SoftBank’s Vision Fund Loses $17.7B on WeWork, Uber

Here in London Uber is MUCH cheaper than black cabs.

The reason Uber initially blew taxi companies out of the water is because taxis greatly limited their service to what was profitable and we're incredibly difficult to work with should you be outside one of their comfort zones. You could always count on Taxis near an airport or for an intra-downtown route but good luck getting a cab to pick you up at your house to take you to another suburban destination. It's not that they'd ignore your call because they sucked at customer service, it's that your call is only worth it to them if there's literally nothing else going on. Even then they might not show up if your request isn't going to end with them back in a profitable starting point for another ride.

>Taxi companies all over the world are profitable,

taxi companies also don't have thousands of software engineers or sales people, they literally just drive taxis.

The model is profitable, the price point isnt. It's predatory pricing, sell at a loss to hurt and eliminate competition, when you prevail you own the market.

I would never take a cab in Rio de Janeiro or Sao Paulo, but I take an Uber frequently.

The really big difference for me here in Brazil, is that I can communicate to someone in case the route is bad, something is stolen, etc. Taking a cab is so ephemeral that I don't even have time to complain or ask for help.

This strikes me as a close analog to the old Dropbox "analysis": https://news.ycombinator.com/item?id=9224

Calling a cab with a mobile phone is miles apart from the ridesharing experience.

With Uber or Lyft, I get an idea of when the car will show up, what the ride will cost me, I know they'll take my credit card, they won't tell me the machine is broken after trying my card-make me pay cash-only to find out the charge did actually go through, I won't get taken on a grand tour of the city to run the meter up, I won't be subsidizing the ridiculous protectionist racket that is the medallion system, I'll get a nice easy-to-use receipt for expense purposes, and the ride will probably be cheaper. I can also order a car for someone else and send them home on my bill with no hassles on either side (sending a babysitter home, for example).

Since most of my rides are reimbursed anyway, I don't even care that much about the cost spread though it is nice to be prudent with the company's money as well as my own. Even if Uber were the same price, I'd prefer it over cabs. Because it's so much cheaper, I use it more often.

Leave it to HN to not understand how a simple idea w/ good UX can be a great idea and worth billions...

The great idea is you don't have to worry about paying the driver, it's all online safely with your credit card. You get a receipt that is easy to expense. There's a record of the trip. The bad things are drivers don't have benefits, there's little or no safety training for those drivers. Contrast with taxis have lots of rules on them, yet still its very common in my experience that they are not clean, the drivers are surly, argue about things like routes, and often don't have working credit card payment systems (and you worry more about a personal transaction stealing something). But many taxis are great, just like many uber drivers are great. There's no perfect system.

In NYC, you can't call cabs. You can call black cars, and schedule them to pick you up for say an early morning ride to the airport where you might not be able to street hail a cab.

The system went like this:

You call some number like 777-7777.

A man with a heavy accent answers gruffly. You tell him where you live and when you want to be picked up. He says "OK", and then you just hope and pray that someone shows up.

It was not a great system at all.

10m seed stage companies surely don't exist.

Banks historically gave 10m loans, to businesses. And today we have really good knowledge management tools. So isn't it possible to build some process for that for seed investment ?

I am not trying to bash Uber, but statements like:

>>Also, Rides had already reached profitability at Uber (pre-covid).

Need to be taken with a grain of salt. There are so many ways to game accounting in general, and even more ways to game the accounting of business unit. So when they say Rides is profitable, it may be true, or close enough to be true to be so. But you should doubt. If a company has $14b in revenue and $8b in losses (2019) and a profitable unit like Rides. That means some other part of the company is lost $8b+. I am sure they spend a lot on delivery, and self driving cars, but do they spend that much.

The reply to this will be "that involved a one time write down.." or some such. But when a company has never turned a profit, its hard to tell when the one time costs will stop.

That said, I believe there is a viable business in Uber. It has just been overvalued.

Maybe not a bad idea but its ludicrous that WeWork was ever considered and valued like a Tech company, it's a real estate company with hipster interior designers nothing more.

WeWork is a terrible idea because it has no advantages over Regus/Industrious except for yoga-babel and a much higher valuation.

It is akin to valuing Ford at 10x General Motors because Ford has a yoga instructor as CEO

"The mistake SoftBank made wasn’t investing in them, it was investing at a valuation that grossly overestimated the size of the opportunity, and how quickly they would see their return."

That doesn't say much. When you're off by 20X for a close-to-IPO company that's a huge mistake and the diff in funds would've been better spent on spray and pray R&D. Many companies are good investments at 20X lower valuations than what they recently raised at.

