Now Worth $10B, Is WeWork a 2000 Redux?(wsj.com)
wsj.com
Now Worth $10B, Is WeWork a 2000 Redux?
http://www.wsj.com/articles/now-worth-10-billion-is-wework-a-2000-redux-1436910924
57 comments
There are plenty of opportunities to bet against many of these markets, some more direct than others.
To bet against the Canadian housing market, for instance, you could look at shorting vulnerable financial institutions (Canadian banks and lenders with exposure to the Canadian housing market). You could also look at the Canadian dollar, which could conceivably fall if there's a housing crash.
Private startups are obviously a more difficult target, but you should consider that the types of events likely to push the private startup market into meaningful decline would in most cases also be bad news for publicly-traded tech companies as well, and you can short just about all of these. There are numerous advantages to targeting publicly-traded companies (liquidity, availability of information, in a major market correction there will be forced selling, etc.).
To bet against the Canadian housing market, for instance, you could look at shorting vulnerable financial institutions (Canadian banks and lenders with exposure to the Canadian housing market). You could also look at the Canadian dollar, which could conceivably fall if there's a housing crash.
Private startups are obviously a more difficult target, but you should consider that the types of events likely to push the private startup market into meaningful decline would in most cases also be bad news for publicly-traded tech companies as well, and you can short just about all of these. There are numerous advantages to targeting publicly-traded companies (liquidity, availability of information, in a major market correction there will be forced selling, etc.).
On the second point, the correlations between hyped startups and established software vendors often isn't that strong. It doesn't necessarily need a major crash for markets to decide that Uber actually isn't worth 40% of the current global taxi market.
Indeed in some cases there's the distinct possibility the correlation goes the other was and profitable public incumbent tech providers will benefit from the loss-making VC-funded upstart unicorns in their market crashing and burning
Indeed in some cases there's the distinct possibility the correlation goes the other was and profitable public incumbent tech providers will benefit from the loss-making VC-funded upstart unicorns in their market crashing and burning
When folks talk about the desire to bet against the private IPO bubble, they're thinking about a broad, significant decline that affects lots of companies, not the downfall of a specific company. Realistically, this type of broad, significant decline is unlikely to happen without a major correction in the public markets.
So long as the public markets are seen as being strong and stable, it's unlikely that the small, relatively illiquid market for private tech companies will correct itself.
So long as the public markets are seen as being strong and stable, it's unlikely that the small, relatively illiquid market for private tech companies will correct itself.
Canadian banks are in good shape though, they weathered the 2008 storm easily. Mortgages are limited to 25 years in Canada and you need some 20% down IIRC.
I do think there is a housing bubble, especially in Vancouver, but it's not clear to me how one could bet against it. And there always the chance that the prices are sustainable, they are positively mild compared to Zurich or Tokyo or San Francisco.
I do think there is a housing bubble, especially in Vancouver, but it's not clear to me how one could bet against it. And there always the chance that the prices are sustainable, they are positively mild compared to Zurich or Tokyo or San Francisco.
You can get a 30 mortgage, as long as you have 20% down (so you don't need CMHC insurance).
The real reason why shorting the banks won't work is that with less than 20% down the CMHC insures that the lender will get their money back. For thenon-insured mortgages, the banks can also go after other assets since all Canadian mortgages are recourse loans.
The real reason why shorting the banks won't work is that with less than 20% down the CMHC insures that the lender will get their money back. For thenon-insured mortgages, the banks can also go after other assets since all Canadian mortgages are recourse loans.
I know cases of people having a 10% down, they got a loan from the bank to pay for the CMHC insurance.
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No you can't and that is a "good" thing in that you don't end up with short sellers driving the prices around in addition to the speculators.
Interesting sentiment analysis going on :-) Can someone provide the reasoning for how short selling makes for a better or improved (by some definition) market? I would be interested in your take on that.
> But who supplies the VC's with money?
Ultimately, all "money" these days is supplied by central bankers.
There aren't a lot of good ways to short this stuff, at least if you aren't someone like BlackRock. That's especially unfortunate because it means no one is going to make money on the downside, offsetting others' losses. In every transaction there is still a winner or a loser, it's just that in this case the winner is going to be the people selling chunks of worthless companies for big money today. Just like in 2008 the winners were people who sold overpriced and overhyped real estate in 2006 and 2007. So if I were you, I'd go found a worthless company, pay the "tech press" to hype the holy living fuck out of it, raise a dozen rounds at obviously nonsense "valuations", and use the money to pay yourself and your friends nice fat salaries and lots of silly perks for the next 3 or 4 years while everything implodes around you. That's not how you short the madness, but it's how you profit from it which is really what your question is about.
