Softbank Owns “Mistake,” Unicorns Falter in WeWork Debacle’s Wake
November 13, 2019 | Contributed by: Charles Laughlin
The fallout from WeWork’s spectacular fall keeps coming.
The failure of WeWork’s IPO seems to have triggered a selloff of so-called unicorn stocks. We wrote about this recently, noting that the pendulum may be swinging back in favor of sustainable growth and a clear path to profitability. High burn rates and flashy, eccentric CEOs seem to be on the outs.
Here is what PitchBook wrote this week, referring to Spotify, Slack, Uber, DocuSign, and CrowdStrike, among others.
On the whole, these companies have done quite well since conducting IPOs. Many of their share prices have increased. But in the past two months, it’s been a very different story. Almost every high-profile VC-backed company that’s gone public since the start of 2018 has seen its stock decline since the height of summer, and some of those declines have been sharp. For most companies, the tide turned around September 5, while a couple other names hit their recent high-water mark on August 16.
The WeWork debacle has also forced SoftBank Chairman Masayoshi Son to eat a heaping helping of crow. SoftBank posted a $6.5 billion loss in Q2, its biggest ever. SoftBank and is VisionFund wrote down $8.2 billion in losses on WeWork on top of write-downs on investments in 20 other companies, including Uber.
“My judgment in investment was not right in many ways,” Son reportedly said, through a translator, referring to the WeWork investment.
WeWork has also been signaling to investors that it will retrench around the business’s core value proposition of providing co-working space to SMBs, freelancers, and remote employees. This will mean divesting many of the ventures invested in or acquired under co-founder and ex-CEO Adam Neumann. One of these assets is Wavegarden, a Spanish company that produces wave-making systems for artificial surfing sites. This acquisition seems emblematic of what went wrong with the company.
In fairness, other WeWork investments have some relevance to the core business, including Managed by Q, a VC-backed company providing janitorial services, and SpaceIQ, a cloud-based workplace management platform.
Meanwhile, it’s been widely reported that T-Mobile CEO John Legere is being considered as a replacement for Neumann. Legere hasn’t commented publicly, but the fact that the word is out that he is in the running leads me to predict he will end up taking the job.
The likely origin of the talks is SoftBank’s 80% ownership of Sprint. T-Mobile has been trying to acquire Sprint for more than a year now. The deal is currently tied up in court. No doubt Son and Legere have gotten acquainted during this process.
The jokes about long-hair being part of the job description kind of write themselves. However, one thing Legere has over Neumann is a track record of success.
Still, I thought WeWork would follow the example Uber set when it traded in the brash and combative Travis Kalanick for the more softspoken Dara Khosrowshahi. It may yet go in that direction if the Legere talks collapse.
Whoever ends up at WeWork’s helm will have their work cut out for them in fixing both the company’s business model and culture. Putting an end to surfing-related acquisitions is one place to start.