
SoftBank’s Vision Fund Loses $17.7B on WeWork, Uber - pseudolus
https://www.bloomberg.com/news/articles/2020-05-18/softbank-vision-fund-books-17-7-billion-loss-on-wework-uber
======
ChicagoDave
I'm just thinking about how many $500k to $1mm seeds could have helped
founders get their ideas off the ground in lieu of these debacles.

17,700,000,000

17,700 at $1mm 35,400 at $500k

That's a lot of ideas getting fuel and a lot of people being put to work. Even
if you filter through for high quality ideas and teams, this is still a better
use of those funds.

WeWork was a bad idea from the start. Uber is a great idea without a
functioning (profitable) business model.

As an entrepreneur, this kind of news drives me batty.

~~~
pembrook
WeWork is absolutely not a bad idea. Talk to regus, they’re running a
profitable business doing the exact same thing (pre-covid).

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

They are both totally viable businesses, post-covid.

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.

Uber & Wework aren’t going to be Apple/Google market cap any time soon, if
ever. And that was true pre-covid.

~~~
bgorman
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

~~~
chrisabrams
I'm sure some people would disagree with you. What you value isn't the same as
what others necessarily value. That doesn't make it a terrible idea in itself.

The experience of a WeWork and Regus are very different. They can both co-
exist because some people like a more community type environment, and some
people just want a modular space that is affordable.

WeWork tried a bunch of things that you might not find at a typical coworking
space but I personally would pay 2x for a WeWork space over the same Regus
space because I will get more value out of the WeWork space which is meeting
people. I have spent plenty of time in my career in WeWork and Regus spaces,
and WeWork has been much more fruitful in terms of the network effect.

~~~
lostmsu
> What you value isn't the same as what others necessarily value. That doesn't
> make it a terrible idea in itself.

It does not matter what people value, it matters what market values. And for
the market having a yoga CEO is not a selling point for a car.

------
dannyw
> The drop in Uber’s share price was responsible for about $5.2 billion of
> Vision Fund’s losses in the period, while WeWork contributed $4.6 billion
> and another $7.5 billion came from the rest of the portfolio

Losing even _more_ on other portfolio businesses, like Oyo (the hotel chain)
is going to hurt.

I hope this gets rid of the "out-raise your competitors and spend ridiculous
amounts of money on ridiculous money sinks" strategy forever.

~~~
toomuchtodo
> I hope this gets rid of the "out-raise your competitors and spend ridiculous
> amounts of money on ridiculous money sinks" strategy forever.

I don't think so. 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.

EDIT: The more interesting question (IMHO) is what happens when all of that
capital has nowhere to go? Is there back pressure? How do accumulators of
capital react to such forces?

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

~~~
toomuchtodo
The collateral damage is immense, to both gig workers and in the case of food
delivery, restaurants who do the actual work of making the food.

EDIT: I mean, just go UBI instead of advocating for siphoning sovereign fund
dollars from ruthless dictators and unsophisticated investors like Masayoshi
Son. Save us all the paperwork and bikeshedding about not being able to afford
what we clearly (based on central bank monetary policy) can afford. I will
certainly miss the Matt Levine pieces about these folks though.

~~~
fosk
Nobody is forced to work for Uber and the like, restaurants can also ban these
services.

~~~
toomuchtodo
This is a tired argument. We live in a society, not Somalia. Government exists
to regulate to protect citizens, and I'm starting to believe these arguments
are put forth to give these monstrosities more time before death gasps.

~~~
elcomet
> not Somalia

I'm curious why you would choose this example. Is somalia a country without a
society ?

------
JumpCrisscross
Until recently, Vision Fund proponents had been able to point to paper gains
as signs of the fund’s performance. The fund is now underwater [1].

Given how personally leveraged Vision Fund’s employees are to the fund [2],
I’m curious what morale is like there.

[1] [https://www.wsj.com/articles/softbank-posts-9-billion-
loss-f...](https://www.wsj.com/articles/softbank-posts-9-billion-loss-for-
year-hit-by-poor-tech-investments-11589787762)

[2] [https://www.wsj.com/articles/softbank-to-lend-founder-and-
em...](https://www.wsj.com/articles/softbank-to-lend-founder-and-employees-
billions-to-invest-in-fund-11566051247)

~~~
boredgamer2
From [2], SoftBank lent billions for employees to invest. That's incredible
and dubious! I've been offered to purchase stock of my employer at reduced
prices if I hold it for X time, but never been offered a loan to do it.

~~~
TuringNYC
>> 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.

