
I think as a general rule of thumb it is quite dangerous to conflate "profitable activity" with "providing value to the world".
Conventional accounting excludes externalities, including consequential losses to third parties. AirBnB can pride itself on "providing value" but in fact it massively distorts local economies, and has a very detrimental effect on the availability of affordable long-term rentals.
Tenants in that market suffer directly because their rents are higher, and there are fewer properties available to them.
That's a net cost to them, as a group, and of course it doesn't appear on AirBnB's accounts.
If you want to claim you're "providing value" the burden of proof is on you to provide an economic summary that accounts for externalities and is demonstrably non-zero-sum.
Doing this realistically would reveal that many corporations are essentially rent-seekers, oligopolists, and trivial arbitrageurs, not value creators.
IMO it's going to be impossible to avoid making this change to accounting standards - probably by the middle of the century, at the latest.
Which is good, because genuine value creation is a wonderful thing and deserves all the support it can get.
Are you proposing they not be allowed? That after you hit some arbitrary number of accumulated wealth that you are forced to watch paint dry and disallowed from engaging with the rest of the world? How would that even work?
Your personal sense of morals may label this as undesirable but it's very hard to think of any consistent legal framework for enforcing it past maybe "take their money if you think they have too much money (ie more taxes). Even in that scenario they are allowed to invest what they've got though.
Well, except that with real money you get real power, and having real power is far from a pointless endeavour. See for example those nerds who after earning real money they went off to build electric cars, buy NBA teams, and even build spaceships.
Almost anyone can turn $1 into $2. But if you want to turn $100,000,000 into $200,000,000 you can't just do the first thing one million times. Maybe it's easy to find 1 customer, but one million customers will require different approaches.
It's interesting how much SoftBank has screwed themselves with their strategy lately in such high profile ways. I wonder if this is unique to SoftBank or if there's other big VCs that are experiencing similar problems and flying under the radar.
Who funded Evernote in and out of the unicorn club?
Hey, instead of 1Mi A round, why not 100Mi?! You can grow 100x faster, right?
The fact they went with continuing to grow a sustainable company is what is most interesting about this story and counter to the popular SV narrative. There is still hope left past the headlines.
There are a lot of people looking to build legitimate businesses in the startup world and VCs doing pump-and-dump growth>product schemes tend to be the exception not the rule.
The high-risk splashy investors like Softbank get 100x the amount of press... the Wall St crowd also loves talking about them, which is the subsection of the SV/tech world Levine excels at critiquing.
Looking at Softbank's investments, I am having trouble coming up with a better explanation for their behavior.
The Saudis have this huge problem of trying to turn all the oil wealth into something, anything more permanent to diversify their economy before the oil runs dry or climate regulations cutoff the money flow. Earlier work more independently seems to not to have come to much so. Soft Bank and maybe even to some degree the ARAMCO IPO are possible ways to try to tie into global capability to try to up their conversion success.
Norway has a trillion dollar sovereign investment fund and they seem to be profitable and uncontroversial?
You're comparing apples to oranges. One is a sovereign wealth fund managed by citizens, for citizens. The other is a wealth fund managed by royalty, for royalty, with the main goal being to keep said royalty in power.
Firstly, the royal family could care less about the welfare of the average Saudi citizen. Secondly, the royal family has full control over the fund (with zero accountability).
Given these two facts, there is much less harm if they play hard and fast with the fund. Besides, most of the royal family already has their welfare guaranteed for life in the form of personal investments and the monthly salary.
This is ludicrous. Every regime cares about public opinion no matter how despotic.
Norway was pretty unique in that early on they decided to route most of the cashflow into their fund. They're an (the only?) exception to what has been called the resource curse. Oil riches usually don't work out as well as in Norway.
It seems hard to imagine that those strategies wouldnt have done alot to diversify and future proof their wealth without gambling on something like wework.
Maybe these transactions would be blocked under some type of foreign influence laws but maybe they could have also snuck under the radar by laundering credibility and origins through the vision fund.
And why should Saudi Arabia to that? It’s a terrible idea. 100% exposure to US equities is a bad bad idea. Ideally as an investor, you wsnt to build a portfolio of uncorrelated assets.
The economic system is driven by greed, there are countless other companies that have essentially been vaporware with no serious amount of foreign investing like WeWork had. Stock symbol GTAT was one that went bankrupt on contract to make sapphire screens for Apple. They weren't a scam but way over promised on what they could do, fooled Apple's due diligence to spend half a billion dollars on a plant in Arizona to make these sapphire screens. Both American companies, GTAT headquartered in New Hampshire and mostly large US institutional investors as their main shareholders.
WATT is another one that I know of and have been following, claims the ability to wireless charge phones not on a mat but in a given area or in a room. However they is no feasible way they can simply overcome physics on that: radio waves follow an inverse square law for power density and they won't get the type of power delivered for that and other reasons. Using a mat if you want wireless charging is about as good as its going to get for the trade offs that come with that. Anything else just doesn't seem economical or able to provide enough of an advantage for people to buy it.. getting that advantage is going to be really hard especially with the technology the company is developing, cause inverse square law. Also wattage for charging a phone is increasing, and we're now seeing power adapters using GaN and delivering 40+Watts in a small form factor... the gap will continue to widen and they won't be able to overcome physics. Yet the stock was as high as 15 or so dollars a share in the last year. Now down to around 2... in this market that is no easy thing to do. Heck even Apple couldn't get it right to make a mat that could charge 3 different devices at once and had to cancel it because, once again, physics.
