The WeWork saga has drawn to a close with its bankruptcy filing, shedding light on the significant flaws in the investment approach of Japanese billionaire Masayoshi Son. Beyond the financial losses incurred, this protracted episode has inflicted considerable damage on Son’s professional reputation. Son’s decision to override the objections of his advisors and provide WeWork founder Adam Neumann with billions of dollars from both SoftBank Group Corp. and the Vision Fund elevated the co-working office space’s valuation to a staggering $47 billion in early 2019. However, this exorbitant valuation quickly unraveled when investors expressed concerns about deep losses and conflicts of interest revealed in WeWork’s IPO filings just months later.
WeWork’s subsequent nosedive is imposing a substantial financial burden on SoftBank, estimated at over $11.5 billion in equity losses, coupled with an additional $2.2 billion in outstanding debt. The highly visible decline of WeWork, combined with the Vision Fund’s staggering loss of $32 billion last year, has severely tarnished Masayoshi Son’s reputation as a shrewd investor who had previously achieved remarkable success through early investments in companies such as Chinese e-commerce leader Alibaba Group Holding Ltd.
Aswath Damodaran, a professor at New York University’s Stern School of Business, emphasized the challenges that Son now faces: “You can recover from mistakes, but how do you recover from the perception that you don’t know what you’re doing? His actions say, ‘I am arrogant.'” Damodaran speculated that Son’s prior successes, including those during the dot-com era, may have contributed to a certain level of overconfidence.
Prior to the WeWork debacle, SoftBank was widely perceived as a prudent and visionary organization under Son’s leadership. However, as success bred confidence, the organization may have grown complacent, ultimately leading to its downfall.
Despite WeWork’s bankruptcy, the company will continue to operate while striving to strengthen its financial position. SoftBank and existing creditors have reached an agreement on a restructuring plan, which will reduce over $3 billion of WeWork’s debt.
A spokesperson for SoftBank stated, “We believe that today’s restructuring support agreement represents the appropriate action for WeWork to reorganize its business and emerge from Chapter 11 proceedings.” Furthermore, SoftBank remains committed to acting in the best interests of its investors.
Masayoshi Son established SoftBank’s Vision Fund in 2017 with the aim of becoming the world’s largest technology investor. Over time, he invested over $140 billion in hundreds of startups, a strategy characterized by bidding up valuations and providing founders with more capital than they initially sought. However, this approach drew criticism from Silicon Valley competitors.
Son often attributed his investment decisions to gut instinct, describing it as a kind of inspiration akin to the Force in Star Wars. Nevertheless, his unwavering trust in his own intuition might have led him to overlook red flags, opposition from his advisors, and reservations expressed even by WeWork’s founder, Adam Neumann.
Despite WeWork’s IPO withdrawal in 2019, SoftBank extended a $9.5 billion rescue package. Son defended this decision with a presentation that included a “hypothetical” path to profitability for WeWork.
The fallout from Son’s fascination with WeWork and other startups was amplified by the initial $60 billion commitment from Saudi and Abu Dhabi wealth funds to the Vision Fund. Son’s ambition to rapidly create unicorns and inflate valuations worldwide pressured competitors to match the Vision Fund’s substantial investments. Unfortunately, within a few years, these lofty valuations crumbled as expenditures failed to translate into sales, profits, and initial public offerings.
Although the Vision Fund segment is expected to have delivered a profit in the September quarter, its overall performance remains lackluster. SoftBank incurred substantial losses in its investments, including Didi Global Inc., while companies like Katerra Inc., OneWeb Ltd., and Zume Pizza Inc. filed for bankruptcy or ceased operations.
The mounting losses prompted Son to curtail investment activities, reduce Vision Fund staff, and implement more rigorous due diligence. Additionally, Son refrained from leading earnings calls.
However, SoftBank’s restraint, coupled with Arm Holdings Plc’s $4.9 billion Nasdaq IPO in September, provides the early supporter of artificial intelligence with the financial means to re-enter the market.
Kirk Boodry, an analyst at Astris Advisory, remarked that WeWork’s bankruptcy draws a line under the losses for Vision Fund 1 and Vision Fund 2, shifting the focus to Son’s next investment choices. Boodry noted, “People are less worried about the losses in the portfolio.”
However, NYU’s Damodaran remains skeptical, emphasizing that Son’s investing style is unlikely to undergo a significant transformation. SoftBank, which Son owns roughly 30% of, is often characterized as applying a venture capitalist’s approach to late-stage investments, even though venture capital typically involves smaller bets. In contrast, the Vision Fund was seen as “SoftBank on steroids,” a strategy that magnified the consequences of its overreaches.
Damodaran concluded by saying, “By having tens of billions, hundreds of billions of dollars behind you, you make every overreach you do even bigger. That might explain how you make mistakes as big as WeWork.”
