So this is what I do not understand: they burn through money like crazy. For them IPO was not a path to liquidity for stock holders, rather it was a way to do the next raise. The large market basically said "Nah, can't get that money on those terms. Sorry". Their only private source of funding is Softbank.
How are they going to raise more money for opex? Go back to Softbank and get another pile of cash at even higher valuation? Because it would be incredibly dumb for Softbank to do that as they have no serious competitors on the next round. So is softbank going to say 'This will be the down round and, we will now own 95% of the company and all of you, previous shareholders, get whatever is left? It is a down round with a wipe out, take it or leave it?'
WeWork’s plan was to raise at least $4Bn from IPO which would unlock $6Bn in bank loans, before the end of the year. Now they have a $10Bn hole in their budget which coincidentally is almost exactly the same size as SoftBank’s investment in them. They are in a lot of trouble if SoftBank doesn’t double down, and do it soon. Q4 starts tomorrow! And $10Bn may be more than the entire company is worth!
2. WeWorks is a turkey that already exists, in a good enough form and, should non-wanker management be installed, fat trimmed and the co being returned to real estate business rather than technology business, it seems to be a pretty tasty and immediately available one.
3. Buying it outright would have been a lot more expensive.
Is it any different from Softbank investing in Sprint? They could have invested in smaller company and built it themselves but instead they dumped money into someone who was already there and slowly reshaped the management
WeWork is not worth $16Bn. IWG is only worth $3.6Bn and is many times the size by sq ft under management. I don’t believe that WeWork is even worth $1Bn using similar valuation.
Err... that's not an accurate comparison. If Softbank gives WeWork $10B for 100% of the company then its book value will skyrocket as its liabilities won't increase even by a penny but it will get 10B on its balance sheet. There's not a single company in the WW lines business that has this kind of a prospect. Regus simply can't raise this kind of money -- if they could, they would have.
Well sure but why would they pay 10x as much as it’s worth? Remember they have already invested $10.5Bn. So they would be paying a grand total of $20.5Bn and what would be their exit strategy from that?
Lets presume that for some reason Softbank wants to play in this space. What are the plays that are at its disposal?
1. It can buy Regus. Regus does not need money to survive, has poisoned pill and does not have a brand recognition. With 3B yearly revenue. Anything below 8x the revenue probably won't get a board's automatic stamp of approval and anything below 10x won't get a board's enthusiastic "Yes, please!". So that's 35B. Regus with Softbank money would definitely crush everyone. It will take a long time just to get the 35B back.
Pro: Definitely a solid play
Con: Really expensive.
2. They can create their own competitor - it will take 3-5 years or longer to assemble the entity comparable to WeWork with the same level of name recognition. It will also cost more than WeWork already burned. During that time Regus may restructure and become a real competitor ( they are in a different market now ) and whoever picks up a corpse of WeWork could become a competitor in the juciest markets.
Pro: cheapest
Con: longest, and most unclear -- Regus may pick up WeWork corpse making it the undisputed leader.
3. Basically do a hostile takeover of WeWork. If that was the play, it seems to have worked very well. It was as if a biker was taking candy from a baby: neither VCs nor C-suite, not ibankers seemed to have caught on.
Pro: No WeWork corpse for Regus to pick up cheap, no other competitors show up from it. Cheaper than buying Regus.
Con: ~10B spent already + 10B to buy the rest.
> what would be their exit strategy from that?
They may not be looking for an exit at all. At those sizes cash equivalents without good investment prospects aren't a good asset.
But they have to. Like all VC funds Vision Fund has a set lifecycle. In their case they have 5 years to invest (starting on the day the fund closes to new investors, which has already happened) and then 7 years until maturity at which point it dissolves and returns capital to investors. The clock is ticking.
It depends on how their fund is structured. Based on what I have read the minimum life of their LPs is 12 years. At the scale it operates, and considering from whom it raises money it does not make much sense to structure it as a typical VC fund.
I wonder if Softbank has released all of it's funds to WeWork. they usually release them in tranches based on milestone achievements. In this case doing an IPO was likely one. Which is probably why they were pushing against doing an IPO, potentially saving some of the remaining capital. Not sure.
How are they going to raise more money for opex? Go back to Softbank and get another pile of cash at even higher valuation? Because it would be incredibly dumb for Softbank to do that as they have no serious competitors on the next round. So is softbank going to say 'This will be the down round and, we will now own 95% of the company and all of you, previous shareholders, get whatever is left? It is a down round with a wipe out, take it or leave it?'