SoftBank’s $16 billion WeWork investment is called one of the worst venture capital investments in history
- Japanese conglomerate SoftBank has invested $16 billion in WeWork since 2017
- That includes a $1.5 billion check to creditors just days before the bankruptcy filing
- WeWork hopes to reorganize and reduce its debt by terminating long-term leases
Japanese conglomerate SoftBank invested about $16 billion in WeWork before the office-sharing company filed for bankruptcy this week, marking one of the worst venture capital investments in history.
SoftBank’s commitments to the company since 2017 include a $1.5 billion debt payment transferred over Halloween to a group of lenders led by Goldman Sachs, according to bankruptcy documents filed Tuesday.
The massive failed bet wiped out SoftBank founder and CEO Masayoshi Son’s reputation as a shrewd investor, and Son has publicly admitted that he overestimated WeWork and its erratic co-founder Adam Neumann.
Once valued at $47 billion, WeWork succumbed to turmoil in the commercial real estate market two years after the company went public in a tumultuous process that led to Neumann’s departure.
SoftBank could still recoup some of its losses if it converts existing debt into equity in the reorganized WeWork, which plans to use the bankruptcy process to exit long-term office leases signed before COVID upended the market.
The huge failed bet destroyed SoftBank founder and CEO Masayoshi Son’s reputation as a shrewd investor
Son has publicly admitted that he overestimated WeWork and its erratic co-founder Adam Neumann (above).
But with WeWork currently valued at just $44 million, it seems unlikely that SoftBank will recoup more than a small portion of the billions it has poured into the company.
SoftBank’s investment in WeWork surpasses even the biggest failures of the Dot Com boom, including the disastrous failure of Pets.com, which raised a relatively modest $50 million in venture capital, and another $83 million in its initial public offering in February 2000.
A SoftBank spokesperson did not immediately respond to a request for comment from DailyMail.com outside normal business hours in Tokyo on Wednesday.
WeWork filed for bankruptcy protection Monday in Newark, New Jersey, bankruptcy court in an effort to address more than $4 billion in debt and unsustainable rental costs.
The company has identified 69 leases it plans to break in the early days of its bankruptcy, including 41 in New York City, and it could seek to reject even more leases later in the bankruptcy.
WeWork said in documents that it is trying to renegotiate terms for other leases with 400 landlords.
The company’s dramatic fall followed lavish predictions about its prospects from SoftBank founder Son, who continued to support the company despite huge losses as it grew at a breakneck pace.
Son made his name and fortune through bold bets on disruptive technologies, but his unbridled enthusiasm for WeWork tarnished his international reputation as a winner.
Nevertheless, SoftBank’s exposure to WeWork is limited as it has written off most of its investments in the company over the years. Still, it had a $1.1 billion credit support agreement with the company at the end of June.
WeWork filed for Chapter 11 bankruptcy protection on Monday in an expected move. The office space sharing company has 777 locations around the world
MST Financial analyst David Gibson said the credit support was significant, but it was not clear how much of it had been withdrawn.
SoftBank declined to comment on the credit support. Earlier this week, the company said it believed the restructuring deal with WeWork was the right action for the company to reorganize its operations and emerge from bankruptcy proceedings.
“SoftBank will continue to act in the best long-term interests of our investors,” the report said.
WeWork’s early expansion made it a symbol of how SoftBank’s big bets changed the face of startups and technology investing.
But the company’s demise became a cautionary tale about Son’s risk appetite.
A month after SoftBank spent more than $10 billion to rescue WeWork when an IPO attempt in 2019 flopped, a chastened Son said his judgment in dealing with the company had been “poor” in many respects, a rare admission from a well-known director for his exuberance.
SoftBank owns about 71 percent of WeWork, which is now valued at just $44 million.
It’s not immediately clear how SoftBank’s stake might change after it completes the debt-for-equity swap.