Masayoshi Son's $4.4 Billion WeWork Investment in 28 Minutes, and My Six Observations

WeWork and SoftBank's Masayoshi Son In Manhattan in 2017, Masayoshi Son visited Adam Neumann in a building Neumann owned. Son arrived an hour and a half late. Looking at his watch, he told Neumann he could spare at most 12 minutes. They briefly toured WeWork's offices. Neumann enthusiastically showed off his so-called R&D center, with touchscreens connected to lights and doors for remote control, and a smart desk that automatically adjusted its height when a user swiped an ID. It is hard to say how useful these gadgets were, but Son was impressed. After 12 minutes, he invited Neumann into his car. Sitting in the back of a limousine, Son tapped rapidly on his tablet. Soon he handed Neumann a proposal: SoftBank would invest $4.4 billion in WeWork. It was an astonishing amount—more than fellow major shareholder Benchmark Capital had raised in its entire 22-year history. Neumann signed in blue ink next to Son's red signature. Half an hour later, Son sent him a photograph of a term sheet. Based on their 28-minute interaction, SoftBank valued WeWork at $20 billion. If Son's instinct about WeWork was right, he would repeat his feat with Yahoo, this time on a scale several times larger. For early investors, Son's investment ended their disputes with WeWork's founder: controlling him was now less possible than ever. Son's capital explicitly encouraged Neumann further down the path of hubris. “Son did not tell Neumann, ‘I need you to be the most careful steward of this money,’” a WeWork executive recalled. “It amounted to saying, ‘I need you to expand more crazily, faster, and bigger.’” Neumann embarked on a global expansion frenzy. He became New York's largest lessee, splurged $63 million on a plane, and proclaimed plans for communal apartment buildings, schools, banks, a shipping company, and a sleeping airline. Yet while Son removed the possibility of disciplining Neumann, he also opened an escape window for other shareholders to sell their WeWork stakes. In 2017 and a subsequent round, Son happily bought portions of early investors' holdings, making illiquid equity liquid. T. Rowe Price seized the opportunity. “We sold as much as we could,” an executive recalled. Benchmark Capital also sold roughly 20% of its WeWork holding, locking in a return of 15 times its original investment, according to people inside Benchmark. This was only a partial exit. Benchmark retained 80% of its WeWork holding but obtained inexpensive insurance: thanks to Son making the shares liquid, it knew it would at least walk away with a good return multiple. The question for VCs watching was whether such escapes could become routine. What should they do if they back a promising Series A company, delight in its growth, and then watch later investors destroy its good governance? Could they cash out before liquidation? #風險投資史 (The Power Law) ------ Robin's thoughts: 1. Adam Neumann certainly has a powerful reality distortion field. He secured $4.4 billion at a $20 billion valuation in 12/28 minutes. Taiwanese startup CEOs should watch more of his public videos. 2. After being pushed out of WeWork, Neumann was almost completely disgraced. People wrote books and made films mocking the whole episode. Yet before long, he convinced another top Silicon Valley VC, A16, to invest. 3. The length of your presentation is not that important—five, ten, or fifteen minutes, half an hour, or an hour. What matters is capturing attention quickly and earning more time. Neumann, for example, earned a seat in Son's car and another ten-plus minutes. 4. Sometimes fundraising that is too easy is bad for both the fundraiser and the company receiving investment. Son raised money too easily and hoped to use it to break every existing rule. Receiving too much money is certainly not good either; history has many painful examples. (Resource constraints can sometimes bring out your greatest creativity.) 5. Many basic investment principles must still be kept firmly in mind. 6. Perhaps the era of pouring money into frenzied expansion ended with the decline of SoftBank's Vision Fund.