SoftBank expects $24B in losses from Vision Fund, WeWork and OneWeb
techcrunch.com
techcrunch.com
Yet somehow people still seemed to defend the strategy ("you underestimate biotech ROI" or "investing in moonshots was not the point of the fund").
Most criticism is invalid because it misses the underlying flaw of the Vision Fund: If you're going to waste $24+ billion on the Adam Neumann's of the world, you could not have performed any worse by taking on riskier projects.
It was obvious to everyone that WeWork was going to flop (even if Softbank got some money back from an IPO, the ensuing stock price crash would've tarnished their reputation and who knows how quickly they could've exited) and that Adam Neumann was a con. So the return there was going to be heavily negative.
I doubt $10+ billion into drug research would've yielded as negative of results, especially in this era.
The only valid critique of our approach I've heard is that it's a logistical pain to try and spread and manage $100 billion around $5 million at a time.
It's almost as if the fund was just a terrible idea to begin with. Masayoshi Son is famous for losing more money than anyone in modern history.
https://arstechnica.com/information-technology/2012/10/how-s...
He made lots of investments but made all his money on Alibaba. In my opinion, he's actually a below average investor, and that bar is pretty fucking low. And it really shows when you look at how horribly the Vision Fund is performing. He got lucky once and has cultivated a personality around it, and people were dumb enough to believe him. He's not the brilliant investor that Warren Buffet is, he's the talented con man that Adam Neumann is. Maybe that's why he was happy to give him so much money.
1. https://www.livemint.com/Companies/7CN7u5d4i3bfYgBAZLdLpM/Wi...
https://www.google.com.au/amp/s/www.bloomberg.com/amp/news/a...
He is not . The 'English media' is not the local media in India.
Who could have thought this would work? Like starting a banana company by white labeling the bottom 1% of bananas in quality with your brand name. All the smelliest, most rotten bananas infested with bugs.
Did no one realize that they're in the hospitality industry?
https://www.profgalloway.com/oyomfg
"WeWork was an opportunistic infection highlighting the poor judgment of SoftBank. Oyo is the beginning of the end for Vision 1 as its brand moves from incompetent to malefactor.
(And he's referenced it several times in other pieces.)
Edited to add the quote from the linked OYO piece.
He missed out on one global hotel brand, though, which covers the whole spectrum of cheap lodging to shameless luxury and does so successfully.
Accor[1], offers the whole spectrum from Ibis Budget (used to be Formule 1 and ETAP) up to its Soffitel hotels and does so successfully.
Personally I'm a fan of Ibis. Their offer is consistent and while the rooms are small and cooky cutter generic the beds are always good and the bathrooms work. Plus, they are usually well located and relatively cheap.
So it is possible to have a successful budget hotel chain as part of your global brand and not even compromising your luxury offerings in the process.
That said: You won't catch me dead in an OYO hotel,after seeing a few of those dumps in Malaysia.
It is so incredibly common in the investment world to mistake extreme luck for skill and cling to flawed methodologies as if they were gospel because they worked once by chance.
Your typical investment "strategies" are hardly better than someone bringing his lucky shoes to a gambling den.
No. Yahoo US was once worth ~$125 billion ($200b today) and Masayoshi's SoftBank owned 28% of it during the peak bubble days of 1999-2000. [1] Yahoo was a very big deal at the time, it was briefly an Internet juggernaut. That's a key reason why he was so rich during the dotcom bubble. That single position propelled his image and made him famous.
To put into perspective how relatively massive SoftBank's Yahoo position was considered to be at the time in the tech world (and more broadly): if you go back to early 1995, it's a sum comparable to what Microsoft was worth ($30-$35b), and more than Intel was worth. The notion that a tech company could be more valuable than the old industrial giants like GM was still a rather confounding premise.
That said, I agree that WeWork isn't exactly "vision".
You need more than a luck to pull it off.
Is harder to be lucky if you're poor
Every industry has snake oil salespeople, and the Vision Fund should have put in more due diligence with their choices.
Competitors and scientists were pretty skeptical. Word has it when they tried to pick up some traditional investors and started asking questions they just got BS and a lot of those investors walked.
