What’s up with SoftBank and WeWork?

Over the last few weeks (months?) there’s been a ton of news around WeWork, its planned IPO, and its valuation. There’s an old saying, “If you borrow $1,000 from the bank, and can’t pay it back, you have a problem. If you borrow $1 million from the bank, and can’t pay it back, the bank has a problem.” Now, SoftBank isn’t a bank — they’re effectively a giant venture-capital fund, which started as a software company, and then invested in Yahoo!, and then invested in Ali Baba, and then raised a $100 billion investment fund. They put $10.3 billion into “startup” WeWork, and then last month had to put together a $9.3 billion bailout of said company. This week, they wrote down $4.7 billion of that original investment. WeWork, for its part, was valued at $47 billion in January, and is down to $8 billion this week. The problem is, WeWork is … a real-estate re-rental company (they’re still the largest private tenant in NYC). Sure, their offices are cool. But really, they’re just a next-generation Regis, and it’s hard to see how their valuation was ever justified. Their valuation collapse has had follow-on impact on other companies that are bridging the barrier between the world of software and the real world — companies like AirBNB and Uber. But there’s a big difference here. WeWork never had any technical differentiator (nor, for that matter, any disintermediation or disruption, at all). Uber, for all that they’re a “ride sharing company,” is really at least trying to be a software company. As technology continues to evolve, we’re going to see more-and-more crossover between software and the real world, in terms of business models. When looking at this stuff, a key to your thinking should be “is this a traditional business, using technology to look better [incremental improvement, and implying incremental improvement in valuation multiples]; or is this a technology company, disrupting an industry [much higher multiple, but equally much higher risk]. Caveat emptor.

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