As long as this companies keep investing in marketing over customer satisfaction and real value generation for shareholders the scenario is going to be the same regardless of covid etc. As you pointed out Refused is a good example: focus on business fundamentals, that's it.

Yes. The difference is Regus doesn't pretend that they're a tech company.

> The mistake SoftBank made wasn’t investing in them...

The mistake Softbank made was investing in direct competitors without enough control to make those competitors play nicely.

Instead you get companies both buying marketshare using softbank's money that are forced to do so because the other has softbank's money. That's just lighting money on fire. The majority of the investment should have gone to R&D and developing durable assets that bring value in perpetuity. Buying marketshare through promotions is the opposite of that.

Uber and WeWork is a capital driven business, not technology driven. The barrier of entry is very low. Anytime if there is a competitor come to the market, they have to compete with price. I'd like to see they transform into a data platform. Rather than providing the service through their apps, why don't they provide APIs for small cab companies.

If you’ve spoken to so many owners that all want to ditch the platforms mentioned for their own systems, do you feel there is enough interested to justify a venture/product to sell to the owners that gives them the control they are after without having to figure out how to develop an application. Seems like a great opportunity

I'm sure there are many companies offering them to build put their systems, it's still not that easy. My friend's small company is failing at helping small companies have their own system as we speak. They can always go back to paying some local dude belowe minimim wage to deliver with their own naive paper system

So a Shopify-like Doordash?

There are a ton of solid engineers that have never worked for Google or Facebook. That’s a whole other kind of investor hubris.

How on earth is Arcata less expensive than Lake Oswego?

Yes completely agree. It's hard to get a firm grip on just how deeply unequitable society is today, and how little the big tech corps contribute in taxes.

"JSavageOne 7 hours ago [–]

Corporatocracy is probably the more accurate term, but the term neofeudalism isn't exactly a huge stretch. The only real difference today is that at least in theory a serf can become a lord, but the same power dynamic remains. When chattel slavery ended many of the freed slaves became sharecroppers, bound to the land by eternal debts that could never be repaid. Although they were no longer legally bound to their "masters", for many their lives were not really any better.

Although in principle the monopolies and the government are separate institutions, we all know that the reality is that our politicians are bought out by the corporations, and the regulators are staffed by ex-employees of the very companies they are supposed to be regulating. We used to bust monopolies, but since the 70s or so the regulators have become very lax, and practically every industry has become more consolidated than it's ever been (finance, advertising, airlines, utilities, telecom, agriculture, healthcare, etc).

What's interesting to me is that whenever Google/Facebook does something authoritarian that would seem to violate some principle of liberty we deem sacred (eg. censorship, violating freedom of speech), many if not most of the comments seem to rationalize the corporation's decision as exercising their own free speech. But when you're Reddit with 430M monthly active users, your userbase is the population equivalent of the world's 3rd largest country, and so you're effectively the equivalent of a nation-state. When you're Amazon with 750k employees, then your employees could fill up a city.

Does the principle of democracy only apply to country's governments, or does it also extend to corporate monopolies?" [1]

[1] https://news.ycombinator.com/item?id=23218895

The giant pool of money is consumed by a desperate hunger for any shred of return it can find, and there is an almost limitless supply of smart, creative people who are well-positioned to capitalize on that.

By contrast, there is a finite supply of regulators, and the people who make the laws that the regulators implement are themselves members of the cadre of hungry ghosts who make up the giant pool of money.

With conditions like those, regulation will be doing extremely well to only be 10 or 20 steps behind the market.

> We live in a world now where incredible amounts of capital are chasing returns because of zero and negative interest rate policies. The only solution will be regulation.

The counter and historically more persuasive argument from the left is that the falling rate of profit will lead to more war and colonization. It’s hard not to see what’s happening in Yemen and the Saudi’s investment in SoftBank through this lens.

Historically, you just buy land. As much as you can find, in as great a quantity as you can find.

Why would you want to regulate it? Consumers benefit from VCs subsidising Uber and food delivery.

>> what happens when all of that capital has nowhere to go? Is there back pressure?

Perhaps what happens is that expensive (i.e., in terms of fees) investment vehicles end up investing in easily available assets (e.g., Uber stock, which is public.)

Anyone know if SoftBank earns carry on this part of the portfolio? Why would LPs want SoftBank to have any funds in a publicly traded asset and pay fees for that?

> The only solution will be regulation.

What's the problem exactly, and how would regulation work to address it?

I feel that people gravely misunderstand capital, interest rate, and so on. Capital accumulation is not the same as expanding the money supply (so taking out a loan) - even if both are somehow denominated in USD. If we have too much financial capital - as you pointed out, chasing returns - that just means its real value depreciates compared to other things. (Eg. capital goods, labor, return generating assets, etc. - That's why we see asset bubbles, and investment in a lot of ventures, that then pays huge salaries.)