(And so that the executives can keep paying themselves healthy salaries, undoubtedly.)
Not a good investment, but not fraudulent. Whether they can make money given their model is a matter for CPAs. But they sell a real product at least.
As in "claiming you're a tech company and inflating your valuation isn't fraudulent".
I believe the GP's point was that, if Theranos hadn't been a fraud, it was a story that investments made sense in. WeWork wasn't, it only "worked" because it was essentially a pyramid scheme where the guy at the top took the money investors brought in, pissed some off it away publicly and then used that to show potential investors how great his company was going.
Think of it as akin to a Ponzi scheme. Early Ponzi investors do fine. They get paid a real rate of return, and often can even withdraw their money. Does that make it less of a fraud? Nope. It just means the house of cards hasn't collapsed yet.
If folks like Vision can't be considered sophisticated, and capable of making up their own minds about the likelihood of a financial model working, and whether they like a somewhat-self-serving ownership structure, I don't know who can.
Lies by omission are just as bad as those by commission.
Ultimately, I don't think it matters. Whether they meant to or not, they're running a scam.
edit: I also think my attitude is partly influenced by the fact that successful companies are often quite lucky. Why did facebook succeed when a thousand other social platforms died? Why did Youtube beat all the other video startups? Instagram ... etc. Some of those probably looked like scams that, in some path dependent way, happened to work out.
In contrast, there is no world in which WeWork would ever work as it was sold, and their failure does not open the way for somebody else to win. In theory, they weren't just going to rent desks to people; they were going to transform the very nature of work through technology and culture. In some hazy way that would allow them to gain the kind of pricing power that lets the FAANGs mint money. That didn't and couldn't happen; there's no natural monopoly to be had in offices, and their technology was nothing more than spray-on glitter.
WeWork was always, in the Frankfurt sense [1], bullshit. I don't know Masa actually fell for it or just spotted something that he could bullshit other people about. But again, I don't think it matters, especially at that scale.
At least if Theranos had delivered what they claimed, they would have had a wildly valuable product. WeWork was always transparently just a middle man for real estate.
WeWork's fall wasn't because they failed to deliver what they promised; it's that what they promised wasn't even that valuable in the first place. That is an even more embarrassing miss for an investor to have bought into than to be wrong about tractability, as valuing a business model should be a VC's bread and butter, whereas tractability is a fundamentally hard and niche problem that's different for every business, and an easier place to be misled.
Lawn mowing tech company's competitor is really other adverting platforms and mediums that lawn care companies use to acquire customers. Thats the pie they are eating. 1-800 dentists biggest competitor was the yellow pages in the phonebook.
What's the ongoing value? You find a lawn-mower or dog-walker you like, and cut out the middleman by paying them directly. Everyone wins (except your startup).
They facilitate one-off transactions.
> Or a cleaning service?
It's a B2B version of hiring a cleaner, that's less risky and that has a feature useful for the hiring company in that the transaction is legal.
Neither of these are similar to recurring individual-to-individual services that may or may not be above board wrt. the IRS.
and how do you know someone else is willing to walk/mow for cheaper once you start paying them directly? How do you solve disputes, like no-shows, and payment legislations (like GST/VAT etc)?
The platform reduces friction - that's not false. Whether the platform is worth it to reduce that friction is another matter. Esp. for low cost things like dog walking. The value generated by reducing friction must be big enough, relative to the cost of the thing.
There are contracts involved.More than 50% of people prefer not to mess with that stuff. That's a big market.
That's how it worked for dog walking and lawn work when I was doing it as a teenager. No lawyers, no paperwork, no signatures, nothing needed to get notarized. No bullshit. KISS principle in action.
The idea is just to prove that latent demand for dog walking exists and what's holding it back is the fact that people who would pay for this service don't know how to find someone to do it. Not the craziest idea. There's plenty of stuff that I would gladly pay for if I had any idea how to find someone selling it.
Thus, there exists a winning strategy where you bully everyone else out of the market simply by having deeper pockets and a willingness to eat more pain than anyone else.
