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Report: SoftBank's Biggest Vision Fund Investors Oppose WeWork Acquisition

By NexChange
Financial Services

The two most important outside investors in SoftBank’s $100-billion Vision Fund are opposed to a rumored $16-billion investment in co-working startup WeWork, the Wall Street Journal reports.

SoftBank Chief Executive Masayoshi Son has been making huge investments in the tech industry through the company’s Vision Fund, but according to the Journal officials for the Saudi Arabia and Abu Dhabi wealth funds “have balked” at the WeWork acquisition. This could possibly represent a rare instance in which Son will see one of his planned investments rejected.

SoftBank already owns about 20% of WeWork, having invested $4.4 billion in the startup last year that valued the company at $20 billion.

The pushback against the new WeWork deal is unusual for the freewheeling Mr. Son, who typically gets to invest as he pleases. The 61-year-old executive has transformed SoftBank from a stodgy Japanese cellphone provider into one of the most influential technology investors in the world, bending investors to a vision based more on instinct than traditional financial analysis.

Some of the people said that PIF and Mubadala have questioned the wisdom of doubling down on WeWork, and have cast doubt on its rich valuation. The company is on track to lose around $2 billion this year, and the funds have expressed concern that WeWork’s model could leave it exposed if the economy turns down, some of the people said.

The Journal notes that Son “still hopes the sovereign funds will let the Vision Fund pay for some of the deal,” but that SoftBank is also “considering other ways to fund the deal, including using its own cash, raising debt and bringing in outside investors.” SoftBank could also use some of the proceeds from the $23.5-billion IPO of its Japanese mobile unit.

The New York City-based WeWork, which was founded in 2010 by Adam Neumann and Miguel McKelvey, has come under media scrutiny as its become one of the hottest startups in the world. With a valuation roughly about 20 times its projected annualized revenue, some have dismissed it as a traditional real estate play – and merely an office-leasing company at that – while masking itself as a tech company to win over investors.

Sarah Halzack and Shira Ovide, writing for Bloomberg‘s Gadfly blog last year, zeroed in on WeWork’s purchase of the iconic 676,000-square-foot Lord & Taylor building on Fifth Avenue in Manhattan for $850 million from Hudson’s Bay, the building’s owner. “[It’s] hard not to see its real-estate splurge as evidence we have hit peak silly times for startups,” Halzack and Ovide write.

WeWork is among the most head-scratching of the current generation of richly valued not-quite-technology startups. The company squirms at being described as a real-estate company, but it is a real-estate company valued like a technology company at about $20 billion, or roughly 20 times its projected annualized revenue. WeWork’s CEO recently said the company’s valuation is “much more based on our energy and spirituality than it is on a multiple of revenue.” Okay.

Strangely, the Journal notes that SoftBank’s proposed deal would leave Neumann in charge of WeWork even though SoftBank would be the majority owner. Neumann “currently controls WeWork’s board, and his shares give him 10 times as many votes as other investors’ shares,” the Journal reports, while he also owns “a limited liability company that owned 30% of WeWork.”

Photo: WeWork

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