With a Little Help From My Friends
With a Little Help From My Friends
Not long ago, investment banks were pitching a $61 to $96 billion valuation range for the Initial Public Offering of technology/real estate company WeWork. Recently, the company announced a rescue finance package of $4 billion from lead investor SoftBank at a valuation of just $6 billion. What changed in such a short period of time? Investors finally took a closer look at WeWork’s financials and realized how much money the company was losing. WeWork’s business model involves leasing office space, renovating the space, and re-leasing it at higher rates. Assuming the company renovates and re-leases quickly and efficiently, the company theoretically earns a nice spread. A problem arises when lease payments and capital expenditure needs overwhelm the rental income the company receives from its own tenants. When this happens, the company requires new equity funding from investors, who hope to see big returns in the future. This model can work when times are good. However, when investors begin to lose confidence in a company or its management team, as has happened with WeWork’s recently-fired CEO Adam Neumann, outside sources of capital dry up, precipitating a downward spiral. This is a big reason why we at First Fiduciary avoid companies that need access to friendly faces to support their businesses. In fact, we prefer to invest in companies that generate more cash than they need, enabling them to pay healthy dividends to their shareholders.
Noteworthy Articles We’ve Read:
Tips On How to Write a Great Paper
Some helpful writing tips from one of America’s greatest writers, Cormac McCarthy.
Keyboard Auction
An ingenious pricing mechanism used to sell mechanical keyboards, of all things.
Hype Cycle is All Hype?
The Gartner hype cycle, long seen as a way of noting where a new tech product is in its life cycle, may instead be more of a marketing gimmick.
“Gee whiz” Moment for Housing Construction
A 110-unit apartment building was erected in only 10 days, thanks to a new, modular construction process. If this proves to be repeatable, it could alleviate the need for affordable housing across the country.
Cheap Uber Rides
Enjoy heavily discounted Uber rides and free food delivery while you can, according to this writer in the San Francisco Chronicle. When the venture capital money dries up, these companies will have to try to turn a profit, which will mean higher prices for consumers.
Plastics From Coffee Grounds
More than just a morning wake-up call, researchers at Washington State University are trying to use spent coffee grounds to make stronger plastics.
Books We’ve Read:
Einstein: His Life and Universe
by Walter Isaacson
Arguably the most important scientist ever, this detailed look at Einstein’s life was enthralling. From his early days as a student in Germany, Einstein was a highly independent thinker prone to speak his mind, which often got him in trouble with authority figures. This independent streak (and his genius) helped him make some of the most important additions to physics since Newton. Highly recommend. – AG
Red Notice: A True Story of High Finance, Murder, and One Man's Fight For Justice
by Bill Browder
This book is highly recommended in finance circles; so, expectations were elevated. The early portion of the book, which centered on Browder trying to build a successful asset management business in Russia, was highly enjoyable. That said, the rest of the book, which involves Browder’s attempt to win a measure of revenge against Russian criminals, was tedious. When the book came out four years ago, the atrocities that occurred in Russia were likely eye opening. However, as more visibility is shined on how Russia operates, the course of events in the book seems like business as usual. Pass. – AG
Out & About
Washington, DC
A visit to Georgetown’s 1789 Restaurant (1226 36th Street NW, Washington, DC 20007, www.1789restaurant.com) is more than just a great meal. It is an experience…a walk back in time…to classical French cuisine served in an elegant, clubby atmosphere. 1789, named in honor of the year Georgetown was founded, is famous for being a place where parents of Washington-area college students take their children for an escape from typical campus fare. We fit the profile. We were visiting our college freshman daughter and taking her out for her birthday. It was the perfect spot for our celebration. Whenever possible, 1789 sources its produce from local farms and its meats and seafood from their native regions. My eleven year-old son had no interest in a children’s menu once he saw butter-poached lobster as an option on the appetizer list. He declared that the tender lobster resting on a bed of corn risotto was one of the best things he had ever tasted. My daughter raved about her fig salad comprised of braised figs, delicate prosciutto and endive. Our entrees included duck breast served with chanterelles, duck bacon, maple glazed pecans and parsnip puree as well as a smoked tofu cassoulet featuring a variety of meaty mushrooms, kale and lima beans. The kids grimaced as I savored each bite of my vegan delicacy. They, however, were thrilled with their halibut, scallop and shrimp stews. Each meal was a modern take on classic French dishes. As one can imagine, such luxury does not come cheap. Our visit to 1789 is one we will not forget. It seems like they don’t make restaurants like this anymore. – BH
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