But it doesn't matter how much money chases how little, the important thing is the real growth, aggregate demand (total compensation), technological change (productivity), and so on.

There's back-pressure (falling profits, slowing growth, recession, depression, shrinking economy, rising unemployment, a vicious cycle), but also there's always a place for financial capital to go. Namely there are always new ideas to try, there are always things to invest in.

For example, there are always more riskier and more longer term investments, such as education (lending people money to retrain and switch to a higher paying job - a bit like student loans, but a lot more like coding bootcamps). Infrastructure (public transport, energy, housing), and so on.

Profit (real capital) comes from economic surplus, and that comes from technological change (economies of scale, efficiency, etc). And fundamentally it seems advanced economies are very resistant to switch to more efficient forms. ( http://www.vitalsigns.mtc.ca.gov/time-spent-congestion --- and it took a pandemic to try to make home office really viable; see also how much money people spend on healthcare, yet how inefficient it is)

Without real economic surplus a bigger money supply is just inflation. (That's why some people freak out when they see central banks doing quantitative easing, but they forget that central banks look at inflation, and they do QE to keep inflation above 0.)

So eventually, either we invest in big changes to go up the efficiency ladder, stagnate, or worst case the promised new projects don't deliver (because there was not enough aggregate demand to subscribe/buy/rent/use the new shiny thing, or it was not green enough, so it was not a good market fit), eventually the financial sector starts to run out of equity to risk, and we fall into the debt trap that caused Japan's lost decade.

(And that's why central banks all around the world are able to just foot the bill, because it doesn't cause inflation as long as that money is basically just gets rolled over into new loans/bonds/etc. most of it goes nowhere.)

Eventually it will be inflated away. Someone has to pay the piper.

There's a piece of investment wisdom that says "the market can remain irrational longer than you can remain solvent" - or, applied here, Uber's going to take a while longer to die than your startup.

> The only people who lose in this equation are the ones who accepted those risks.

And, more importantly, also the people who are collateral damage of this. I.e. the people in your or mine neighbourhood. The local restaurants, the local drivers, the local renters.

All this money raised isn't just sitting there doing nothing, it's disrupting markets - the way a disruptor wielded by a Klingon or Romulan would disrupt your body. By the time the disruption ends, your body won't work. These markets won't work either.

I've heard of this happening for executives and board members at various blue chip companies.

>> SoftBank lent billions for employees to invest. That's incredible and dubious!

In some ways, this is great. It shows that fund executives' interests are aligned with the long-term returns of the fund. It shows they are there for the carry returns and not just the annual admin fees. It gives execs skin in the game.

This is more common in investment professions.

Which is just baffling

That's why I excluded Uber and the like, the push was for the same strategy for all sorts of their smaller invesments.

Edit: thinking companies like Wag, DoorDash, etc

ARM will just get sold to someone else.

They own a bunch of Alibaba too, to be fair.

Some very quick Googling came up with ominous signs of the tech bubble bursting (in 2011): https://www.nytimes.com/2011/06/20/technology/20cashout.html

“We are not sure that the valuations we are seeing are sustainable in the long term”

Also 2015: https://www.inc.com/magazine/201509/jeff-bercovici/are-we-in...

"Private valuations have become disconnected from public reality"

If you bought Amazon when it was valued at $50 billion, you would have (small) profits even if you bought 20 WeWorks at $50 billion as well. If you could bring it down to 10 WeWorks per Amazon you'd make enormous returns.

Not sure I'd want to hand over my non-existent fortune to Masayoshi Son, but I wouldn't blame someone who did.

>just to play devil's advocate: this day and age, is there anything better they could've invested in?

I mean, biotech, clean energy, healthcare, pharmaceuticals or anything else that's risky but at least you have huge upside in case something succeeds?

Or alternatively take the money to emergent markets and fund startups in Africa, at least there you have some huge potential for growth even if the products are boring.

Yes it is, March was the low point for the markets. They're up pretty big this quarter.

WeWork is to remote work, as Cyber-Cafes were to home computers

There is no way peak oil (which I assume is peak oil demand, not supply) is going to happen anytime soon. Too much of the world has massive energy needs in order to develop (almost all of Africa, large parts of South America and Asia) and oil will be a huge part of the energy mix given its advantages. The current coronavirus situation might depress oil demand for a bit, but unless living standards get permanently stuck at low levels in the developing world oil demand is going to grow for the foreseeable future. Of course, how Saudia Arabia does depends on how long their reserves last, and many people believe they've overstated the amount of oil they have remaining.