Sticking to the IPO despite the sharp decline in valuation will put Softbank in a dilemma, either by supporting WeWorks IPO plan and seriously damaging its investment value, or by increasing its investment in WeWork to alleviate its current cash stress and postpone its IPO.
According to sources, WeCompany, WeWorks parent company, is seeking a valuation of the IPO that could be as low as $15 billion to $18 billion. WeWork was valued at $47 billion in its last round of private financing in January.
Since 2017, Softbank has invested $10.65 billion in WeWork through its Vision Fund and other investment vehicles. If WeWorks IPO continues, Softbank will have to write down its investment value.
However, the source said that no final decision had yet been made, and plans around the valuation and timing of the IPO could still change. Softbank and WeCompany declined to comment on the above news.
WeCompany relies on long-term liabilities and short-term revenue to maintain its operations. Investors and analysts say the sharp decline in valuations reflects market doubts about the sustainability of WeCompanys business model and concerns about whether it can withstand the impact of the economic downturn.
The sharp decline in WeWorks valuation is another blow for Softbank, which is again raising funds for its second vision fund. Softbank said the second vision fund had received $108 billion in investment pledges.
The return of Softbanks First Vision Fund has been hit by the sluggish performance of Uber and Slack.
Sources said that Masayoshi Son, Softbanks chief executive, and Ron Fisher, the groups vice chairman, had been supporting WeWorks IPO until last week, but others within Softbank were trying to postpone it.
But in recent days, Sun and Fisher internally acknowledged that delaying the IPO might represent Softbanks best interests. According to people familiar with the matter, Sun Zhengyi and Softbank have asked Adam Neumann, chief executive of WeCompany, to postpone the IPO, but have so far failed to convince Neumann.
WeWork, which burned $2.36 billion in the first half of this year, needs to inject new capital, hoping to raise between $3 billion and $4 billion in cash in its IPO, Reuters reported.
Sources said that given WeWorks demand for cash, it would be possible for Softbank to delay its IPO if it injected more cash into WeWork. Since the Vision Fund has invested so much money in WeWork, Sun Zhengyi was reluctant to invest in WeWork at this time.
WeWork may start a roadshow next Monday to sell its IPO to investors. However, the IPO is still awaiting approval from the Securities and Exchange Commission.
Reuters reported that the company had hoped to start its IPO roadshow as early as this week.
Based on the long-term investment strategy of Softbank and its Vision Fund, Sun Zhengyi, founder and CEO of Softbank, focuses on the IPO plans of the technology companies it invests in, which include start-ups providing taxi, financial technology and health services.
In just two years, Softbanks First Vision Fund has invested most of its $100 billion in technology companies. Based on the changes in the internal valuation of these technology companies, the Vision Fund has received tremendous returns through these investments and the sale of investment shares. This includes investments in Amazons rival Flipkart in the Indian market.
Softbank said its valuation figures for investors were based on cash flow analysis, recent transactions and comparison with peers. However, Sun Zhengyis investment strategy enjoys high reputation in the industry. He often bets intuitively and can double the return on his investment. (Tianmen Mountain)
Source: Liable Editor of Netease Science and Technology Report: Yao Liwei_NT6056