Enron is the classic example for vaporware and downright fraud. If any entity was hit the strongest by that it would be the state of California having lost billions in economic activity due to the rolling blackouts that company imposed on the state for years to make money.
Researchers at Disney are probably looking at it because they want some walk-in interactive experience (like their VR stuff) where batteries would either be an ongoing maintenance hassle, or because they have dozens/hundreds of individual objects that would be impractical to recharge by hand. Hmm, like a big room filled with hundreds of mouse sized wheeled robots, or a thousand quadcopters...
It took billionaires' money and used it to subsidize taxi rides, shared work spaces, and dog walking.
At the least, maybe Masayoshi is a reluctant Robin Hood?
I don't think throwing more money at the problem will speed it up too much, they need to build up the institutional knowledge with smaller projects like this before jumping on a jumbo jet.
I'll also suggest that, with lots of investment funding, not only could they buy more equipment and land and build facilities, they could also poach valuable employees from other aircraft makers to build up that institutional knowledge more quickly. Surely there's some disgruntled Boeing engineers who value quality and safety over executive bonuses who might like to work for a while in Nagoya?
> "Never attribute to malice that which can be adequately explained by incompetence."
KSA only makes money if it works out, and it's not.
KSA loses, SoftBank still won.
It assumes users of this forum are redditors, but the way they say it shows how they view reddit as the center of discussion
But of course, the Softbank doesn't care - they have a different vision.
One of their best investments has a near negative 30% return. If they just put money in the S&P 500 in 2016, they'd have gotten a ~64% return (positive).
[1] https://www.vox.com/2018/2/9/16996834/uber-latest-valuation-...
Jeeze, it frustrates me to hear such notions when Flint and many other cities still have toxic drinking water, millions are in debt for education and medical bills, impoverished by our rental arrangements, etc.
https://en.wikipedia.org/wiki/Wag_(company)
Do they have a research laboratory where they come up with patented cutting edge technology for walking dogs, like the Q Division in James Bond movies?
Or do they specialize in walking Labradors?
And I'm not so sure that "Uber for Dogs" is a such good metaphor, because nobody wants their dog sexually assaulted.
It says in the article:
> Wag had planned to use the cash to expand internationally and move beyond dog-walking into related pet services including grooming, boarding, food and veterinary care.
It's mostly just a paperwork/organization thing, not something to be taken literally.
Definitely not just a company that uses "gig economy" workers to walk dogs.
https://www.instructables.com/id/Pee-to-Check-In-to-Foursqua...
https://web.archive.org/web/20111130012110/http://www.markyo...
You don't need to beat the market, you just need to beat inflation + your rate of spending, and you're winning the economic gain. That's very difficult when you're poor, but when rich it shouldn't be harder than a set of diversified index funds and not hemorrhaging money just because you're "rich".
Is there something I'm missing?
You're also right people are thinking beating the market, but that's also a bit silly, you can just buy the market and match it, who needs to beat anything if they've reached this point...
The mistake in this line of thinking is that a small pool of billionaires getting richer doesn’t leave everyone else behind. Their money is effectively irrelevant in how rich the rest of us are. A 100% wealth tax on all billionaires isn’t enough to fund UBI for one year.
The only upside to “solving wealth inequality” is just to reduce rich people’s ability to big influence in politics. There is no economic or financial reason to do so.
Middle-class people buy stuff. Poor people don't, because they don't have any money. Rich people don't, because once you've got five houses it's more appealing to stick your extra money in a bank or in investments than it is to buy a sixth one.
So when you've got an economy geared around selling consumer products and services, you need a middle class to make that economy go. If you make 5% of that middle class rich and the rest poor, suddenly there's nobody around to buy those products and services anymore. Which in turn means the jobs of the poor people disappear and the investments of the rich people take a nosedive.
> If you make 5% of that middle class rich
If you’re talking about the top 5%, you’re not just attacking billionaires, you’re hitting all successful small business owners, doctors, lawyers, engineers, etc. That’s an entirely different argument.
The middle class has not been emptying at all. It just hasn’t progressed in wealth like the upper. https://www.pewresearch.org/fact-tank/2018/09/06/the-america...
Yes, some of us are in the top 10%, even in the top 5%. No, we are not going to be up against the wall just for having a modicum of success.
This doesn't sound right to me, though of course it depends a lot on what level you set the UBI at. In a US context we typically give numbers around 1/3 of median per-capita income (~$10k, out of $32k), and globally that would be ~$1k (out of $3k median per-capita income).
To give $1k to everyone in the world you'd need $7.7T, and billionaires have ~$9T, so it looks like this would work out.