What you need to do to demonstrate credible commitment to this plan which involves splashing out way more than is reasonable for any marketplace business so that nobody else even bothers competing with you anymore. Once you've established your top dog post, you can just rake in the disproportionate profits until the end of time.
It's a high risk, high reward strategy but not one intrinsically unreasonable from the outset.
Generally actual tech startups don't have a lot of patience.
Biotech research as I understand it is naturally highly iterative and immediate payouts are rare.
The tech that Silly Valley was originally built on was hardware with multi-year development cycles. “Tech” as a synonym for “ad supported website” is a very recent thing.
This wasn't true in the pre-2000. It was only the DotCom(tm) era that spoiled VC's who all wanted hits within 36 months.
The history of the valley was the history of slow investments. Semiconductors are money hungry and slow--yet VC's invested in them until about 2000.
I would argue a lot of the lack of progress in tech is because all the VC money is chasing fast returns.
I find Musk insufferable, but, credit where it is due, he put investment money into two VERY slow industries.
Maybe it's just that companies went public at a much earlier stage back then.
This. My father worked for a few semiconductor startups in the 80's, e.g. Xicor. Liquidity events were trivial compared to now. Small company's with competency and focus could exit with a proprietary tech play which satisfied everyone all around (founders, vested employees, investors, industry). Rinse and repeat for two-three decades and we get the foundations for Information "Tech" startup culture.
SOX in particular is expensive for smaller companies.
Not all of them were slow. Intel IPO'ed slightly over 3 years after founding. [1]
Here are some the joys:
1. Long lead times
2. Highly regulated
3. Conservative buyers
Impatient startup behavior is a relatively recent phenomenon and even today there are plenty of startups that ask for multiple years of R&D work.
It was so flagrantly obvious that it didn't even get the chance to make it to the public markets to flop, because it was clearly visibly a bad enough idea for everyone to run screaming before that was able to materialize.
Biotech does not sound like computer programming - I can't turn my hobby project in to a product or train myself to enter the field in a relatively short amount of time ?
Let's say you redirect a huge amount of money in to biotech startups - are there really that many opportunities waiting to be invested in ? The way I see it is best case scenario is you bid up the market price and drive interest in the industry - but that's going to lag years and there's no reward for the people going in ?
On the other hand real-estate/financial speculation seems almost infinitely scalable in comparison.
Always easy to say this so confidently in hindsight, but did you or anyone you know become a millionaire shorting WeWork after it went public?
Wag, I get. But I was bullish on the idea of WeWork and the model until the founder's corruption and mismanagement started getting major attention.
Of course now everyone claims to have seen it for what it was from the start.
I think it's deeply depressing if one takes a look at the list of most valuable startups how much of them is just consumer goods or services.
I wish there was a bigger role for engineering and science labs like Bell Labs at their peak rather than the dominance that the commercial sector has.
Under the current regime, what is SoftBank to do? Buy four stocks and call it a day? Or pretend to find unicorns that aren’t even tech companies?
Remember the old saw "You only use 10% of your brain."? Yeah, that's wrong, but what is almost completely true is "You only use 1% of your transistors."
We have a zillion free transistors and they spend all their time idle--even on tiny, battery powered electronics. We haven't even scratched the surface of what to do with all these transistors.
I have two entire Linux machines that communicate in such a way merely to open a door. And I only feel slightly guilty about being that wasteful. :)
Everybody programs embedded hardware with dongles with underpowered microcontrollers. Why? Put an entire Linux computer behind it (RPi or Beaglebone)--now what can you do?
The current failure of tech is lack of imagination. Or, perhaps more charitably, lack of competent implementors (hardware and software) with imagination.
Transistors are free--now let's build something out of them.
For example, startups are doing a lot in robotics and synthetic biology.
This is that small group of similar people, and you may be that person.
We exist. Change is real. Do something.
We are a small startup and we were outpacing 2 of the 4 giants
They resorted to outright illegal stuff
manipulation of search engine results not delivering our emails when it was to their email service hacking attacks click fraud on our ads
*
The REAL problem is not that they have monopoly status and cannot be outpaced
The real problem is that they abuse their monopoly position, do illegal things, and get away with it
Now we are building
both a platform
and
our own search engine
Consider the absurdity of that
Instead of just building a better product (which we had) and being able to win and/or compete based on that
We have to literally build our own entire ecosystem
How many startups can do that?
