Too big to fail? WeWork receives $10bn bailout from SoftBank
Yesterday, Japanese multinational SoftBank announced its intention to inject approximately another $10bn into troubled office-sharing startup WeWork.
The bailout is comprised of $5bn in new financing and the launch of a tender offer by SoftBank of up to $3bn (that’s about $20 per share) for existing shareholders. Additionally, SoftBank will be accelerating an existing commitment to fund $1.5bn. This brings the company’s total investment in WeWork to more than $19bn - that’s slightly less than the gross domestic product of Afghanistan, by the way.
At the beginning of the summer, WeWork was flying high (with a market valuation somewhere between the Democratic Republic of the Congo and the Ivory Coast, or 47 times higher than St Kitts and half the size of Kenya, if that helps you visualise it) and looked set to transform the global business landscape and its shareholders’ bank balances in much the same way that Uber did. SoftBank’s vision fund had done it again.
The American startup filed for an initial public offering in August. But in the following months, scrutiny of its finances (and of its CEO and founder Adam Neuman, who was caught smoking weed on a private jet and generally not inspiring investor confidence with the sort of impish behaviour generally associated with UC Boulder frat bros and the cast of Entourage) prompted it to cut its valuation down from $47bn to $10bn, remove Neuman as CEO and delay its IPO indefinitely.
This created a serious problem for WeWork’s biggest investor. They had already pumped a whole Rwanda (about $10bn) into the nine year old startup, what could they do?
Slightly more than a decade ago, when the largest financial institutions around the world failed cataclysmically, President George W Bush signed a $700bn bailout package to prevent the self-determined collapse of the nation’s financial system. Similarly the UK Government approved $850bn to keep its own banks afloat.
Are tech startups with billions upon billions of dollars of venture capital coursing through their tastefully minimalist halls and innovation hubs similarly too big to fail?
Optimistically, SoftBank’s double down strategy may simply reflect its supreme confidence in WeWork’s potential to disrupt the office property industry in the same way that Uber and AirBnB changed the taxi and hotel games forever.
As part of a joint statement released yesterday, Masayoshi Son, Chairman & CEO of SoftBank Group Corp, said: “SoftBank is a firm believer that the world is undergoing a massive transformation in the way people work. WeWork is at the forefront of this revolution. It is not unusual for the world’s leading technology disruptors to experience growth challenges as the one WeWork just faced. Since the vision remains unchanged, SoftBank has decided to double down on the company by providing a significant capital infusion and operational support. We remain committed to WeWork, its employees, its member customers and landlords.”
SoftBank is in it with WeWork for the long haul it seems, but the company isn’t trying to extinguish a dumpster fire with the sheer weight of green paper, though. As part of the bailout, SoftBank is taking on ownership of about 80% of WeWork’s stock, and has reportedly said yes to a deal which gives Adam Neuman a cool $1.7bn “consulting fee” to just, please, leave.
Whether or not this means WeWork will shoot for an IPO again in 2020, or just continue on as is, remains to be seen, as does the fate of most of the startup’s employees, whose jobs have been resting patiently on the chopping block for the past month.
What this means for the future of other unprofitable tech firms valued slightly higher than your average medium-sized country is also up for debate.
“SoftBank’s new strategic investment in WeWork instills strong confidence among the Company’s partners and employees and will help it to grow and succeed well into the future,” said William Rudin, CEO & Co-Chairman, Rudin Management Company, and co-developer of Dock 72, WeWork’s first ground-up development.
ServiceNow pumps millions into EU service compliance
ServiceNow, the digital workflow company, has announced a multimillion euro investment to help EU customers meet compliance requirements.
The legal, technical and organisational safeguards will help companies to comply with the the Schrems II judgment and European Data Protection Board (EDPB) Recommendations issued in June 2021.
ServiceNow’s investment means all EU-hosted data will be exclusively handled within the EU, and the cloud-hosted digital workflow provider claims its solution will come “without impact on current delivery and service”.
ServiceNow upgrade: free of charge
There will be no cost for current customers to opt in to the data compliance solution, even though ServiceNow is investing an unspecified multimillion euro sum and hiring more than 80 new staff across the bloc.
Mark Cockerill, vice president legal, EMEA and global head of privacy at ServiceNow, said: “With any regulation change, cloud services companies have a choice. They can adopt a ‘wait and see’ approach or get proactive and help customers and partners innovate. At ServiceNow we are on the front foot, continually investing in our customers, allowing them to operate with the highest level of choice and control over their EU data.
ServiceNow upgrade: ‘peace of mind’
“Our new EU-centric service delivery model will give our current customers and partners peace of mind. For customers and partners operating in highly regulated industries, or in the public sector, or those that have yet to make the switch to the cloud, this model gives them certainty and simplicity when selecting the cloud service that best suits their needs.”
Carla Arend, lead analyst, cloud in europe for IDC, said, “The Schrems II ruling has led European organizations to revisit their cloud-related data protection policies and processes when it comes to international data transfers through cloud services.
“Contractual, privacy, and security safeguards and the assurance that data will be kept and handled in the EU help European organizations to comply with European data protection laws while taking advantage of global cloud platforms. Vendors, such as ServiceNow, that invest to support their customers in response to this ruling are providing essential choice to their customers.”