
SoftBank Is Selling Wag Stake Back to Company - xrd
https://www.bloomberg.com/opinion/articles/2019-12-10/the-dogs-ate-softbank-s-money
======
Qwertystop
I have difficulty seeing Unicorn (the scooter company) here as anything other
than an intentional joke on current VC. They call it Unicorn, they put nothing
into actually making a product, and they close up shop immediately after
spending all the money on growth -- unlike with Wag, that really doesn't seem
like something accidental.

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paxys
This paragraph is amazing

> 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.

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duxup
I remember someone telling me something about how 'hard' it is to get a good
return when you have a massive amount of money. I suppose they meant beat the
market or something like that...

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.

~~~
gopalv
> how 'hard' it is to get a good return when you have a massive amount of
> money

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.

~~~
TheOtherHobbes
The _real_ problem is the idea that you need a return on your money.

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.

~~~
solveit
> 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.

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).

~~~
shoo
I appreciate this is framed as "incredibly crude approximation", but here's a
contrived counter example to try to highlight ugly detail that language such
as "providing real value" may gloss over:

> 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".

~~~
TheOtherHobbes
That's a good point, and one that can't be made often enough.

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.

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IOT_Apprentice
$300 million for a fucking dog walking out sourcer? Who signs off on this kind
of shit?

~~~
redisman
I use Rover pretty often for medium-term dog care for trips and such. It
usually costs me $400-$1000 for a week or two so it definitely provides a
valuable service and good revenue.

~~~
wavefunction
Jeez I can take my two dogs to a full on dog ranch for a week for less than
that. They get to play all day with dogs and run around on an old farm... dog
ranch = dog kennel

~~~
brianpayne2
Options in major cities are much more limiting. The nice places like that are
absurdly expensive. Rover helps make it more affordable to board your pup for
longer trips.

~~~
imroot
My building in Miami has a 24 hour dog walker that you can call or text, and
if you've got an apple device, you can even facetime with your dog, and it's
part of my Condo Fees. Because of that, I really have no need for Wag or
Rover.

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a_band
> _If you need a little bit of money to grow your business modestly, you can
> raise a lot of money from SoftBank to grow your business crazily, and then
> put most of it in the bank and use a little bit of it to grow modestly
> instead. SoftBank will be disappointed with the modest growth, and you can
> say “sorry it didn’t work out” and then buy them out at a lower valuation
> with the money you have left over from not growing your business crazily.
> Free (modest) growth capital!_

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?

~~~
raverbashing
That sounds like turning the vc strategy up to 11

Hey, instead of 1Mi A round, why not 100Mi?! You can grow 100x faster, right?

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dmix
> with officials at the $100 billion fund preferring to sell or liquidate the
> company and other investors preferring to downsize the business while
> focusing on sustainable growth and profitability.

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.

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RcouF1uZ4gsC
Maybe Masayoshi Son secretly hates Mohammad bin Salman and the whole Softbank
Vision Fund was just a clever way to basically light Saudi oil money on fire
while maintaining plausible deniability.

Looking at Softbank's investments, I am having trouble coming up with a better
explanation for their behavior.

~~~
fnord77
I know this is probably in jest, but I think Hanlon's razor applies here

> "Never attribute to malice that which can be adequately explained by
> incompetence."

~~~
catalogia
Widespread belief in Hanlon's razor is very useful to anybody looking to get
away with something.

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mkagenius
More than themselves Softbank has/is harming the entrepreneurs who now think
having modest growth is something one should never aspire for. They see
headlines of billions of dollars in funding and assume this is the norm and if
they don't get so much of funding then they have not succeeded.

But of course, the Softbank doesn't care - they have a different vision.

~~~
sombremesa
HN is not innocent in the propagation of the idea that modest growth is
unacceptable. Just look at the number of people "validating" their ideas with
landing pages versus just building something that solves their own problems
(or problems within their circles) and growing organically from there.