Should every tech company that happens to be competing against the big 4 monopolies be expected to do that
If you're bright enough to change the world, you're probably wise enough to anticipate the collision of these two worlds.
The counter argument is addressed in a debate between Reid Hoffman and Peter Thiel where Hoffman’s pov is that change occurs incrementally and what may not be considered revolutionary today (twitter, etc...) would be considered revolutionary 100 or so years ago.
For most Ubers, you also get a Lyft.
iPhone, Androids. (Even granting profit to Apple in smartphones).
My partner and I still exclusively use Lyft just because we don't like the ethics of Uber
Google gave Lyft $1.5 billion in "fuck Uber" money months after filing suit against Uber.
The problem with this approach is that there just aren't that many robust, natural monopolies. I think that's been a defect in VC investment strategies in Silicon Valley for at least a decade.
A global monopoly for.... office space?
I could not think of a more difficult industry, to "kill off competitors with low pricing", than the real estate industry.
Whats the plan there? Buying off every major office in the in the world?
The problem I think still comes down to margins - WeWork couldn't figure out how to actually make buildings vastly more efficient.
To me, this translates into: "I want to invest in the amazing next big thing, but actually I am not interested in how to get to the amazing next big thing." So the billionaires are just the same as the ones who are not billionaires.
I'm curious to hear you expand on your thoughts here.
I did apple pruning one hot summer. Trust me, nobody will miss that job when machines take over.
Warren Buffett has made many successful investments for example, over a damned long period. There’s clearly skill in his story. Skill that Masa didn’t have.
> So some people are more talented than average and some are less so, but nobody is orders of magnitude more talented than anybody else.
It seems likely that in some domains, some people are orders of magnitude more talented. Assuming this is false begs the question.
I have no trouble believing that there is someone theoretically more talented than Warren Buffett who a less lucky life. I have great difficulty believing Buffett is untalented.
Buffett did have losses! And made mistakes. And you’re missing the point. I’m not arguing Buffett himself didn’t have luck. He himself has written extensively about this.
But he also had skill. Luck + skill. Why some believe it must be one or the other and not both baffles me.
* A good upbringing * Early exposure to stock brokering (his dad ran a small brokerage) * Being sent to university and having his costs covered
Warren actually made the bulk of his early money himself, I think. He ran an enormous paper route operation, and also repaired and sold pinball machines at a large profit.
He started all this around age 11 and it grew from there. He had amassed $5,000 by age 14.
But not having to take money out for university made a lot of difference I expect. It would have cut his compounding. I don't remember him getting much in the way of inherited wealth from his father though.
It's been over a year since I read his bio, so perhaps I'm misremembering. Happy to be corrected if you have specific info.
You get the freedom to experiment without fear of dire consequences, whether that's by building a paper route, repairing pinball machines, or expanding your family's business partnership to buy a textile mill called Berkshire.
If, however, you are child who has to work to put food on the family table, or pay the rent, you're playing a whole different game, one that has life and death implications.
Of course Buffett isn't unique in having the advantage of a financially stable and prosperous family and household. Clearly his entrepreneurial streak started early. But compared to the average person of his time, he did have extraordinary advantages, including a university education, and exposure to investing from an early age through is father's brokerage firm. His experience is not directly comparable to that of most Americans.
It wasn't his family's business partnership by the way. He ran his own investment fund.
Nor is is generalizable to the equivalent of that 97% in recent generations, despite their being more likely to have college degrees.
Talent increases your surface area to catch luck.
Talent doesn't increase surface area, it increases the probability of success. Wealth is the only thing that can increase surface area. See the problem here?
Whereas a billionaire usually gambles on the margins of their wealth. They definitely don't gamble with the roof over their head or their next meal, or their childrens' security. They can make any non-ergodic game appear ergodic for longer since they can survive many losing hands for far longer than others.
Basically, if Buffet's father was anything other than a US Rep and businessman, he never would've stood a chance. He would be working 40 hour weeks making someone else rich like the rest of us.
