SoftBank founder admits to lapses on WeWork

Three months ago, WeWork was valued at $47 billion and preparing for an IPO. Last month, following a crisis in confidence among investors over the company's governance and precarious financials and the departure of co-founder and CEO Adam Neumann, SoftBank agreed a $9.5 billion debt and equity rescue package for WeWork at a valuation of $7.88 billion.

Son said during SoftBank Group's second-quarter earnings call that his "judgment in [the] investment was not right in many ways," that he had "turned a blind eye especially when it comes to governance," and that he had placed too much faith in Neumann and failed to implement sufficient mechanisms to rein in WeWork's co-founder. At the same time, Son challenged the interpretation of SoftBank's most recent investment as a rescue package and claimed that he still believed in the WeWork growth story.

The Vision Fund invested a cumulative $3 billion in WeWork and valued its position at $4 billion in June. This has since been adjusted to $1 billion. The fund has also posted a $400 million loss on separate investments in WeWork affiliates focused on China, Japan and Asia. These positions were valued at $1.3 billion in June and there was a subsequent investment of $200 million. The affiliates have been folded into the parent company at a valuation of $1.1 billion.

In addition, SoftBank Group invested $6 billion in WeWork in equity and subscribed to warrants worth $1.5 billion. The combined value of these investments is now $1.3 billion.

SoftBank's stakes in the China, Japan and Asia affiliates were 40%, 50%, and 41%, respectively. It led a $500 million Series A round for the China entity with Hony Capital in 2017. A Series B round, also worth $500 million, came a year later, with SoftBank and Hony joined by TrustBridge Partners and Temasek Holdings. Hony is also an investor in WeWork's global business, having led a Series F round with Legend Holdings in 2016.

Explaining that WeWork had simply expanded too quickly, doubling capacity every year even though it takes about 12 months for new properties to break even, Son said the company could turn profitable within four years. This will be achieved through a freeze on new lease agreements, cutting costs, and closing unprofitable locations.

He also defended the performance of Vision Fund, noting that the $100 billion vehicle has delivered $11.4 billion in cumulative investment gains and $9.9 billion in distributions. A total of $76.3 billion has been deployed so far across 90 investments. However, as of September, the fund had unrealized net losses totaling JPY537 billion ($4.9 billion) from investments including WeWork and Uber.

Son said that fund deployment was now completed – 15% has been held back for follow-on investments – and that Vision Fund 2 would be launched on schedule. SoftBank announced in July that the new fund had about $108 billion in initial commitments. SoftBank itself is contributing $38 billion, with an additional $70 billion expected to come from the likes of Apple, Foxconn Technology, Microsoft, Mizuho Bank, Sumitomo Mitsui Banking, Sumitomo Mitsui Trust Bank, and Standard Chartered Bank.

"Due to a series of incidents involving WeWork, and also the Uber situation, some investors are … more careful about the decision," Son added. Nevertheless, he expects Vision Fund 2 to be roughly the same size as its predecessor.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• North Asia
• Performance
• Expansion
• Technology
• Fundraising
• Growth
• Japan
• China
• Softbank
• TMT