NEW YORK/LONDON (Financial Times) -- Japan's SoftBank has radically scaled back plans for fresh investment in WeWork, the lossmaking shared-office provider, following the recent tech stock rout and concerns among investors in its $100bn Vision Fund.
SoftBank is in detailed negotiations to inject $2bn into WeWork this year, according to two people briefed on the deal, a much lower amount than the $16bn that had been discussed toward the end of last year.
And the deal will now not include the participation of Softbank's Vision Fund, which had been a major backer of Softbank's existing investment of more than $8bn in WeWork.
The funding could be announced as soon as this week, according to one of the people, who added that the deal had not yet been agreed and could still fall apart.
The scaling-back of the planned $16bn investment, which would have been the largest ever in a tech start-up, underlines the rapid shift in investor enthusiasm for technology shares that is now spilling into even the best-known privately held groups.
SoftBank has been instrumental in propping up private market valuations, investing billions of dollars in startups from ride-hailing group Uber to dog-walking app Wag.
WeWork has been one of the company's largest bets, garnering billions from SoftBank as the group sought to dominate the fast-growing market for shared office space in cities such as New York and London even as its own losses have ballooned.
The negotiations over fresh funding have taken place against a backdrop of a sharp sell-off in equity markets that saw some of the world's largest technology companies particularly hard hit in recent months.
Shares in SoftBank itself have fallen by 33 percent in the past three months. The company also suffered an embarrassing start to trading for its newly-listed Japanese mobile phone business in late December after raising $23bn from investors.
SoftBank will not gain a majority stake in the shared-office provider, which has become known for specialist coffees and fruit-infused water in its canteens and Instagram-ready art on its walls.
"There is more hesitancy and a need to be more cautious on how they [SoftBank] are proceeding," one person briefed on situation said. WeWork and SoftBank declined to comment.
The talks had previously envisaged further backing from SoftBank's Saudi Arabia and Abu Dhabi-backed Vision Fund. But investors in the fund balked at the $16bn commitment, according to people with knowledge of their thinking.
However, the Japanese group remains bullish on WeWork's prospects, the person with knowledge of the transaction said. If a deal is finalized, SoftBank will still have pumped more than $10bn into the company, marking one of the biggest bets on a start-up by SoftBank founder Masayoshi Son.
Beyond Mr. Son, SoftBank's investment and relationship with WeWork is led by Ron Fischer, vice chairman of the Japanese group and one of a handful of executives who have worked alongside the group's founder during the past two decades. The Vision Fund is led by Rajeev Misra, who is also an executive vice-president at SoftBank and reports to Mr. Son.
The deal initially included SoftBank and the Vision Fund paying $10bn to buy out all outside investors in WeWork. A further $6bn of capital would have been injected directly into the co-workspace provider. The $6bn investment would have included $2bn in 2019 and a commitment to invest a further $4bn if WeWork had hit agreed performance targets in 2020 and 2021.
SoftBank's relationship with WeWork dates back to at least March 2017 when the Japanese telecoms group bought a $300m stake in the company. That investment was part of a $4.4bn round unveiled in August of that year which included the Vision Fund. The $4.4bn deal earmarked $3bn to buy new and existing shares in WeWork and $1.4bn to fund the company's ventures in China, Japan, South Korea and elsewhere in Southeast Asia.
Last year SoftBank stepped up its investment in the office-space provider. In August 2018, it pumped $1bn into WeWork in the form of a convertible note and then in November committed to invest $3bn in the company in an equity warrant.
SoftBank is set to pay WeWork $1.5bn on January 15 and another $1.5bn on April 15 as part of that agreement. The November transaction valued WeWork at $42bn.
The valuation of the round was still being agreed between the two sides, with one person saying that it would be split with $1bn at the existing $20bn level and the remaining cash at the $42bn valuation from the previously announced fundraising.
A second person said the full $2bn was set to value WeWork at about $20bn. Until recently, the two sides had aimed to announce a deal that would have valued WeWork at about $36bn, the people told the FT.
WeWork has been able to eschew an initial public offering as its losses have ballooned because investors like SoftBank have stepped up to finance its expansion. The company's losses in the first nine months of 2018 nearly quadrupled from a year earlier to $1.2bn, while its sales climbed to $1.5bn, according to an investor presentation seen by the Financial Times.
Already among the most valuable privately held companies launched in the past decade, WeWork has sought to buttress its balance sheet as it redevelops new office spaces and buys buildings outright. It has more than $6bn of cash and cash commitments on hand.
But complications to negotiations with SoftBank could prompt executives at WeWork to hasten planning for a public offering, one person added.
Several tech unicorns, including ride-hailing providers Uber and Lyft, have filed paperwork confidentially with U.S. securities regulators ahead of IPOs expected later this year. WeWork has not yet done so, a person with knowledge of the situation said.
Executives at WeWork have vowed to continue investing in expansion, despite accumulating losses.
"Our view is that there is tremendous wind at our back -- we are the only serious global player out there," Michael Gross, WeWork vice chairman, told the FT in November.
An investment from SoftBank would provide capital to accelerate the expansion of WeWork's core coworking business, and to fuel the growth of newer initiatives such as WeLive, a shared living brand for urban professionals which combines hotel-like rooms with communal spaces, and educational investments ranging from coding schools to kindergartens.
WeWork's overall strategy will not be affected by SoftBank's decision to pull its planned buyout of other investors in the group, people close to the deal said.