He made his early money repairing and selling pinball machines at a profit, and running a massive paper route operation. He started around age 11 or so.
There are many many people who were born as privileged as Buffet was, who got as many doors opened as he did, but there is only one Buffet. He may be extremely lucky, or he is a genius. It's impossibly hard to quantify the reasons.
> Basically, if Buffet's father was anything other than a US Rep and businessman, he never would've stood a chance. He would be working 40 hour weeks making someone else rich like the rest of us.
Mark Cuban was a counter example. Or Oprah Wilfrey. They stood a chance despite not having rich parents.
For example I go to the gym regularly (at least before the pandemic). I'm probably in the upper 10% of the population when it comes to strength. But compared to the regulars in the gym I'm below average.
A single datapoint can't prove a general claim. But a single counterpoint can disprove a claim.
It could be argued that Warren Buffet does exactly this.
https://en.wikipedia.org/wiki/SoftBank_Group
I don't think I've ever heard of someone "failing upwards" who's history starts with this:
SoftBank was founded in September 1981 as a SOFTBANK Corp. by then-24-year-old Masayoshi Son, originally as a software distributor. They went into the publishing business in May 1982 with the launches of the Oh! PC and Oh! MZ magazines, about NEC and Sharp computers respectively.[19] Oh!PC had a circulation of 140,000 copies by 1989.[20] It would go on to become Japan's largest publisher of computer and technology magazines and of trade shows.
In 1994 the company went public and was valued at $3 billion.[20] SoftBank agreed in September 1995 to purchase U.S.-based Ziff Davis publishing for $2.1 billion.[21]
Bill Gates made Windows which was used by millions of people all over the world, well he got lucky because he was born at the right place in the right time (a point made by Malcolm Gladwell).
Elon Musk/Thiel made billions, well they happen to be at the right place at the right time with Paypal. Once you make billions, then making more billions is super easy, that's not luck, but a function of wealth.
Cope - That's the only explanation for people attributing the success of other people as luck. If it's luck then you're not a failure, just unlucky, but if it's skill then you have to be responsible for your actions and failure.
You could argue that middle class to millionaire path could be described as mostly skill and focus, with the luck of not getting wiped out by a disease, jail, lack of motivation or whatever.
If anybody thinks building a Space and a Car company is 'easy' is just delusional.
Space in particular has messed up many billionair investors.
You can say it's some sort of coping mechanism, but actually I believe that most of my own success is luck. I would say I'm successful, I'm good at what I do and I'm rewarded very well for it. Skill and hard work are a prerequisite of my success but the success itself is largely down to luck. Skill and hard work are table stakes.
To put the equally uncharitable interpretation of your view of the world: The fact is that most success is significantly down to luck, but people don't like that because everyone wants to be the hero in their own story rather than just someone who got lucky.
There are of course those that truly do have a great record over a long period of time but they are much less common. We’re coming off a period where VCs and others could probably have thrown darts at the wall and made a half decent return. Now that’s all changed so we’ll see who gets washed out and who can stand on their results long term.
As I think it was Warren Buffet once said, when the tide goes out is when you get to see who wasn’t wearing any pants.
Initially, half the people got "good" investment advice. Send another letter to the people who got the "good" advice say the US dollar is going up or down spilt equally. Again, half the people got "good" advice, so send another letter to the people who got two lots of good advice ie a quarter of the original number. Continue to send letters to the "winners" with half saying buy a commodity and the other half to sell the same commodity.
If you started with 2,000 marks after four letters you have 250 people who would have made "a very large ROI" if you had followed our investment advice. Then you sell them some very bad shit or a subscription to your investment newsletter.
Morral: Past performance does not mean it will continue.
I've seen magicians do similar things with prediction tricks.
Most of the grousing about hedge funds is because they failed to keep with the market...guess who had the last laugh? I know one fund in particular that was huge, had big outflows because they apparently were out of touch...up 20% this year. Another one converted to a family office...they have been up 50%+ every year. There is also a big difference between the big macro, multi-strategy funds and the equity funds that are basically run with no regard for risk.
