Softbank (SB) now values WeWork (WW) at $2.9B – a sharp decline from its $47B valuation a year ago.
Masayoshi Son, SB’s CEO, agrees that – “It was foolish of me to invest in WeWork”. Their Vision Fund has suffered billions in losses from this investment – approximately $18.5B.
Son was “hailed as a kingmaker” when he unveiled the Vision Fund. He poured billions into emerging companies around the world and encouraged them to grow as fast as possible.
Soon, ‘Overcapitalization’ became real. Too much cash led to higher valuations, growing losses, deep discounts and unsustainable growth.
Last year, SB’s reputation took a hit when Uber and WeWork revealed massive losses in their IPO filings.
What went wrong?
SB took ‘Blitzscaling’ very seriously.
“Investing unprecedented amounts of capital [..] in late-stage companies is believed to enable hyper-rapid growth to generate winner-takes-all competitive advantage. When startups blitzscale, they will accept prolonged short-term operating losses in exchange for speed and the opportunity to scale globally.”
But using massive investments alone was fundamentally flawed. With no plan for sustainability, these investments at inflated valuations led to “an overheated system filled with unsound businesses”.