SoftBank’s Vision Fund 2 in doubt after first fund loses billions

Corp CEO Masayoshi Son speaks during a joint announcement with Toyota Motor Corp. to create a new mobility services development company in Tokyo, Japan, October 04, 2018.

Alessandro Di Ciommo | NurPhoto | Getty Images

The future of SoftBank’s second Vision Fund is at risk after the first recorded record losses of $ 18 billion on Monday – largely due to the collapse of valuations from companies like Uber and WeWork, into which SoftBank has injected Billions.

The first Vision Fund, launched by the founder of SoftBank Masayoshi Son in 2017, shocked the tech investor community because of its size. At $ 100 billion, it was several orders of magnitude larger than any other technology investment fund, including those of Silicon Valley heavyweights like Sequoia and Andreessen Horowitz. More than half of the money comes from contributors like Apple, Qualcomm, Oracle founder Larry Ellison and the Public Investment Fund of the Kingdom of Saudi Arabia.

In July 2019, SoftBank again shocked technology investors by announcing its intention to create a $ 108 billion “Vision Fund 2” to invest in artificial intelligence (AI). The SoftBank group pledged to spend $ 38 billion on Vision Fund 2, while Apple, Microsoft and Foxconn were all touted as external contributors who would commit the additional billions.

Vision Fund 2 is operational but only with the $ 38 billion from the SoftBank group. He made around five investments in the first quarter of 2020, including a bet of $ 250 million on the pharmaceutical start-up Alto. The second Vision Fund represents less than half of what SoftBank said it would be and its future is now at stake.

“The performance of Vision Fund 1 is not very good, which is why we decided not to do marketing for Vision Fund 2 for partners for a while,” Son said in a call for results more. early this week.

He added: “If the performance is not very good, then of course the money for Vision Fund 2 cannot be requested.”

Son, who compared to a misunderstood Jesus Christ, while defending its investment strategy, said it would not try to raise capital from other companies and individuals until the Vision Fund 1 companies started to perform better.

Vision Fund 1 has made big bets on a multitude of companies, including Uber, ARM, Slack, WeWork, Oyo, Improbable and GetYourGuide. In less than three years, the Vision Fund has supported 88 start-ups for a total of $ 75 billion. The Vision Fund on Monday announced annual losses of $ 17.7 billion for the year preceding March 31, while the SoftBank Group reported annual losses of $ 13 billion.

SoftBank reduced WeWork’s valuation from $ 47 billion a year ago to $ 2.9 billion today, while Uber’s valuation also plummeted by more than $ 10 billion a year. last.

Cold feet

Abu Dhabi state investment company Mubadala contributed to the first Vision Fund, but has yet to confirm whether it plans to support the second fund. In September, Reuters reported Mubadala planned to invest in Vision Fund 2 in the fourth quarter, but nothing has been announced. A Bloomberg report in October revealed that Mubadala was “undecided” about investing.

“Mubadala is super scared of the performance and obviously has been a major funder,” said a tech investor who wanted to remain anonymous, as the Vision Fund is a potential downstream investor for their holding companies. “Softbank is too undisciplined. Unfortunately, although there aren’t many great options for parking your billions somewhere.”

A spokesperson for Mubadala was not immediately available to comment when contacted by CNBC.

Mubadala is not the only one to hesitate, according to Mark Tluszcz, CEO of Mangrove Capital Partners. “It is very unlikely that they will find takers for Vision Fund 2,” he said. “While the strategy was smart, execution has been poor, according to their latest published results. They need to deliver results, put in place better governance and restore confidence in their model.”

Martin Mignot, partner of the venture capitalist Index Ventures, is not as optimistic. “We still don’t know if Softbank’s underperformance is due to their strategy (too much capital) or their execution (bad investments / valuations),” he wrote on Twitter.

“Raising a ton gave them a lot of flow overnight, which was a smart way to break into it, so I suspect the model can work.”

Rajeev Misra, CEO of SoftBank Investment Advisers.

SoftBank

Based in a traditional townhouse in London’s exclusive Mayfair district, the SoftBank Vision Fund now has several hundred people around the world. It is chaired by CEO Rajeev Misra, a former banker at Deutsche Bank.

In an exclusive interview with CNBC earlier this year, Misra said that the Vision Fund should not be judged by a few early mistakes and that the portfolio would be repaid in 18 to 24 months. “I guarantee that the outcome of our investments will change,” he said.

He added: “We have made many mistakes, which is normal. We learn from our mistakes and integrate what we learn into our process as we embark on Vision Fund 2.”

But then the coronavirus struck, leaving many Vision Fund bets in an even worse situation than before.

Several senior employees have joined and left the Vision Fund in the past three years, while Alibaba CEO Jack Ma will leave the SoftBank Group board in June.

Son said that Ma decided to leave the SoftBank board “on his own”. He added: “It’s sad, but we always keep in touch directly and just before Covid-19, we meet every month for dinner, to talk about business, to talk about life. And we will remain friends for the rest of our life, I think. “

President of Alibaba Group Holding Ltd. Jack Ma at Viva Technology in Paris, France.

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