~~~
Traster
People keep saying this, but in reality all this ever seems to do is to give
employees an incentive to boost the share price. If you have an employee that
works hard to create long term value for the company you can review their
performance at the end of the year and make a judgement that they've created
long term value in a sustainable way and you can give them a big bonus or
increase their salary. If you give them massive amounts of stock, suddenly
you're powerless, it doesn't matter what they're doing to boost the stock
price, as long as they bump the price they're going to get a good income no
matter what you think of their performance.

~~~
TuringNYC
Bonuses end up becoming political exercises. If you can keep bonuses aligned
with value, that is great but I've seen otherwise many times.

Serious question - are there really many bad ways to bump up the stock price?

There is financial engineering (like stock buy-backs), you can just disallow
that and remove the problem.

There is unnecessary M&A, but if the employees are running amok with
unnecessary M&A, you have much bigger problems.

There are illegal things -- but we have the law to take care of that.

There are extractive measures (e.g., squeeze blood from workers, suppliers),
but if that is allowed, then the "value" you see from that is likely also
"value" you'd reflect on the annual bonus.

~~~
JumpCrisscross
From a shareholder perspective, buybacks that raise the stock price are just
fine.

~~~
gvhst
Not if they company is buying back shares at an inflated valuation, which
sadly too often the case.

------
ckastner
Note that this was for the fiscal year that ended in March, so before most of
Covid-19's impact.

Can't imagine what FY2020 is going to look like.

~~~
kolbe
Uber is up about 20% from the end of March.

~~~
puranjay
Which is just baffling

~~~
postingawayonhn
Not really. The whole market is up about 30% from its low. On top of that Uber
Eats is obviously doing a lot of business right now.

~~~
kfarr
And layoffs.

~~~
qeternity
Layoffs are generally positive for stock prices. The bad news causing the
layoffs are priced in, and the layoffs mitigate some of that.

------
as-j
I wonder how much good vs damage SoftBank has done to tech companies, or was
it just te normal consequence of the end of the tech bubble? I don't mean
Uber, WeWork and the high profile ones, but the less news worthy failures.
What do I mean?

SoftBank funded companies were told to grow at any cost, scale to become the
market leader. A lot of companies weren't mature enough, or maybe not viable
enough to do so and just burnt through cash and ended up with nothing as a
result.

I wonder how they would have done had they not had such a strong drive to grow
at any cost?

~~~
nsl73
I imagine if Uber hadn’t pushed so hard for growth most local markets would
still be using their old taxi system.

~~~
as-j
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

------
haram_masala
This has downstream implications for global stability. Much of that money
comes from Gulf states, including Saudi Arabia, who need investment returns to
replace dwindling oil revenues. Revenues which prop up an extremely generous
entitlements system that has kept the royal family in power.

------
zacpross
WeWork seemed like a poor investment anyway. Pandemic or no pandemic, the
economy was heading for a reset after 10 years of a good run. Why they
expanded their building so quickly is beyond me, and it's left the whole
business extremely open to a downturn. I've worked in a lot of the buildings
in London and watched it explode since coming to the city. It started as a
great idea and built on community, but it lost a lot of that with generic same
same buildings. Money sinks. Something other spaces are doing far better,
focusing on certain industries and startup communities.

~~~
DavidHm
I work in the industry (yes, the whole debacle has been fairly entertaining).

From what I've heard, Neumann was 100% convinced that the 16Bn financing round
was a sure thing (and the rapid growth was how he positioned himself for it).
I don't know whether he meant to ride off the sunset, or (as our ceo put it),
rely on the fact that even if the business is unsustainable, tens of billions
of cash means that you won't go bankrupt for a long time.

------
VWWHFSfQ
Is SoftBank the worst investment firm of all time

~~~
gruturo
That, and the name of the fund ended up being hilariously wrong. They have
invested in things where a 10 year old could have pointed out obvious
fallacies.

