It defies imagination that a fund would put 10B into a company whose CEO is accountable to no one. I think we may also see new leadership in SoftBank, or at least their next fund.
At this point it's akin to someone who seeks out abusive partners due to mental health issues. It doesn't make the partners any less abusive, but lets not kid ourselves and think the seeker is a healthy individual.
Their greed is killing them.
I'm not so sure. WeWork is the product of three capital sources.
One, Mortimer Zuckerman, who was "not just their landlords AND seed investor," but also "happened to own Fast Company and NY Post which were instrumental in propping up WeWork in the press before anybody knew who they were" [1].
Two, MBS, who backed the Vision Fund to the tune of $45 billion [2].
Three, Masa Son.
Mr. Zuckerman's investment was too small to be affected by monetary policy. And I doubt the Saudis invested in the Vision Fund because their bonds weren't yielding enough. The only monetary actor is Son, though that is more based on Japan than dollar dynamics.
WeWork's competition, on the other hand, is juiced by monetary policy in the form of construction loan and mortgage rates. But that doesn't create WeWork, just lots of commercial real estate.
[1] https://medium.com/@henry.hawksberry/is-we-work-a-fraud-5b78...
[2] https://www.reuters.com/article/us-saudi-pif-investment-fact...
My impression is that upon this foundation and US interest rate/monetary policies create a perverse incentive where the investor doesn't really have to care too much how the company turns out. Like sure, a success pays off much more, but bankruptcy isn't bad either. Did I dream all this? :)
Nope. It is always better to have income and pay taxes on it than to have losses and not pay taxes on the losses when we are dealing with entities over certain ( rather small ) size.
The Vision Fund will have a $10bn capital loss to write off against future capital gains taxes. But those losses are worth a hell of a lot less than $10bn in cash.
WeWork has no federal guarantees and basically no assets. Its downside scenario is grim for shareholders. The only one walking away with cash might be Adam, though I expect he'll burn a good amount of it defending against litigious shareholders and possibly prosecutors.
There is so much capital desperately trying to find a home that they are having to invest in companies with very little oversight or influence. In the past they would have been the grown-ups in the room, applying some scrutiny and skepticism to everything. But now companies can simply go somewhere else if you turn them down.
She seemed to think that there were a lot of companies being kept afloat by this easy money that could easily go pop in the near future, or companies that should have gone bust ages ago but are limping along with cheap credit.
It does seem that whether or not we are headed for an imminant bust, the economy is in a pretty peculiar place at the moment with negative interest rates etc.
i would really like to listen to it because intuitively i’ve felt the same way and wonder what others who are-in-the-know have to say about that.
https://www.capshare.com/blog/4-key-insights-from-5000-cap-t...
WeWork?
If you actually make money, have positive cash flow, and have a sustainable business model, you don't have to give up control. The investors will come to you -- foreign concept to the SV-SF "high tech" bubble, I know.
Citation very much needed. The majority of tech jobs are not at startups of either kind.
So I completely understand why founders, now given the opportunity, would write these sorts of share class structures into their business. It's definitely gone too far, though. But that's usually what happens.
But they're trying to become a public company - that's the point.
As others mention, there are historical reasons why WeWork got this. But things like WeWork and Uber are going to be the new historical reasons why founders don't get that as much.
That has nothing to do with preferred shares. Most of public companies adopted poison pills aka shareholder right protection plans which work along the lines of this:
1. If someone acquires a certain percentage of company shares without board of directors agreeing to it, then the company automatically issues a very large number (2x to 3x) of shares and allows shareholders of record of a certain past date before the hostile party launched the acquisition to obtain newly issued shares at a discount.
2. Board members have staggered terms so the acquiring party cannot replace more than a small percentage of board members thereby preventing the one's ability to flood the board one's supporters
It used to be that preferred shares were a special class of equity that paid higher dividends. The funny part is that tech companies tend not to pay any dividends what so ever and now with the special classes of shares that have nearly no voting rights ( compared to the 'preferred shares' that are controlled by the insiders ) the same companies make a virtual mockery out of the concept of a "public company". Facebook is not a public company in any sense other than the name -- it is Mark's personal piggybank that he shares with a few insiders with the crums off the table being given to the people whom he used to call "stupid".
This isn't entirely true. Once a company passes the shareholder limit they are required to publish public financials similar to what a publicly traded company must provide. However they are not required to sell their stock on the open market, it's just that it's such a small step at this point that most if not all do.
Also - while this is often quoted as the reason for Facebook's IPO, it's worth noting that the investor limit was actually raised (from 500 to 2000) a couple months before Facebook's IPO. If it were really the main reason they could have easily held off on the IPO and carried on as a private company.
And even if he didn't need cash, an IPO creates an incredible opportunity to use shares as a currency to fund high-dollar acquisitions, which he has most certainly taken advantage of.
As is the case with toxic discourse on his website, the nonchalant attitude with private information, Zuck loves to steer clear of taking responsibility for anything. The IPO allows the message to be: it's not my personal responsibility, I'm merely the CEO of the company.
With a single class of shares every shareholder interest is aligned. It is not possible to create a subclass of shareholders among the existing shareholders without existing shareholders agreeing to it. So in a buyout all shares are equal and will receive and equal percentage of distribution of all assets regardless of how those assets are structured.
The moment there are different classes of shareholders, there's a jockeying for a position. It is no different from the plays that can be made by a private company when it is getting a new round of investment/gets bought out -- those with A class shares have certain rights, with B some other rights with C some other rights etc. There's nothing ( apart from a rather complicated regulations that govern a right of minority shareholders not to get totally screwed ) that prevents those that control the voting block via special preferred shares from virtually screwing other shareholders:
Board can just vote to split the company into "icky carcass" with nominal assets, most of the liabilities give most of it to non-voting shares. Give the non-voting shares some tiny percentage of the ownership in the "awesome sauce" part of the company. Voting shares (held by insiders) get the opposite percentage. As the part of this deal the "awesome sauce" company gets sold.
It just has not been tried yet -- in fact I'm very surprised it has not been tried yet. It of course would be challenged in courts but I'm pretty sure it will be found legal -- after all "you have no rights compared to the rights of holders of class SP" has been spelled out in the offering paperwork and investors/employees/shareholders still lapped it.
https://corpgov.law.harvard.edu/2017/05/26/snap-and-the-rise...
The exchanges and indexes already do this, but haven't gotten around to cultish companies that consider themselves tech. The exchanges and indexes say things like “minimum X% of float needs to be in the market”, so you dont have 1% of the company trading with the CEO now being a billionaire on paper from 99% of shares. Ive seen Chinese exchange allows for shenanigans like that, for example, while US ones dont. They could easily dictate share class structures, ultimate beneficial ownership rules, and more.
This would force VCs and PE to require changes no matter how much FOMO they have.