If you are thinking it is some kind of clickbait, you are highly mistaken. The debate on the valuation of WeWork once again talk of the town as SoftBank now believes that they paid too much for a real estate startup, and the investment could easily be tagged with foolish.
After refuting all the claims about the crazy valuation of WeWork for years, SoftBank now says that the world’s largest co-working space is worth just $2.7 billion – a whopping 94% down from the earlier estimated valuation of $47 billion in September last year. Interestingly, after IPO debacle that bought WeWork’s co-founder Adam Neumann and Masayoshi Son much of humiliation, SoftBank invested $10 billion to bail out in WeWork.
However, within a few months, the table has turned now. SoftBank, the Japanse conglomerate, used the discounted cash flow method to evaluate the value worth of WeWork.
This clearly unravels the tussle between SoftBank and WeWork management started from the beginning of 2020. Last year, to resue WeWork after the failed IPO, SoftBank decided to pump in more money into the company, virtually acquiring it. As a part of the deal, SoftBank agreed to buy the stocks of Adam Neuman, the co-founder and the former CEO of WeWork, along with few other shareholders, for $3 billion. The company set April 1, 2020, as the deadline to close the deal.
However, at the beginning of 2020, Masayoshi Son left everyone stunned by disclosing that his company won’t be buying the stocks of WeWork. People familiar with the matter have disclosed that despite rounds of negotiations and meeting between WeWork shareholder and SoftBank, Masayoshi Son didn’t find any value in investing any more funds in the already troubled WeWork.
The global breakout of Coronavirus that has resulted in the total shutdown of businesses worldwide has a serious impact on the real commercial estate market. Co-working startups are among the ones that are affected by the pandemic the most, and given the current conditions, the future visibility is quite bleak. WeWork is no exception; Masayoshi Son read the writing on the wall and decided to hold his further invested in WeWork.
The decision left WeWork stakeholders quite baffled, and they have sued SoftBank for the breach of contract.
On the other hand, SoftBank is also struggling with the shaking confidence of its investors. For the first time in 15 years Softbank Group reported a loss of $12.5 billion in FY’2020, ending March 2020. The much talked Vision Fund alone – WeWork is a part of – also reported a loss of whopping $16.5 billion. In fact, Masayoshi Son surprised with a claim that 15 out of 87 portfolio companies SoftBank has invested in, could go bank corrupt.
The revised valuation of WeWork could have a far-reaching impact on the complete co-working ecosystem. The global lockdown due to Coronvirus outbreak has already out Co-working startups in a very tough spot. Now, with WeWork valuation tanking to just 4% in the last 6 months could have a chain effect on the valuation of co-working startups. As investors are staring at an uncertain future of such startups due to the new normal that advocates work from home culture and experts are already debating on the death of traditional office setup, SoftBank’s take on the valuation of WeWork is like adding insult to injury for most of the startups now.
It may be a bit early to be very conclusive about the fate of Co-working startups, but it’s going to be an uphill battle for survival for startups in the days to come.