Wework co founder sues Softbank: does Sun Zhengyi want to run? It’s not that easy

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Article / Xiangyang editor / Shuisheng
Source: connect insight (ID: lxinsight)
Wework was once called “the next Alibaba” by sun Zhengyi, and Adam Neuman (hereinafter referred to as Neuman), the co-founder and former CEO of Wework, was also favored by him. But now, once close comrades turn against each other.
Since the second half of 2019, Wework has experienced layoffs and capital shortage, and its listing failure has further plunged it into the abyss. Not only has its valuation plummeted, but Neumann and Softbank group have also been sued by minority shareholders.
“Silicon Valley myth” has become “Silicon Valley joke”, Neumann has resigned as CEO, and the soft bank and sun Zhengyi, who have been sparing no effort to support Wework, have also been questioned. At the same time, the failed version of sun Zhengyi’s capital story is constantly mentioned, and the radical investment style is regarded as a negative teaching material by the investment community.
Tuyuan Wework official website
Finally, Softbank, which repeatedly helped Wework in times of crisis, withdrew its rescue plan in April 2020.
On April 7, the special committee under the board of directors of Wework announced a lawsuit against Softbank, accusing Softbank of failing to fulfill the acquisition offer and violating its fiduciary responsibility to some shareholders of Wework.
Only a month later, on May 6, it was reported that Neumann, who is still the co-founder and director of Wework, sued Softbank group for terminating the US $3 billion share buyback offer previously made to Wework shareholders.
The reason why Neumann sued in his own name may be that he mentioned in the lawsuit that “Softbank and Softbank vision fund abused their control over Wework and tried to prevent the court from hearing the lawsuit brought by the special committee. ”
Although Softbank indicated that it withdrew the rescue only because “some preconditions were not met”, unfortunately, the performance express released in the same period revealed the dilemma of Softbank, which ushered in its first loss in 15 years, and the amount of loss was far beyond analysts’ expectation.
It is not only Wework that has dragged Softbank into the abyss, but also oneweb, the so-called spaex competitor, Uber, the U.S. sharing travel giant and Oyo, the Indian chain hotel. But their situation is not good: oneweb is preparing to apply for bankruptcy protection, Uber is still mired in loss, and Oyo is launching a round of layoffs.
Neumann’s lawsuit can’t be concluded in a short time, but it’s hard for Wework, who is already in trouble, to find another “gold owner”. How long can Wework survive without financial support?
One
Towards rupture
Everything has foreboding. In September 2019, a “forced Palace” was staged. Softbank group of Japan, together with other board members, removed the CEO of Neumann, and beat down Neumann from Jiangshan. The title became co-founder. Although he stayed in the board of directors as non-executive chairman, he could participate in the meeting process, but he could not vote on the decision.
Neumann has said that the external criticism of him has distracted the attention of the company and decided to resign as CEO for the best interests of the company.
The honeymoon between Neumann and sun Zhengyi lasted less than three years.. In the past, sun Zhengyi, who never grudgingly praised Neumann, finally admitted at a financial report meeting of Softbank that “he turned a blind eye to the corporate governance issues of Neumann, the founder of Wework.” And admitted that the poor performance in investment judgment has been deeply reflected.
Sun Zhengyi’s regret is also reflected in the termination of the rescue of Wework. For Wework and Neumann, the $3 billion share buyback offer made by Softbank to Wework’s shareholders before is the last lifeline. At this time, termination is tantamount to killing Wework.
Since the second half of 2019, WeWork has been mired in layoffs, tight cash flow and increasing losses.
Wework’s speed of burning money requires continuous financing or financial support. Listing is also an option, but the original listing plan finally becomes a farce.
Wework submitted the prospectus and prepared for IPO in August 2019, but one month later, it formally withdrew the previously submitted prospectus to the U.S. Securities and Exchange Commission and announced the postponement of IPO plan.
In the live webcast on the same day, Newman said that the main reason why Wework delayed its listing was the poor stock price performance of technology companies such as Uber and LYFT.
But its own factors also make the IPO prospects of Wework unclear. Its prospectus shows that the company has a net loss of more than $900 million, compared with a loss of $723 million in the same period last year.