Ultimately, all "money" these days is supplied by central bankers.
There aren't a lot of good ways to short this stuff, at least if you aren't someone like BlackRock. That's especially unfortunate because it means no one is going to make money on the downside, offsetting others' losses. In every transaction there is still a winner or a loser, it's just that in this case the winner is going to be the people selling chunks of worthless companies for big money today. Just like in 2008 the winners were people who sold overpriced and overhyped real estate in 2006 and 2007. So if I were you, I'd go found a worthless company, pay the "tech press" to hype the holy living fuck out of it, raise a dozen rounds at obviously nonsense "valuations", and use the money to pay yourself and your friends nice fat salaries and lots of silly perks for the next 3 or 4 years while everything implodes around you. That's not how you short the madness, but it's how you profit from it which is really what your question is about.
The bank always wins. It's funny we talk about central bankers, but they are like a shadowy supra-government syndicate pretty much always winning at the cost of everyone else. And yet no one asks why.
Can you draw the link from central bankers operations to the inflow of cash to VC's? Because most CB operations are either setting rates (where I understand they at least have to stay in between some bandwidth the market will appreciate, or else face a situation like Switzerland), or transactions buying assets (mainly bonds).
Both do not directly accomplish the inflow of money into VC. VC's don't leverage (no banking license). I guess VC-firms don't borrow money at 1%, because no collateral?
Both do not directly accomplish the inflow of money into VC. VC's don't leverage (no banking license). I guess VC-firms don't borrow money at 1%, because no collateral?
The government leaves the cheap money door open to banks like Goldman Sachs. Goldman Sachs lends rich people a pile of money at 1%. Rich people invest that borrowed money with the intention to arbitrage the difference.
Works great, until the party ends when interest rates start increasing or the assets plunge and one has to cover their leverage, whichever happens first.
Works great, until the party ends when interest rates start increasing or the assets plunge and one has to cover their leverage, whichever happens first.
It is desire for yield. If you take the risk-less rate down from ~4% to 0%, then you can shift the rates for higher risk asset classes down similarly. If VC is historically a 12% return asset class (properly risked), LPs will demand the asset more, driving up supply and down the return until it is in-line with the risk profile (perhaps 8%?).
[deleted]
There is an interesting answer from Mark Cuban on Quora about how he preserved his money during the Dot-Com crash... http://www.quora.com/How-did-Mark-Cuban-save-his-wealth-from...
Succintly, government-sponsored VCs have a better performance until they get so much money they start to underperform.
Still, in the U.S only 4.53% of enterprises get GVC(p.20).
http://www.nber.org/papers/w16521.pdf
Still, in the U.S only 4.53% of enterprises get GVC(p.20).
http://www.nber.org/papers/w16521.pdf
You keep your cash, wait for the crash, then buy up the leftovers at fire-sale prices.
Does WeWork pay to have these sorts of articles written? Because there are a lot of these sorts of places and they never get mentioned in these articles about WeWork. It makes it sound like WeWork is single-handedly reviving a concept that died with the first dotCom crash, yet it's really just the latest.
The only other places they mention are Regus--making it out to be a shambling zombie form of its pre-dotCom bust self-- and Industrious in Chicago, which is only 2 years old, making it sound like a me-too. Come on! Almost every major city has at least 5 of these places. Even Philly has had IndyHall since 2007, and that's just the one I know off the top of my head.
The only other places they mention are Regus--making it out to be a shambling zombie form of its pre-dotCom bust self-- and Industrious in Chicago, which is only 2 years old, making it sound like a me-too. Come on! Almost every major city has at least 5 of these places. Even Philly has had IndyHall since 2007, and that's just the one I know off the top of my head.
Companies do pay PR firms to get tech articles written about them. These types of articles actually make up a lot of what makes it to the front page of HN.
Those places don't have a $10 Billion valuation. That gets articles written, not a novel idea.
Did we read the same article? I really doubt WeWork is happy about the WSJ pointing out how much they look like a company about to take a spectacular fall. That wasn't quite a hit piece, but it was not a favorable article.