~~~
blackearl
You're blaming people for trying to hit the lottery. Who wouldn't want to
build a thing and then flip it for a billion dollars, all in a few years?

~~~
Fomite
We generally tell people that trying to hit the actual lottery is a bad idea.

~~~
nradov
Playing the lottery isn't necessarily a bad idea if other people are giving
you money to buy tickets.

~~~
Spellman
As long as they don't come looking for those returns you promised

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neonate
[http://archive.is/1K5IA](http://archive.is/1K5IA)

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corporateslave5
The reality is there’s too much money floating around. The saudis will
eventually stop making so much from oil, they need income and cannot afford to
sit on cash. But neither can anyone else, so they take risks to deploy huge
capital. Probably they’ve made out big elsewhere

~~~
onlyrealcuzzo
In VC? One of KSA's __best __known VC investment so far is Uber. They invested
$3.5Bn at $65Bn valuation [1]. Uber has a current market cap of $47Bn.

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-...](https://www.vox.com/2018/2/9/16996834/uber-latest-
valuation-72-billion-waymo-lawsuit-settlement)

~~~
blackearl
Sure, but I'm aiming to moonshot, own the taxi, car, and self-driving AI
industries, and become the world's first trillionaire.

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sharadov
The Saudi's are definitely pissed with Son, and they are ruthless.

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smabie
My boy Levine strikes again! Truly the greatest guy on the internet!

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DonHopkins
I'm having a hard time getting my head around the name "Wag Labs".

[https://en.wikipedia.org/wiki/Wag_(company)](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.

~~~
nkrisc
It's "Labs" because they're a "tech" company because they have an app. An app
makes you a sophisticated technology laboratory. Right?

Definitely not just a company that uses "gig economy" workers to walk dogs.

~~~
triceratops
Is there a whitelabel gig economy platform that someone could use to start
their own company? Kind of like a Shopify for the gig economy - you get your
own branded website, apps, management platforms etc.

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ergothus
I've heard this "it's hard to make money even when you're rich" often, and I
just don't understand it.

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?

~~~
awrence
Nope, you're exactly right, and it's one of the main engines behind wealth
inequality. Once you reach what I personally call material escape velocity,
the point at which your lifestyle + inflation < yield on your capital, your
wealth accrues up relentlessly. It's like escaping a financial gravity well.
Eventually you get to a level where you can weather just about any market
shock and then there's basically no way to get sucked back down barring things
like death, taxes, divorce etc. The people that have reached this point
casually boost on higher while everyone else who hasn't and can't save vs
lifestyle needs gets left behind.

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...

~~~
kortilla
> The people that have reached this point casually boost on higher while
> everyone else who hasn't and can't save vs lifestyle needs gets left behind.

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.

~~~
smacktoward
It is _very_ relevant in that it empties out the middle class, and middle-
class consumption has always been the engine driving the modern American
economy.

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.

~~~
kortilla
No, it doesn’t empty out the middle class. That assertion is unfounded. The
middle class in the US is so large that the wealth of the billionaires spread
out amongst it is effectively a drop in the bucket.

> 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...](https://www.pewresearch.org/fact-tank/2018/09/06/the-american-
middle-class-is-stable-in-size-but-losing-ground-financially-to-upper-income-
families/)

~~~
FisDugthop
The top 5% is not wealthy enough to be affected by the proposed wealth taxes
that people are currently fearing. Even the top 1% is not totally affected.

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.

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shaneprrlt
>> The first iteration successfully used Remote Viewing to forecast market
motion of a SPY-related index.

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.

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paulddraper
_> you can say “sorry it didn’t work out” and then buy them out at a lower
valuation with the money you have left over from not growing your business
crazily._

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.

~~~
jjeaff
Liquidation preference would not come into play unless you are selling off the
whole company.

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?

~~~
paulddraper
> Liquidation preference would not come into play unless you are selling off
> the whole company.

The wholesale liquidation would presumably provide a floor to the partial
liquidation value.

That's not _necessarily_ true, but probably is. ("Overstatement")

