Where would WeWork be without Softbank?
CLXX
Hello and welcome to Oversharing, a newsletter about the proverbial sharing economy. If you’re returning from last week, thanks! If you’re new, nice to have you! (Over)share the love and tell your friends to sign up here.
WeDebt.
You could be forgiven for thinking WeWork Cos. is in the business of financial engineering rather than property leasing. WeWork rents out buildings it leases but overwhelmingly doesn’t own. It’s developing an investment fund, Ark, to raise money to buy stakes in those buildings. WeWork CEO Adam Neumann will also transfer some personal real estate holdings into Ark, after it got out that he was leasing buildings he partly owned to his own company, which, you know, wasn’t a good look.
Then there is the debt. WeWork is looking to raise $3 billion to $4 billion in debt ahead of an initial public offering, with the potential for that debt facility to grow to $10 billion over the next few years, the Wall Street Journal reported July 7. WeWork already secured an additional $2 billion in financing this year from its chief investor, Softbank, but had hoped to land $16 billion in a deal that would have had Softbank buy out other outside WeWork investors. Some believe WeWork rushed to file for an IPO after Softbank reined in that deal. WeWork previously raised $702 million in debt in April 2018. Those junk bonds have rarely traded above par, or 100 cents on the dollar, ever since.
As Matt Levine points out in Money Stuff, there’s nothing unusual about a real-estate company raising money through debt: “debt secured by prime office buildings with reliable rental income sounds good, sounds like good attractive debt, whereas equity in the owner of some midtown office buildings doesn’t sound as exciting as equity in a hot tech startup.” WeWork can be a tech company or a real estate company depending on what suits its needs at the time, which, to quote Levine again, “is an impressive business innovation entirely separate from whatever innovative things you are doing with your actual buildings and technology.”
The one constant need at WeWork is cash, because it burns through it so quickly. “Cash” and “space,” as Neumann told Bloomberg, are the only two things holding the company back. In 2018, WeWork lost $1.9 billion, more than the $1.8 billion it generated in revenue that year. Much of the company’s cash has gone into breakneck growth: more buildings, more employees, investments in technology to optimize how tenants use WeWork’s space. WeWork was never going to be the first-mover in office space, which is an old business, but it has become one of the most powerful, thanks to a seemingly limitless financial arsenal.
Any startup depends to some extent on its ability to raise capital, but it’s hard to fathom where WeWork would be if Softbank hadn’t come along, given it billions of dollars, and urged Neumann to make the company “ten times bigger than your original plan,” as the story goes. WeWork is the second largest US startup by private valuation since Uber exited the private markets, behind only e-cigarette company Juul. It is the largest tenant in Manhattan, and the second biggest in Central London. “You can brute force your way to a winning position with capital,” Jeffrey Rayport, a professor at Harvard Business School, told the Financial Times. Can you maintain the lead without it?
Opinions.
Here is an op-ed in the Los Angeles Times from David Weil, a former wage and hour administrator at the US Department of Labor in the Obama administration, that says Uber and Lyft drivers are unambiguously employees under the employment classification test established by the California Supreme Court and currently being considered by state lawmakers:
As the former head of the federal agency that enforces some of those laws (which are nowhere near a century old), I understand the complexity of this issue. There are certainly companies whose workers operate in the gray area between employees and contractors. In those cases, workers in some ways act like employees (e.g. because their activities are supervised in part by the company and they are closely integrated into the company’s operations), but in other ways they act like contractors (e.g. because they determine the way they deliver that service, set their prices and face entrepreneurial risk).
Uber and Lyft are not among those close, gray area cases. Their status as employers is really quite clear. And though that designation would reduce their profits, it wouldn’t be a threat to their existence.
Weil, who once told Bloomberg’s Josh Eidelson he personally didn’t use Uber, argues that Uber and Lyft are managing their workers, they’re just doing it with software rather than humans. “These companies have created a sophisticated management system to achieve core strategic ends,” Weil writes. “It just happens to be a management system based on software rather than human beings to send, evaluate, act upon and record those decisions, millions of times a day.”
The LA Times editorial board, meanwhile, has split the difference by calling for on-demand workers to get more protections, while also arguing that the notion that gig workers could be reclassified as employees and still enjoy the same flexibility they do now is a “risky fantasy” that “just won’t happen.” (A labor law professor contests on Twitter that the piece is “not a very well-informed editorial.”)
How much flexibility workers like Uber drivers and Postmates couriers would be able to retain as employees is worth asking. While there is no legal requirement that employees work fixed schedules, there are certainly financial realities companies have to deal with. It seems possible that having workers classified as employees would make it impractical for many gig companies to continue letting their workers do business with competing platforms, or signing on and off as they pleased. Then again, maybe health insurance, a minimum wage, and other protections that come with traditional employment are worth the trade.
Scooters!
How are scooters handling European cobblestones?
"Mine just broke," a middle-aged man says as he unlocks one of the seven scooters parked at random around the square. "It hit a raised cobblestone and stopped working."