Sorry, I should know better, but I honestly only scanned it. I've read other articles glowing about WeWork (making it onto the front page of HN) and ignoring the other places and I was just looking to see if that was the case here.
When things really get nuts, it's considered favorable to be panned by the Journal or any other stodgy old-media outlet. They don't get it, so you really must be awesome. Besides, it's different this time.
They usually say that any press is good press. I wasn't aware of WeWork's existence until this article.
> With coffee bars, free beer and well-used communal spaces
Beer, while working? What a good idea... or maybe not.
Reminds me of 10-15 years ago when we'd have a pint or 2 at a local pub during lunch on Fridays. Nobody every got anything done on a Friday afternoon after that.
Beer, while working? What a good idea... or maybe not.
Reminds me of 10-15 years ago when we'd have a pint or 2 at a local pub during lunch on Fridays. Nobody every got anything done on a Friday afternoon after that.
We had beer taps at my previous job, and nobody drank during business hours even though they could have. Any work past 5 or so might have been under the influence from time to time, but we really only drank in any quantity after quittin' time.
Pretty much the same at my current place, most people won't use the kegs until its an appropriate time. I've had a beer at lunch or late afternoon a few times though and its never made me feel less productive. Sipping on a beer while coding is a nice experience imo.
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In case of the China Town WeWork in DC. They switched to cold brew coffee. I'm guessing you can't just have an open tap in the kitchens in DC?
IIRC, the problem was that for WeWork to be able to serve beer, they would have had to get a liquor license as a "private club". That aren't as onerous as full liquor licenses, but they do require you keep a membership roster (easy) with photos of each member (eh) and not admit non-members (no-go).
I might be thinking of something else entirely, though. Honestly, I prefer Cove. Free coffee and soda/seltzer, plus a more professional crowd. It's clean and open, but not trendy and overbaked. Plus, it's like half the price.
I might be thinking of something else entirely, though. Honestly, I prefer Cove. Free coffee and soda/seltzer, plus a more professional crowd. It's clean and open, but not trendy and overbaked. Plus, it's like half the price.
Thats probably more dangerous.
I recently toured a new WeWork space in San Francisco. While beautiful, the price was absolutely bonkers. I say that in the context of a commercial real estate market that is booming in general.
You're paying for no lease. You can get a 3-10 person office in a downtown SF with no lease. No other place offers that.
For sure, that is an advantage. Lessors are also asking for huge deposits right now so not having to tie up a bunch of deposit cash is nice too.
Although this probably isn't applicable to many software startups, one downside of places like WeWork for my company is how they focus on selling space by the desk. In my business (videogames, including console) most developers have a desktop PC, two monitors, a TV, possibly a Wacom tablet, and multiple console dev kits on their desk. The "12 desk" office we were looking at with WeWork would comfortably fit 4-5 of us with our space needs. That made it a non-starter.
Although this probably isn't applicable to many software startups, one downside of places like WeWork for my company is how they focus on selling space by the desk. In my business (videogames, including console) most developers have a desktop PC, two monitors, a TV, possibly a Wacom tablet, and multiple console dev kits on their desk. The "12 desk" office we were looking at with WeWork would comfortably fit 4-5 of us with our space needs. That made it a non-starter.
Daly City, SF without all the SF! Plus you can BART into the city and voilà, you can pretend you're in SF the entire time!
WIN-WIN-WIN!
WIN-WIN-WIN!
You've just been fired by the reddit board.
My startup recently moved out of a WeWork location. The biggest problem I had with WeWork is that they treated their tenants a lot like Facebook treats it users: you are their product, not their customer. Some annoyances:
* A new "community manager" every 2 months. Either they move people around on purpose, or they had a lot of turnover, but either way it was confusing. Community managers ranged widely from "stickler for the rules" to "happy hour several times a week" to "invisible".
* Relentlessly flogging the mobile app, despite the fact that it the Android version crashed immediately on most phones.
* Daily spam of "top comments" from their wannabe social networking site, because I what I really want every day is to read about how the printer on the 3rd floor of the New York office is out of paper when I'm located in Boston.
* Hipster artwork that's funny the first time you see it and dull and juvenile the 50th time you walk pass it.
* Hipster furniture that's incredibly uncomfortable (because plush conference room chairs can't possible compete with a mismatched set of "retro" chairs apparently found in a junk shop.)
