Softbank and WeWork: A Love Story Gone Sour
The ballad of WeWork’s high and hard fall from grace is indeed spellbinding. Once hailed as the future of the office space, the coworking heavyweight’s tumble was facilitated, ironically, by its biggest backer, SoftBank. Thanks to the Japanese conglomerate’s zealous drive for growth, WeWork spiraled into a debacle of mismanagement and overextension, inevitably impaling it on the stakes of a spectacular flameout.
Nurturing the Beast: SoftBank’s Massive Infusions of Capital
In the early days, WeWork was just one of the many startups looking to reconfigure traditional office paradigms. But what set it apart was an ambitious expansion plan, supercharged by cataclysmic amounts of venture capital, with SoftBank leading the charge.
Pouring in billions, the Japanese tech titan aided WeWork’s global expansion, but also engendered in it a voracious appetite. With SoftBank’s deep pockets filling WeWork’s sails, this once modest co-working startup began buying everything from wave-pool startups to large commercial properties, evolving into a real estate behemoth.
These entanglements lead to a series of questionable transactions that raised more than a few eyebrows. But as long as WeWork was growing, nobody cared much.
The Pitfalls of Unchecked Growth
Nevertheless, the cracks began to emerge. A massive lease liability, coupled with a distinct lack of profitability, saw WeWork bleed cash. Furthermore, it was tangled in a complex corporate structure entailing, among other things, CEO Adam Neumann’s stakes in property subsidiaries that leased to WeWork.
All these factors, while overlooked during boom times, began coming to the fore as WeWork set its sights on an IPO—an event that would spectacularly puncture the company’s inflated valuation and expose its murky business practices to the harsh light of financial scrutiny.
SoftBank’s Role in the Debacle
What role did SoftBank play in this fiasco? For starters, SoftBank—and especially its charismatic leader, Masayoshi Son—embodied the cult of growth-at-all-costs that drove WeWork’s disastrous expansion. SoftBank’s seemingly limitless funds perpetuated WeWork’s spending spree, encouraging it to occupy more spaces, attract more members, and generate more revenue, without sufficient attention to sustainability or positive cash flow.
Moreover, SoftBank’s willingness to continually prop up WeWork fueled the delusion that the company was too big to fail. This allowed for the persistence of irresponsible behavior, excessive optimism, and poor decision-making at the top, all underwritten by SoftBank’s capital.
The Aftermath: A Sobering Reflection
In October 2019, WeWork’s valuation crumbled from $47 billion to approximately $8 billion. Around the same time, Neumann, once a golden boy of the start-up world, was ousted from his own company amidst reports of erratic behavior and governance issues. Additionally, thousands of WeWork employees were left in the lurch as the firm cut jobs to stay afloat. Meanwhile, SoftBank, WeWork’s biggest champion, suffered significant damage to its reputation and balance sheet.
Lessons from the WeWork Saga
WeWork’s fall exposes the inherent risks in the model of aggressive, unchecked growth buoyed by an unending influx of investment dollars. Financial engineering and a hyper-focus on expansion without a sustainable profit mechanism are shortsighted, and as the WeWork saga reveals, always end with someone absorbing the blow.
In an era where start-ups are increasingly evaluated on growth trajectories rather than fundamentals, the WeWork debacle offers a stark reminder of the perils of betting big and mindlessly on potential. And for this colossal disaster, SoftBank, the largest enabler of this culture, shares a sizeable portion of the blame.