First after Uber: co-working network WeWork will sign the deal of the decade

Japanese fund SoftBank Group, owned by chief technology investor Masayoshi Son, wants to invest $15-20 billion in one of the world's largest co-working chains, WeWork, on top of $4.4 billion already invested, according to the Wall Street Journal and Bloomberg . WeWork is unprofitable, and many skeptics believe that its potential is grossly overestimated, but Son, the largest shareholder of Alibaba, Uber, Boston Dynamics, is ready to conclude with the company the main deal of the decade of the "startup boom".

What WeWork is known for

• WeWork was founded in 2010 by Israel-born Adam Neumann ( worth $2.5 billion), and the network owns about 450 offices in 89 cities. WeWork is valued at $25 billion, among its investors, in addition to SoftBank, is Goldman Sachs. WeWork takes unrenovated spaces on long-term leases, transforms them into flexible spaces with modern designs, and then sublet them out on a monthly basis.
• Neumann is not going to stop there: he plans to create entire WeWork blocks not only with office space, but also, for example, with their own apartments, gyms and schools.
• Learn more about how this business works here . In addition, it recently turned out that WeWork will nevertheless open the first office in Russia - you can read more about this here .

First after Uber

• According to the WSJ, the deal will amount to $15-20 billion, Bloomberg writes about several billion dollars. SoftBank will take the money from its $92 billion Vision Fund, which is formed mainly from the funds of the sovereign wealth fund of Saudi Arabia and investors from Abu Dhabi. The fund, after last year's investment of $4.4 billion, already owns 20% of WeWork.
• If the agreement is successfully signed, the deal will become one of the largest and most significant “startup booms” of the last decade, the WSJ notes. The company is currently valued at $20 billion and will rise to more than $40 billion once the deal closes, making WeWork the second most valuable startup in the US after Uber. In January 2018, SoftBank became the controlling shareholder of Uber, buying 15% of the company for $48 billion.

risky investment

• WeWork stands out in the real estate market for its value - for example, the international leader in the number of premises, IWG PC, is valued by the market at 80% cheaper. At the same time, against the backdrop of increased investment in business development, WeWork began to grow losses: for the first half of 2018, they amounted to $723 million, $154 million more than the same period last year. However, revenue during the same period more than doubled to $763 million.
• Skeptics believe that investors who have invested billions in WeWork do not fully understand all the risks of this business. Most of the clients are startups, whose existence may be short-lived, as well as larger companies that can go into recession: the coworking network is “trapped” by its own long-term tenants.

"Unconditional supporter"

• Many Softbank executives opposed investing in WeWork, but Son stood his ground. He is an “unreserved supporter” of WeWork, writes Bloomberg: after acquiring a large stake in the co-working network, Son called on the companies in which he invested to use WeWork offices and even set an example - SoftBank itself occupies most of the WeWork spaces in Tokyo.
• Son is the richest person in Japan ($24.8 billion according to Forbes ), the largest technology investor in the world and the largest shareholder of Alibaba, Uber and Boston Dynamics, as well as thousands of lesser-known startups (in total, Son invested in 1,300 companies). This is a person who "sits on the cache" and "floods" the technology sphere with it, describes the WSJ. We talked about the entrepreneur in detail here .
• At the same time, Son's desire to increase his share in WeWork differs from the usual approach of the Vision Fund - the acquisition of a minority stake in industry-leading companies. Since its inception in 2017, the fund has invested billions of dollars in companies ranging from young start-ups to large public corporations like General Motors. However, Sleep often makes instinctive decisions, notes the WSJ. At a shareholder meeting in June, he said, “Emotions are more important than just looking at the numbers. You have to feel the power, like in Star Wars.

What is the secret of WeWork? The founder of the network, Adam Neumann, always emphasizes that WeWork is primarily a technology startup, and not a simple landlord in the real estate market (it is no coincidence that the plans include the construction of entire blocks of the network). He compares his network to Uber and Airbnb, whose value has skyrocketed because they are tech companies. And this is something to keep in mind when you create a business, and when you choose an object for investment, and when you are looking for an employer with whom you are going to connect your future.

Artem Gubenko