The impression I get is that they are into extreme betting so for all their good investments (and they have many good picks), the gains get canceled by a few extreme bets on bad ones. I suppose that qualifies as "bad at investing" by some definitions though to me it feels more like "bad at hedging risk".
I've always wondered if this is true over the industry. Obviously the top line VC firms perform quite well, but I'd imagine there is huge survivorship bias here (much like the rest of the actively managed investment industry).
No, they don't. The average VC does not even return the S&P let alone make significate returns.
You always hear about funds making huge profits but that is for one particular fund for one particular VC. Even the best of them struggle to match 10-year index funds due to their cost structure 2+20%.
Large fund make heaps of money for the GP but not for the investors.
How did their Sprint investment eventually turn out?
The issue is that right now you have to stay at home. But in these rare confinement cases, very few businesses are valuable as well.
So I don't think that's a good marker. If at all, it's a good moment to buy wework.
https://en.wikipedia.org/wiki/Masayoshi_Son
>According to Forbes magazine, Son's estimated net worth is US$23 billion, and he is the second richest man in Japan,[1] despite having the distinction of losing the most money in history (approximately $70bn during the dot com crash of 2000).[3]
Luck is such a huge factor sometimes...
In all seriousness, luck is >85% of making big money.
This was a good interview, recorded close to the peak of this cycle: https://youtu.be/Sa2_VBu0d7k
We could start from the fact that is a real estate company and not a tech unicorn...
>For transportation, you should already have a fleet of trucks.
https://1000000-euro.de/how-much-does-a-million-dollars-weig...
The core problem of VF was pushing companies for growth at all costs which led to companies not focussing on unit economics, not caring about profitability and becoming too big to ever take care of those things. Fixing your unit economics when you are so big is akin to repairing a rocket and changing direction which it is hurtling aggressively to crash. I hope now entrepreneurs will try to build sustainable business hoping for an IPO rather than growing fast to come in eye of VF and take softbank money
I worked at a company once where the ceo was enamored by Masayoshi (who had also invested in our company). He asked me to help him with a presentation he was going to give to masayoshi as part of some kind of competition to be his protege or something.
I remember thinking the whole thing was strange: why was the CEO spending his and my time on a personal competition instead of growing the company, but what did I know, it was literally my first few months in the tech industry. So I did my duty, got a thanks, and the CEO left the company a month later to parts unknown.
Him and masayoshi were hype men, and the latter is obviously good at it. But now we will see if he is great - it’s one thing to hype with unknown track record, it’s another thing to hype when you have some large losses.
I guess I don't need techcrunch in my life after all
In particular, the "Change (C-A)" row of the table does not make sense to me. If it would say "Change (A-C)" (not "C-A") then the "Net sales" and "Income before income tax" columns would make sense but the rest still would not. Does anybody know how to read this?
https://www.barrons.com/amp/articles/softbank-may-get-out-of...
All of the "deals with wework" are really deals with different parts of this weird structure.
Why dump so much of it in things like Wag?
Did they invest in anything that was actually interesting?
The $24B is a loss as a result of repricing assets and creating reserves. So it is just some virtual moves in the balance sheet of Softbank, a record in a computer essentially. Do not imagine stacks of dollars being burned on some altar.
that's not an indictment of capitalism per se but of plutocracy. the greater the wealth concentration, the less efficient we become.
When you divide an investor's total thinking capacity by the total amount of money they have to invest, you end up with less thought going into each dollar. The average amount of thinking per dollar drops and you get less efficient allocation of each dollar...
Allocating capital is clearly very challenging and yet the argument which advocates for increased concentration of wealth relies on the assumption that people are getting better at it on a per-dollar basis.
All evidence would suggest that people are getting worse at allocating capital on a per-dollar basis. The more dollars someone has, the less they will care about each individual dollar. An increasingly complex world should require increasingly more thinking going into each dollar.
debut
Bonesaws-N-Harmony
I think it's an interesting question, can you and should you even have the option of a risk-free real return? Why should anyone collect money for neither working nor taking risk? It's widely assumed that's what capitalists do, but maybe there is increasing evidence they don't these days because markets are becoming too efficient, and maybe they shouldn't?