(I don't think a 100% wealth tax on billionaires is a good idea, just surprised by your claim and looking into it)
Billionaires in the US hold about 3T. https://www.stockingblue.com/article/311/net-worth-of-billio...
There are 250 million adults in the US. https://en.wikipedia.org/wiki/Demography_of_the_United_State...
That’s $12,000 per adult for a single year. That’s not enough to reach even a minimum wage full time income, let alone a livable wage. UBI is supposed to be something you can live off of. The $10k number you are citing is a joke compromise defeating most of the point of UBI.
$10k is about what I've seen for most UBI proposals. For example, Yang is proposing $1000/month: https://www.yang2020.com/what-is-freedom-dividend-faq/
When you think of a reasonable UBI amount, what are you thinking? Do you have examples of proposals that use figures in that range?
1. Each billionaire wasn't created by a small EFT from every adult, so there's no reason to expect that reversing the transaction would somehow fix the issue.
If we focus on where the money came from (we don't try to solve for individual billionaire-creating events like inheritance), I would imagine most of it can be described as accrued by extracting small slices from a great many individual transactions (including labor arrangements, government contracts, B2B, retail purchases; directly and transitively through investments, incentives, etc). Little slices of the value that transaction may go to a very large number of individuals, institutions, and corporations.
A great many things seem plausible. Billionaires (or anyone that, as GP said, reaches material escape velocity) could be getting richer by obtaining ever-shrinking slices while facilitating an always-growing number of transactions. Or Billionaires might be growing richer by "winning" (concentrating) slices that used to go to a larger number of people near the top of the wealth scale (via competition or consolidation). Or they could be obtaining slices that used to go to everyone else.
2. While I think I agree that the big benefit of solving wealth inequality is clamping the range of influence, I'm not sure what magical firewall limits the influence of the rich to politics (unless you have a very expansive view of the political).
This is obviously a highly complex and lengthy topic that spurs tons of thought experiments but I generally agree with your latter point.
It's a problem for people in the financial sector whose income/wealth stems from convincing people that you can beat the market (convincing is really the key, but it's way easier to convince people of it if you've already had success--even if that was luck).
If you have a few million dollars to invest, you can beat the market by just finding a few arbitrage opportunities. But if you have $100 billion to invest, you need a lot of ideas--figuring out that a $1 billion company is incorrectly priced only lets you get returns from a fraction of the money you manage.
Note: I'm an outsider..maybe someone in finance could give a better description.
I think you are missing the feeling of getting "financial cancer" or in a "financial car crash", like this very unexpected thing that sometimes happen to people where there's a huge global financial crisis, or they get scammed millions. The fear of that happening makes you do higher risk bets to maybe "just jump a little bit higher just in case and of course it may be the chance of my lifetime...". In the realm of those bets is sometimes where the actual crisis happen so it's kind of a vicious circle and very hard to break.
Of course if all high risk high reward bets where guaranteed not to ever send the rest of the world crashing a burning it would be a virtuous circle, but history proves it's not the case so the fear of this financially crippling event still lingers.
1. They aren't just trying to beat inflation. *
2. Viable ways to make money change depending on the scale of the money you're trying to tie up. A lot of things don't scale (or, maybe better said, scaling them requires additional competencies and may ruin the margins that made it worth doing).
3. You aren't the only one out there competing for opportunities. There's a lot of money out there seeking return.
* I'm shooting from the hip, based on my (potentially flawed) understanding of some reading I've done over the past few years on the body of Capital as Power (CasP) theory being built out by Jonathan Nitzan and Shimshon Bichler among others.
When they frame Capital as Power, one of the important implications is that it isn't an absolute quanta--it's a relative measure (i.e., power describes a relationship--one can have power in some relations, and not in others).
By framing it as a relative measure, they also suggest that attempts to increase one's capital are less about trying to beat inflation than they are about trying to gain power relative to others. I'm not sure I can unpack this in a very concrete way, but some implications are like:
- You could just beat inflation in a high-growth sector for a decade or two and still lose large amounts of power relative to the big players in the sector, and effectively end up transitioning from having enough power to check the other participants to having too little to keep them from pushing you around.
- You could lose money (absolutely) in a crisis, but still significantly increase your power relative to others.
Things like this used to bum me out, but now I try to remember the eventual heat death of the universe and I start to feel better.
Does SoftBank not have liquidation preferences???
This is the exact sort of thing that liquidation preferences prevent: buybacks at a lower value with the investor's own money.
Because otherwise, yes, you can indeed unscrupulously print capital.
EDIT: I suspect the author is either ignorant or grossly overstating the point.
The author says that the value of the shares was not public, but one would assume they did not get back nearly what they put in.
Did you read the article before calling the author incompetent?
The wholesale liquidation would presumably provide a floor to the partial liquidation value.
That's not necessarily true, but probably is. ("Overstatement")
Or SoftBank has a massive lack of core competency combined with being lucky enough to have hit the Saudi oil money well while drilling... imagine an alternate reality where Uber and WeWork have worked out, people would have hailed SoftBank as revolutionary visionaries.
That's like saying "visionary for not doing due diligence".