* Insufficient conference rooms, telephone booths and bathroom stalls
Of course, our location may be especially poorly planned/designed/operated, but the general target market seems to be the 20-something male unattached hipster entrepreneur with a "lifestyle startup"; if you're trying to get real work done you don't need all the petty distractions, so I'm not sure how durable the appeal of WeWork actually is.
* A new "community manager" every 2 months. Either they move people around on purpose, or they had a lot of turnover, but either way it was confusing. Community managers ranged widely from "stickler for the rules" to "happy hour several times a week" to "invisible".
* Relentlessly flogging the mobile app, despite the fact that it the Android version crashed immediately on most phones.
* Daily spam of "top comments" from their wannabe social networking site, because I what I really want every day is to read about how the printer on the 3rd floor of the New York office is out of paper when I'm located in Boston.
* Hipster artwork that's funny the first time you see it and dull and juvenile the 50th time you walk pass it.
* Hipster furniture that's incredibly uncomfortable (because plush conference room chairs can't possible compete with a mismatched set of "retro" chairs apparently found in a junk shop.)
* Insufficient conference rooms, telephone booths and bathroom stalls
Of course, our location may be especially poorly planned/designed/operated, but the general target market seems to be the 20-something male unattached hipster entrepreneur with a "lifestyle startup"; if you're trying to get real work done you don't need all the petty distractions, so I'm not sure how durable the appeal of WeWork actually is.
One of my clients has a space in one of WeWork's San Francisco locations. Every time I've visited, I have been struck by how many of the spaces seem underutilized (i.e. companies have more space than they're using). For example, I see companies that have private offices with x desks but I only see x/2 being used at any given time.
Other private offices appear to be entirely unutilized (i.e. they're occupied but I never see anybody in them). The latter seems to be more common with large companies that have "real" offices elsewhere and don't really need space at WeWork.
Obviously, this is entirely anecdotal.
Other private offices appear to be entirely unutilized (i.e. they're occupied but I never see anybody in them). The latter seems to be more common with large companies that have "real" offices elsewhere and don't really need space at WeWork.
Obviously, this is entirely anecdotal.
My wife's workplace currently has a WeWork office, as well as a manufacturing facility outside of the city. They typically alternate days, switching between being at the office (which has the 'prestigious' New York City address and most of the paperwork), and the warehouse out on Long Island.
They used to have a bigger office, and my wife would typically be the only one using 1 of the 3 desks - the others belonged to the engineer, who would be at the warehouse more frequently, and the sales manager, who was out making sales. It might be under-utilized, but both engineering and sales still needed their own desk, file storage, etc. for the times that they were in the office.
They used to have a bigger office, and my wife would typically be the only one using 1 of the 3 desks - the others belonged to the engineer, who would be at the warehouse more frequently, and the sales manager, who was out making sales. It might be under-utilized, but both engineering and sales still needed their own desk, file storage, etc. for the times that they were in the office.
One of the many signs that things are getting toppy is that everyone stops working. Or rather, they "work from home". It wouldn't surprise me if many of these tenants are underutilizing their space because most of the people who were supposed to fill it are out somewhere else goofing off, sleeping, etc. There's no need to worry about being productive when (a) your employer can't readily hire a replacement for you and (b) there are 50 other possible employers who would fall all over themselves to give you a job (and a raise!) regardless of your competence or diligence. Besides, who cares if you're leasing twice the space you need for a bunch of employees who don't come to the office and do no work? It's not like you can't just raise another huge round whenever you want.
Real estate transaction costs can be huge, IF the rent is reasonable (apparently not this case) then paying rent on underused space is basically a real estate options market. There is a viable business model here, its like insurance that if you need an additional long term office next Monday, just walk in to "your" space. It might be cheaper to make one transaction, pay your 6% or more of commissions and fees, underuse the space, than to pay two 6% commissions and fees (and labor to do the second deal).
Several employers ago I got to learn about financial industry disaster recovery plans and you'd be surprised how many traders have an empty office squirreled away on the other side of the city as their tornado/fire recovery plan. Sure only 1/20th the employees would fit, but its only 5% the rental cost of the real office and some bean counter said that was an acceptable loss to provision an office with no people and a stack of server hardware. If they let people work from the D.R. site that would be a public admission that people don't need to work in a bullpen and could just as well work from starbucks or home, but that would not meet the emotional need to intimidate people in person and demonstrate butts-in-seats metric goals so using the D.R. space for actual work would be unthinkable unless the main office was literally on fire.