Not only that, 83% of the revenue comes from membership fees, which are the fees that companies pay to rent Wework space. Only a small part of it comes from third-party services. Such revenue structure is seriously inconsistent with the positioning of Wework Internet technology company, more like a real estate enterprise.
After the listing failure, Wework’s cash flow problem has not been solved, and its market value has fallen sharply, from $47 billion before the prospectus was submitted to less than $8 billion.
Softbank’s pick-up signal is undoubtedly good news for Neumann and Wework.
In October 2019, Softbank and Wework reached a capital rescue plan, promising to provide new financing of US $5 billion for Wework, and at the same time, it launched a purchase offer of up to US $3 billion to existing shareholders. The capital rescue plan enabled Softbank to obtain 80% of the equity and control rights of Wework.
ADI Mingsen, CO CEO of Wework, and others also disclosed in the statement that the financing is to help Wework accelerate the realization of free cash flow normalization and profitability. After that, Wework will also streamline its assets and narrow its strategic focus to its core business.

But at the same time, Neumann was cleared out. According to Caixin, the new co CEO of Wework has also disposed of Neumann’s private jet, closed its private school wegrow in Manhattan, New York, and cut jobs globally to ease the funding shortage.
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Rescuer Softbank is in danger
Surprisingly, after putting forward the rescue plan, the outside world thought it was “all in” Wework’s soft silver, but suddenly gave up.
In April, Softbank said it would not complete the offer because several preconditions were not met. Some of the conditions attached to the offer were not fulfilled by the deadline, including obtaining the necessary antitrust license and completing the integration of Wework China, so the offer could not be fulfilled, the statement said.
In addition, the statement also mentioned that the current criminal and civil investigations faced by Wework, as well as the impact of the new crown epidemic on the operation of Wework, are also part of the reason.
After being abandoned by Softbank, Wework has been on the edge of the cliff, but Softbank’s own situation is not optimistic.
The Wework special committee has refuted the soft bank’s statement that “preconditions cannot be met”, which mentioned that soft bank had promised to support the integration of Wework’s joint venture in China as much as possible, but deliberately negotiated other transactions with key minority investors in the joint venture.
However, the current investigation faced by Wework will not bring substantial risks to Wework. More importantly, Softbank fully understood the existence of these lawsuits when revising the rescue agreement on December 27, 2019.
Wework office space, tuyuan’s official website
Previously, vision Fund said it had never made a profit from Wework, although its valuation soared to $47 billion, according to cloud hunting.
The performance of Wework, which did not bring benefits, was still lower than the expectation of Softbank.
There is also a situation that can not be ignored when Softbank withdraws the fund rescue, that is, Softbank itself has been in trouble.
Before and after the withdrawal of the rescue, on April 13, Softbank group released a performance report, which predicted that it would record an operating loss of jpy135tn (US $12.5bn) in the 2020 fiscal year ending March 31. This is Softbank’s first annual loss in 15 years, and the amount of the loss is amazing.
This has a direct impact on Softbank’s vision investment, which is expected to shrink by 1.8 trillion yen (about 16.7 billion US dollars) according to the performance bulletin.
This means that sun Zhengyi, who is famous for his abundant financial resources, has been in a financial dilemma.
Picture source Sohu
On July 26, 2019, Softbank group of Japan announced that it planned to set up a new investment fund, called “Softbank vision fund phase 2”, at that time, the fund had obtained a capital commitment of US $108 billion, more than US $103 billion of the first one. However, external financing has not been in place, and Softbank has first used its own part of the investment.
Softbank, on the other hand, is raising money on its own. On February 25, Softbank group also borrowed 500 billion yen (about 4.6 billion US dollars) from banks to pledge the shares of Softbank, one third of its communication subsidiary.
Bloomberg previously reported that Softbank also plans to sell about $12 billion to $15 billion of Alibaba shares to maintain the business hit by the coronavirus epidemic. The list also includes shares in Softbank, Softbank’s domestic communications subsidiary.