Scooter companies are working to design better, more durable scooters for mass sharing after burning through early Xiaomi models intended for personal use. In European cities, one particular challenge is designing wheels and suspensions that can handle cobbled streets, which make for a bumpier ride than the paved roads of US cities. A word often associated with these newer models is rugged, as in, “a thick, rugged white and green thing” (Lime) and “The Bird Zero is more rugged.” These redesigns are crucial to the longevity of shared scooters, which will determine whether scooter companies can ever become profitable. They’re also important given reports that the wheels of some scooter models were prone to snagging in potholes and other small bumps, causing riders to pitch off suddenly.
Another solution to this problem is to just remove the cobblestones, as Rome plans to:
Hundreds of thousands of cobblestones that line some of the city's busiest roads are to be ripped up and replaced with asphalt.
The city’s authorities say that the blue-grey, basalt cobblestones are lovely to look at but cannot withstand the battering of so many cars, trucks and buses.
Hammered day and night by heavy traffic, the cobblestones get dislodged, turning some of Rome's busiest roads into perilous obstacle courses, particularly for cyclists and scooter riders.
These “sanpietrini” cobblestones date back to the 16th century, and were quarried from volcanic rock, according to the Telegraph. Rome plans to remove them from nearly 70 busy avenues and re-lay them across 110 quieter streets and alleys. I feel like there is a good metaphor in Rome tearing up ancient cobblestones to make way for electric scooters—if you think of one, do email it to me.
Elsewhere in scooters, German cities are the latest testing ground after the government green-lighted the shared fleets in May. The rollout has thrilled riders, worried health officials, and kept police busy:
Munich police have reported a number of accidents, including one where an 85-year-old woman was knocked off her electric scooter after a car cut her off, and another case where a 23-year-old crashed into a police car. Authorities said they'd also stopped 38 drunk people and six people under the influence of drugs who were driving the scooters.
A 28-year-old man in the western German town of Erkelenz made headlines across Germany after he followed his phone's GPS and rode his scooter onto the highway. The man rode for around 7 kilometers (4.3 miles) until he was escorted off the highway by two cars, to waiting police.
Money is still pouring into Europe’s scooter market, with Berlin- and Barcelona-based Wind Mobility raising $50 million and Amsterdam-based Dott announcing a €30 million investment. Both companies are putting the financing toward their next generation of scooters, which will have swappable batteries and improved durability. You might call them rugged.
Eating in.
Imagine if when you ordered on Uber Eats you had the option to pick up your food at the restaurant you were ordering from and eat it there. It wouldn’t be delivery or takeaway, but rather a normal restaurant dining experience, except instead of interacting directly with the restaurant you’d handle everything through Uber. Uber would take your order, sort your bill, and collect your tip at the the end.
That would be weird, right? Uber Eats is for getting something brought to you. The convenience proposition is that you, from the comfort of your home, can tap a button on your phone and have food show up at your door in a matter of minutes. If you wanted to eat at the restaurant you would just show up and eat at the restaurant. Why would you need Uber to intermediate that experience?
Uber Eats will now deliver food to customers in the most unexpected of places -- restaurants. The food delivery and pick-up app's "Dine-in" feature is now being pilot-tested in Dallas, Austin, Phoenix and San Diego, according to an Uber spokesperson.
Okay, never mind.
One reason the delivery business is tough is that delivery companies are fundamentally middlemen between you, the consumer, and the restaurant. Groceries and restaurants have famously thin margins, and so handing over a commission on orders to a delivery company often isn’t an attractive proposition, but the pitch is that delivery helps bring in new customers and wring more use out of fixed costs like a kitchen and restaurant staffing, and with enough volume that should be good for business.
The Dine in proposition, on the other hand, is… what? The customer eats at the restaurant, taking up valuable real estate, and is served by its staff, but the transaction is managed by Uber, which also takes a commission on the exchange. The restaurant does all the things it usually does, but somehow Uber also gets a cut. The benefits of this setup to Uber are more obvious: It charges the restaurant a fee for taking the order and even sometimes marks up prices while eliminating the cost of labor, which is basically the dream.
Other stuff.
Waymo gets permission to transport passengers in California. Waymo tests wifi in driverless vehicles. Uber will take “years” to make a profit, CTO says. US national security panel approves $2 billion Softbank investment in Cruise. Ola Electric raises $250 million from Softbank. Ola gets London license to compete with Uber. Bolt valued at $1 billion. Grubhub registered duplicate restaurant sites to quietly raise menu prices. Amazon scrutinized over Deliveroo investment. Deliveroo dark kitchen closes after couriers strike. Five Uber Eats couriers killed in Mexico in past six months. Meditation app Calm raises $27 million. Paris-based Cubyn raises €12 million for delivery logistics. Urban-planning startup Venn raises $40 million. Tumult at Brandless. No more free lunch at Opendoor. Airbnb for stuff. Hedge funds tracking private jets. Montreal upset by unruly e-bikes parking. Lee Iacocca bet on e-bikes and scooters. Why electric scooter laws don’t work. Do Not Let This Plague of Electric Scooters Come to Britain.
Thanks again for subscribing to Oversharing! If you, in the spirit of the sharing economy, would like to share this newsletter with a friend, you can forward it or suggest they sign up here.
Send tips, comments, and sanpietrini to @alisongriswold on Twitter, or oversharingstuff@gmail.com.