Saudi investors must be really pissed off, they look like complete fools now
(having just been parted with quite a bit of their money). If I were Masayoshi
Son, I wouldn't step in a Saudi embassy for all the money in the world now.

Oh well if they blow up it's actually capitalism working right _for once_. Too
bad they own ARM, that's more or less the only thing of value that could be
lost imho.

~~~
disgruntledphd2
ARM will just get sold to someone else.

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

~~~
Traster
I find it very difficult to see where ARM fits, it really should be an
independent company. Since everyone who sees the most value in buying it
shouldn't be allowed to. Can you imagine if Apple snapped it up? Or Qualcomm?
Or even Intel?

~~~
sah2ed
> _Can you imagine if Apple snapped it up? Or Qualcomm? Or even Intel?_

Apple perhaps, but they tend to avoid generic M&A like this. They tend to only
do M&A when there is a very strong fit; they’ll happily continue to license
ARM’s IP.

The others each have offerings that compete with ARM, so on that alone, they
wouldn’t be able to close the sale unless regulators are completely asleep at
the wheel.

~~~
jdmg94
There's heavy speculation of Apple ditching Intel for the ARM platform, it'd
be interesting to see if it could actually happen. It has to be an
opportunistic move

------
irjustin
To be fair, so much of this is driven by market forces and Covid in general.

Only WeWork was written down, the rest is the market absolutely tanking. I
mean if you followed the index funds, you'd be posting ~20% losses right now.
Earlier it was 30%.

I definitely would not want to be those portfolio managers right now, but it's
not all completely them... yet.

~~~
eggsnbacon1
Might be true, but building a multibillion dollar investment strategy that
falls apart during a market downturn is a very financial crisisy thing to do.
Its easy to make money during a bull market, just toss money into an index
fund.

Uber and WeWork were both banking on increased travel and office presence.
Seems like a dumb thing to do now that COVID has plowed everyone into remote
work. It might have been a dumb thing to do even before.

Crises tend to accelerate underlying societal changes. Remote work and online
ordering were already at an all time high. The virus has pushed this
increasing demand ahead a decade or more. Now I can even see my doctor from
home, something unthinkable a few months ago. Travel is increasingly reserved
for leisure. Uber might be okay but WeWork is on the wrong side of this.
WeWork was a societal stepping-stone to remote work. We've blown past that
checkpoint far sooner than expected

~~~
jdmg94
WeWork is to remote work, as Cyber-Cafes were to home computers

~~~
eggsnbacon1
well said, this is exactly what I believe as well.

------
zentiggr
So where is the Vision Fund getting these billions, and why do they need them
laundered (squandered?) so badly?

~~~
mschuster91
Saudi-Arabian oil (read: blood) money. With Peak Oil around the corner (if it
hasn't already hit thanks to corona), the Saudi dictatorship is in desperate
need for a way to finance their lavish lifestyle and handouts, or it faces
rebellion.

The only thing buying the Saudi government peace at the moment from both
religious salafi extremists on one end and a young Westernized population on
the other hand is extremely generous handouts which in turn depend on an oil
price around 80-90$ range IIRC. But cheap US/CA fracking and shale oil have
been attacking that price level for quite some time which also is problematic
for the Russian economy for similar reasons, so both SA and RU are hellbent on
destroying the US/CA domestic oil industry (which is highly leveraged and debt
financed), which complicates matters even more.

~~~
jeffreyrogers
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.

~~~
mschuster91
Africa can satisfy lots of its energy needs with essentially free solar, plus
Africa has lots of local oil, they don't need the Saudis.

