005: Trick or Term Sheet!
004: You Sunk My Battleship!
A flood of startup applicants has overwhelmed the new San Francisco Office of Emerging Technology. In order to process the high volume of crypto scooter food delivery companies, the Office of Emerging Technology has hired an AI-powered robot to review applications. The robot was developed in secret by Boston Dynamics, under project name, “Robot Used By Bureaucratic Entities Rendering Sanction or Termination of Applications for Metro Permission.”
Or for short: R.U.B.B.E.R.S.T.A.M.P.
Using sophisticated algorithms and the latest edge computing technology (a raspberry pi), RUBBERSTAMP quickly scans applications and returns the city’s verdict instantly with no need for real-world testing and market / public response.
“We need AI to help us scan these emerging technology applications so we can rule out any startups that might be too disruptive to the city,” says a city official. “Our streets are already full of garbage and human feces so we really can’t compound the situation with tech startups that are trying to improve urban living.”
When this reporter asked RUBBERSTAMP for comment, the robot replied that comments are “Not Approved” then flipped the *bird* as it *skipped* and *scooted* away.
Is SoftBank’s $100B Vision Fund the largest legal Ponzi scheme in history? It sounds crazy but let’s take a look. The definition of a Ponzi scheme is a fraud whereby early investors are paid a return from the capital of later investors.
According to Axios, Vision Fund is structured such that outside LPs have a 7% preferred coupon on 40% of their capital. The fund makes semi-annual coupon payments of ~$1.2B each from capital calls when there aren’t returns to cover it. Now, Fortune estimates the recent unrealized losses on Uber and WeWork at nearly a $6B write-down. Given these losses, it raises the potential that SoftBank won’t have returns to cover the coupon payments in the future. What happens when all the capital has been called? Does capital from Vision Fund II cover the preferred coupon for earlier investors? If yes, that would fit the definition of a Ponzi scheme (early investors are paid a return from the capital of later investors).
To be clear, SoftBank has not stated how it intends to cover their preferred payments in the event they do not have capital and it is still possible that their investments have great returns in the future so we can’t judge SoftBank’s grand experiment yet. As Warren Buffet says, you only find out who is swimming naked when the tide goes out. The real question: What will the fallout be if Vision Fund implodes? Is that the catalyst for a broader market meltdown?
001: Where Was The Board?
WeWork raised $12.8B in equity and debt financing from high profile investors such as Benchmark, Goldman Sachs, T Rowe Price, Wellington and of course SoftBank. That’s a lot of people and opportunities for a board to provide fiduciary oversight. And yet, CEO Adam Neumann was able to treat corporate governance like a joke:
At what point did the investors stop and try to curb Adam’s power? Apparently only after the public markets decided the company was worth less than ⅓ of the last private price. The story of WeWork should serve as a wake up call for private investors to take their fiduciary duties on private boards seriously. Oh wait, Uber and Travis Kalanick already provided that wake up call.
Hmm...wait a second, don’t Uber and WeWork share investors? Yep...SoftBank, Goldman Sachs and Benchmark. Guess the third time’s the charm.