SoftBank Vision Fund strategy under scrutiny as deals stall

The Vision Fund's $100 million backing for Biofourmis, a U.S. startup that tracks health data using wearable devices, highlights its new focus on early-stage investments. (Photo courtesy of Biofourmis)

SoftBank Group founder and Chairman Masayoshi Son on Monday will try to persuade investors that his company’s giant investment fund can bounce back from a 1.8 trillion yen ($16.7 billion) annual loss that dragged the technology conglomerate to its worst-ever result.

New funding deals and initial public offerings are drying up around the world amid the economic uncertainties brought on by the coronavirus pandemic. That is a major headwind for SoftBank’s $100 billion Vision Fund, which had expected many of its investments to go public soon.

“Most companies that had planned to exit in the near term, whether through acquisition or IPO, are likely changing or delaying their plans,” wrote KPMG partner Conor Moore in a recent report on venture funding trends. “VC investors might need to use their dry powder to shore up companies so they have the resources to maintain operations until the economy rebounds.”

Signs that companies are relying on the Vision Fund for more capital are emerging. Chehaoduo, which operates an online marketplace for used cars in China, said earlier this month that it raised $200 million from the Vision Fund and Sequoia Capital’s China fund. It said the funding was an extension to a $1.5 billion investment by the Vision Fund announced more than a year ago.

The new capital will be partly used to achieve “cost control and revenue enhancement,” Chehaoduo said.

How Son plans to revive the Vision Fund’s fortunes will be closely watched when SoftBank on Monday announces earnings for the fiscal year ended March.

SoftBank has already warned that Vision Fund investment losses, a separate loss on U.S. co-working space provider WeWork and other factors will result in a 900 billion yen ($8.3 billion) net loss — the largest in the company’s history — compared to a 1.37 trillion yen profit for the previous year.

Chehaoduo, which Chinese media have reported is valued at over $9 billion, is just one of some 80 companies backed by Vision Fund that has yet to go public. Many were dealt a setback after WeWork, one of SoftBank’s most high-profile investments, canceled its IPO last year. The deteriorating business environment caused by the coronavirus outbreak added to the challenges.

For SoftBank investors, part of the concern stems from the Vision Fund’s unique structure. Venture capital funds typically spend years waiting for their investments to grow before cashing out from an IPO or selling to another company. The Vision Fund, on the other hand, pays a fixed 7% distribution to outside investors every year, requiring them to generate cash constantly.

Skeptics say the model makes it difficult for the Vision Fund to wait and see when the market turns sour.

The lingering uncertainty surrounding the Vision Fund has cast a shadow on Son’s efforts to shore up confidence.

SoftBank has announced plans to sell assets and use the proceeds to buy back 2.5 trillion yen worth of shares, cut debt and boost its cash reserves. The group also defied skeptics by completing the merger of its U.S. carrier, Sprint, with rival T-Mobile on April 1. Its stock price has rebounded nearly 70% from its low in March but still underperforms the Nasdaq index, the U.S. benchmark for tech stocks, since the start of this year.

SoftBank is the largest investor in Chinese e-commerce giant Alibaba Group Holding. Its stakes in Alibaba and T-Mobile alone are worth more than $150 billion — compared with Softbank’s own market capitalization of 9.5 trillion yen ($89 billion).

Son is SoftBank’s largest investor with a stake of around 27%. Without a broader share recovery, his tight grip may come under more pressure from investors, especially as activists such as Elliott Management of the U.S., which bought a stake in SoftBank, has begun openly calling for changes. SoftBank plans to hold its annual shareholder gathering in June.

This article was first published in Nikkei Asian Review.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.