As for oil demand: many Western countries have by now recognized their toxic
dependency on oil. Plastics are being fought against worldwide, electric
mobility is more or less mainstream with Tesla and ICE phase-outs across
Europe, business air travel will be mostly replaced with teleconferences...

~~~
jeffreyrogers
I think you are underestimating the convenience of oil relative to other forms
of energy. Also, Saudi Arabia has a mostly functioning government, which is
not really true of most African countries and Saudi Arabia is one of the
lowest cost producers. Maybe some African countries can compete on price, but
not until they increase their engineering capacity and reduce corruption.

Edit: Even if the world does go all in on electric vehicles, you still have to
mine all the metals that go into their motors and batteries. That is going to
be a huge shock to the mining industry. Probably on a level to the commodity
supercycle that China's growth caused. I don't see any way that metals
production can be ramped up heavily without an increase in oil demand.

------
jvln
I just finished reading
[https://www.billiondollarwhale.com/](https://www.billiondollarwhale.com/)
book. The book tells a story how 11Billion USD were stolen. After seeing $17B
losses I hardly can believe that a big chunk of it or most of it were not
funnelled to support a lavish lifestyle of connected people.

~~~
mrosett
Well yeah, take a look at how Adam Neumann is spending his billions...

------
socrates1998
The more I read about WeWork, the more insane it is to me. I don't really
blame the charlatans at WeWork, it's hard to blame people for taking money on
a product. And they probably do think it's a good business plan.

No, I blame the people giving them billions of dollars. These "investors" are
complete idiots. It's shocking to me how little they understand about the
companies they invest in.

One look at WeWorks "business plan" and I knew it was all bullshit. It's just
ridiculous that so many "smart investors" gave them money.

Ugh, such a waste of money.

------
benjaminwootton
WeWork and Uber are two of the best “products” on the market. Thanks to
SoftBank for their contribution I guess!

------
whoisjuan
Was anyone (with remarkable or relevant VC experience) criticizing SoftBank
Vision's fund approach before all this debacle?

I remember a lot of articles praising it and basically claiming that their
boldness and aggressiveness were going to create never seen returns / disrupt
the VC industry forever.

------
code4tee
There’s tossing gasoline on a pile of cash and then there’s tossing gasoline
on a pile of cash.

~~~
TeMPOraL
And then there's tossing gasoline on a pile of cash made on selling gasoline.

------
KoftaBob
It pains me to see such massive amounts of money wasted on a real estate ponzi
scheme and a ride sharing company with a weak revenue model.

If they're going to call themselves a "vision fund" that focuses on moonshots,
and has the risk appetite to lose large sums of money doing that, at least
invest in _actual_ moonshots.

Biotech, green energy, new forms of transportation like Hyperloop and improved
supersonic jet designs. There are so many breakthroughs that need lots of
funding and can be quite profitable if successful.

I would love to see funds like SoftBank invest more in the SpaceX's of the
world less in the WeWorks of the world.

------
PaulWaldman
The Vision fund is heavily invested in businesses that are negatively impacted
by COVID-19. Are there any bright spots in the portfolio? Was diversification
not possble?

------
Invictus0
Change your perspective: this is not SoftBank losing money, this is the middle
class gaining a free lunch. It's a massive redistribution of wealth from
investors to consumers.

~~~
qeternity
Some of this is also just hitting the undo button. Softbank had a murky habit
of leading back to back rounds, so they were effectively dictating the market
for their own investments. It’s like if you invest in my business at a $10
valuation, and then a year later you invest at a $30 valuation, and a year
after that your accountants force you to carry it at the original $10
valuation. You’re undoing previous paper gains, but nothing really changed.

------
antpls
So, if $17.7B were lost on one side, it would be interesting to trace the
money and see in which pockets most of the money went

~~~
qeternity
Valuations are not zero sum. On a cash flow basis, I think that’s pretty
simple: consumers via subsidies. But on the mark to market side, if I invest
$10 at $100 valuation and the company lists on a stock exchange where
investors only value the company at $50, I’ve lost $5 and nobody has gained
anything.

------
supertent
What's with GetYourGuide? Will they recover after COVID?

------
davedx
Vision

~~~
namdnay
Meh I like his vision: taking insane amounts of dirty Saudi money and giving
it back to the people