This combines with open office style, such that people can't avoid noticing unused space, although unused space is hardly a new feature of the business world. There's a small room right down the hall from me, but its behind a locked door, so no one notices. If they were not an open office company, they'd just lock a door and no one would notice. Placing their capacity on display like this is arguably an architectural design fail, they should have found an architectural way to "hide" empty space from casual visitors in an attractive and cheap manner.
Several employers ago I got to learn about financial industry disaster recovery plans and you'd be surprised how many traders have an empty office squirreled away on the other side of the city as their tornado/fire recovery plan. Sure only 1/20th the employees would fit, but its only 5% the rental cost of the real office and some bean counter said that was an acceptable loss to provision an office with no people and a stack of server hardware. If they let people work from the D.R. site that would be a public admission that people don't need to work in a bullpen and could just as well work from starbucks or home, but that would not meet the emotional need to intimidate people in person and demonstrate butts-in-seats metric goals so using the D.R. space for actual work would be unthinkable unless the main office was literally on fire.
This combines with open office style, such that people can't avoid noticing unused space, although unused space is hardly a new feature of the business world. There's a small room right down the hall from me, but its behind a locked door, so no one notices. If they were not an open office company, they'd just lock a door and no one would notice. Placing their capacity on display like this is arguably an architectural design fail, they should have found an architectural way to "hide" empty space from casual visitors in an attractive and cheap manner.
At the lowest tier for just floating desk space the cost of WeWork and these other coworking spaces is kind of ludicrous if you consider the free alternatives - working from home, a laptop-friendly coffee shop or even the library.
So when they say they have "plenty of cushion in a downturn" that's probably very true. When the tech market is bad the number of freelancers explodes. Loss of larger anchor startups can probably be augmented pretty easily by dropping the fees for freelancers a bit and doing business in volume.
So when they say they have "plenty of cushion in a downturn" that's probably very true. When the tech market is bad the number of freelancers explodes. Loss of larger anchor startups can probably be augmented pretty easily by dropping the fees for freelancers a bit and doing business in volume.
Tying up lots of capital in long-term commercial leases seems very risky and difficult to scale. It also seems like the barrier to entry is low. I'm not sure there's anything fundamentally different between WeWork and the 3 or 4 other nearby co-working spaces. I share the WSJ's apparent skepticism about this sort of business.
In the case of the place I go, WeWork is different in that it's significantly more expensive.
[deleted]
> When the technology sector is booming, as it is now, growth is strong. The risk, real-estate executives say, is that if demand falls—because of, say, a tech bust—WeWork’s revenue would drop, while the rent it owes to landlords stays constant.
Though an obvious risk, I wouldn't say it's the only one. To me I would be more concerned about the thousands of other spaces out there that are easily more affordable.
Though an obvious risk, I wouldn't say it's the only one. To me I would be more concerned about the thousands of other spaces out there that are easily more affordable.
In fairness, the advertised prices for the London ones are surprisingly competitive, but then that just raises the are they making enough to ensure they keep the lights on if they're not too busy? question...
The real problem for the valuation if not the business itself is that apart from free beer, they're not really doing anything differently from most of the other spaces, and their brand and scale really isn't much of a draw for their audience. And they're notionally valued at over 5x the value a firm operating essentially the same business on a much larger scale...
The real problem for the valuation if not the business itself is that apart from free beer, they're not really doing anything differently from most of the other spaces, and their brand and scale really isn't much of a draw for their audience. And they're notionally valued at over 5x the value a firm operating essentially the same business on a much larger scale...
marc andreeesen says no
Well he would, wouldn't he?
He talks his book like everyone else. He's a trader, not an oracle.
Please link to your sources.
That whole 'private-IPO' thing makes the 'valued at' so much less worth, since you can't short them, information is private, no efficient market hypothesis in play (if any).
I only hope my pension funds isn't one of the suckers tunneling money into the VC-firms doling out such valuations.
It really is the 2000's, but this time around it's even harder to spot the suckers (in the 00's it was stock holders). Ok, Chinese small time investors and Canadians buying a house at 10+ times income I can spot from a distance. But who supplies the VC's with money?