Softbank buys majority share in WeWork: $5bn investment is putting good money after bad

Though it is common for tech startups to rack up massive debts while still attracting billions of dollars of investments from excited fund managers hoping to latch on to the next tech money spinner, the tale of WeWork is providing a cautionary note regarding big investments into companies that at best remain years away from conjuring any meaningful returns. Faced with a worsening situation, Softbank should have accepted that further investments would be futile. Softbank has now put together an emergency funding package to prevent the company running out of money. Prior to the deal being announced Softbank was hoping to become the majority owner without taking on the liabilities. Yet such a deal emerging is difficult to imagine.

So large has WeWork already grown that at this point the company should be nearing being self-sustaining – free of outside investment to fund expansion activities. That instead the company was forced to be rescued from probable bankruptcy should have serve as a strong warning sign for Softbank not to risk a further $5bn even if preferred terms could be agreed. Critics argue that WeWork is not even a tech company and should never have been valued so highly by backers. They have a point.

Under present conditions the possible justifications for putting yet more money into the ailing company are scant. The work required to sort out the troubled firm is heinously complex and could very easily still result in the demise of the business. Such is the financial pressure, performing a rescue appears to be very difficult at best, even doomed to failure if a more pessimistic view is adopted.