Three
“Win and kill” Wework
The farce between Softbank and Wework, the final break-up between sun Zhengyi and Neumann, will undoubtedly become an important case in business history.
We work used to be worth hundreds of billions of dollars, which was given by sun Zhengyi.
Their story goes back to 2017, when sun Zhengyi put a $4.4 billion agreement in front of Neumann.
According to media reports, it was Sun Zhengyi’s first meeting with Neumann. Within half an hour of meeting, sun Zhengyi came up with the draft investment agreement. He thinks that Neumann has the same crazy energy as himself, and reminds him of Ma Yun.
Adam Neumann
Together with Alibaba, it is equivalent to gilding the story of Wework. In February 2000, sun Zhengyi invested 20 million dollars to Ma Yun. Now, Alibaba has grown into a business giant worth more than 200 billion dollars, and sun Zhengyi’s shares are worth tens of billions of dollars.
The outside world is full of expectations for Wework, and sun Zhengyi has invested a lot. He started a large deal in 2017. According to PreQin, a market research company, sun Zhengyi invested more than 35 billion dollars in about 100 companies this year. Wework is one of the few investments involving billions of dollars and one of sun Zhengyi’s largest investments.
According to Wall Street reports, Softbank has invested more than $13.5 billion in Wework to date, becoming one of the group’s biggest investment failures, seriously affecting its full year performance.
Due to the increase of Softbank, the valuation of Wework also soared to US $47 billion, becoming the fourth largest Unicorn valuation in the world.
There is no lack of huge financial resources in sun Zhengyi’s investment story. The soft bank vision fund established by him is huge. After the first phase was established, as of June this year, it has invested nearly 71.4 billion US dollars in 82 companies.
The most well-known story is that within 45 minutes, sun Zhengyi persuaded the vice crown prince of Saudi Arabia to invest 45 billion dollars in vision fund. This creates the image of sun Zhengyi who is good at negotiation.
At the same time, his investment style is radical and high-risk. The companies invested by Softbank are all emerging start-ups that use the “blitz” to rapidly expand and seize the market on the basis of capital. Uber, a sharing travel company, is a typical representative.
Wework is expanding at an unprecedented rate. One year and three months after Softbank’s investment in Wework, it has expanded to the world, and is the largest commercial tenant in Washington, D.C., New York City and London, as well as Brazil and India. At present, it has set up business in 29 countries and 111 cities around the world, with nearly 530000 members.
Wework office space

There are hidden dangers and risks in “blitz war”. Behind the huge amount of funds, there are also huge risks. With the expansion of Wework, the losses are gradually increasing.
According to the prospectus of Wework, from 2016 to the first half of 2019, the revenue of Wework was $436 million, $886 million, $1.821 billion and $1.535 billion respectively, but the net loss of the same period was $429 million, $933 million, $1.927 billion and $904 million respectively, showing a trend of continuous expansion.
Whether it’s in the most expensive cities in the world, or attracting clients at a discount, it has brought huge losses to the company. Therefore, the “blitz” and sun Zhengyi’s investment model are not good gradually.
Alibaba, which has brought huge profits, has for a long time promoted sun Zhengyi’s investment image and reputation. But behind the halo, sun Zhengyi has too many failed investments.
Sprint, the US operator acquired in 2013, has brought heavy debt pressure to Softbank. In recent years, Uber and Oyo, which are heavily placed in positions, have been frequently questioned, encountering user complaints and stock price declines.
With the frequent scandals of investment companies, there are more and more doubts about Sun Zhengyi. Many people believe that Softbank’s investment has raised the valuation of emerging enterprises and created the bubble of the Internet industry. The declining Wework just gave sun Zhengyi a bigger blow.
Sun Zhengyi
After the battle of Wework, sun Zhengyi also changed. According to reports, sun Zhengyi told vision fund investors that they need to promote the invested enterprises to generate cash flow as soon as possible.
Before that, the vision fund managed by sun Zhengyi paid more attention to the high growth of the invested enterprise and the ability to quickly occupy market share, and the profitability of the company was not among the priorities.
The story of Wework and Softbank from falling in love to killing each other also gives all start-ups and investment institutions a wake-up call.