SoftBank: From Aggressive to Defensive
SoftBank, the Japanese conglomerate that has been the most influential technology investor in the world, is undergoing a major transformation. The company, which once poured billions of dollars into startups with the aim of creating market leaders and global disruptors, is now facing persistent losses, regulatory challenges, and market downturns. How did SoftBank go from being the 800-pound-gorilla in the startup world to being the most cautious and conservative late-stage investor? This article will explore the factors that led to the rise and fall of SoftBank, and what the future holds for the company and its portfolio.
SoftBank’s Rise: The Vision Fund Era
SoftBank’s rise to prominence can be traced back to the launch of its Vision Fund in 2017, a $100 billion fund that aimed to invest in the most promising technology companies around the world. The Vision Fund, backed by Saudi Arabia’s sovereign wealth fund and other investors, was the brainchild of SoftBank’s founder and CEO, Masayoshi Son, who envisioned a future where artificial intelligence, robotics, biotechnology, and other emerging technologies would reshape the world. Son believed that by investing in these sectors, SoftBank could create a synergistic network of companies that would dominate the global markets and generate massive returns.
The Vision Fund was unprecedented in its size, scope, and speed of investing. SoftBank wrote billion-dollar cheques to startups at valuations that often dwarfed their competitors, giving them an edge in attracting talent, acquiring customers, and expanding globally. SoftBank also encouraged its portfolio companies to pursue aggressive growth strategies, often at the expense of profitability and sustainability. Some of the notable investments made by the Vision Fund include WeWork, Uber, Didi, Oyo, Coupang, DoorDash, and Paytm.
SoftBank’s Fall: The WeWork Debacle and Beyond
SoftBank’s fall from grace can be attributed to a series of events that exposed the flaws and risks of its investment philosophy. The most prominent of these events was the failed initial public offering (IPO) of WeWork, the co-working space provider that was once valued at $47 billion by SoftBank. WeWork’s IPO prospectus revealed a number of issues, such as its mounting losses, questionable governance, and unrealistic projections. The public scrutiny and backlash led to the ouster of WeWork’s founder and CEO, Adam Neumann, and the withdrawal of its IPO plans. SoftBank had to step in and bail out WeWork, taking a $5.1 billion loss on its investment.
The WeWork debacle was not an isolated incident, but rather a symptom of a larger problem. Many of SoftBank’s portfolio companies were struggling to achieve profitability, scalability, and defensibility in their respective markets. Some of them faced regulatory hurdles, legal disputes, and competitive pressures. Others faced operational challenges, such as layoffs, fraud, and mismanagement. The COVID-19 pandemic further exacerbated the situation, as many of SoftBank’s bets on sectors such as travel, hospitality, and transportation were hit hard by the lockdowns and social distancing measures.
SoftBank’s losses piled up, reaching nearly $6 billion in the quarter that ended in December 2023. This was the fourth straight quarter in which SoftBank posted a loss, prompting many to question the viability and validity of its investment approach. SoftBank also faced difficulties in raising its next fund, as many of its existing and potential investors were wary of its performance and reputation. SoftBank had to sell some of its assets, such as its stake in Alibaba, to raise cash and reduce its debt.
Masayoshi Son: I am a Vision Capitalist, not a Gambler
Masayoshi Son, the founder and CEO of SoftBank Group, has been under fire for his aggressive and risky investment strategy, especially after the failure of WeWork and the impact of the COVID-19 pandemic on his portfolio companies. Son, who is known for his eccentricity and hubris, has been called a gambler, mocked by some specialized media, and dubbed the worst investor ever. His sanity has also been questioned in the media, prompting him to reply with humorous assent.
However, Son has defended his vision of creating a network of world-changing companies, and said he was not deterred by short-term losses or market fluctuations. He admitted that he was ‘embarrassed’ and ‘ashamed’ by some of his mistakes, and said he would learn from them and improve his decision-making process. He also criticized the Japanese government’s response to the coronavirus outbreak, and said he would donate masks and test kits to help contain the spread of the virus.
Son has also taken some actions to address the challenges and uncertainties facing his company, such as launching a massive share buyback program to boost SoftBank’s stock price and reduce its debt. He sold some of his assets, such as his stake in Alibaba, to raise cash and increase his liquidity. He shifted his focus from early-stage to late-stage companies, and from consumer-facing to enterprise-facing sectors. He explored new opportunities and markets, such as India, biotechnology, healthcare, and education. He diversified his sources of funding, such as by launching a special purpose acquisition company (SPAC) and a blank-check company (BCC) to raise capital from the public markets.
Son’s future is still uncertain, as he faces many challenges and uncertainties in his quest to recover from his losses and regain his credibility. He will have to prove that he can still deliver on his vision of creating a network of world-changing companies, and that he can learn from his mistakes and evolve with the times.
In a recent interview, Son explained his investment philosophy and how he sees himself as a capital provider for the Information Revolution. He said that he is not a venture capitalist (VC), but a vision capitalist (VC) that will shape the future of the Information Revolution over the course of several decades. He said that he shares a vision with AI entrepreneurs and aspires to shape the future together. He said that he is not a gambler, but a visionary who takes calculated risks and bets on the long-term potential of his portfolio companies.
Son also compared himself to the Rothschilds, who were the capital providers for the Industrial Revolution, and said that he wants to play a similar role for the Information Revolution. He said that he believes that AI is the most advanced component of the Information Revolution, and that he is proud to say that SoftBank is likely the largest provider of capital to entrepreneurs in the field of AI. He said that AI is redefining every industry, and that he wants to be part of this transformation.
Son concluded by saying that his corporate philosophy of “Information Revolution– Happiness for everyone” has not changed since his first day of business, and that he will continue to pursue his vision with passion and perseverance. He said that he hopes that his vision will inspire and empower more entrepreneurs and innovators to join him in creating the future. He said that he is confident that SoftBank will overcome its current difficulties and emerge stronger and more successful than ever.
SoftBank’s Future: The New SoftBank
SoftBank is now in a mode of transformation, as it tries to adapt to the changing market conditions and investor expectations. SoftBank has significantly slowed down its pace of investing, deploying only $300 million each in Q2 and Q3 of 2023, compared to over $20 billion in a single quarter in 2021. SoftBank has also shifted its focus from early-stage to late-stage companies, and from consumer-facing to enterprise-facing sectors. SoftBank has also become more selective and rigorous in its due diligence and valuation processes, and more supportive and collaborative with its portfolio companies.
SoftBank is also exploring new opportunities and markets, such as India, where it has invested $3 billion in 2021 and plans to invest $5 billion to $10 billion in 2022. SoftBank is also looking at sectors such as biotechnology, healthcare, and education, where it sees potential for innovation and disruption. SoftBank is also diversifying its sources of funding, such as by launching a special purpose acquisition company (SPAC) and a blank-check company (BCC) to raise capital from the public markets.
SoftBank’s future is uncertain, as it faces many challenges and uncertainties in its quest to recover from its losses and regain its credibility. SoftBank’s success will depend on the performance of its existing and future portfolio companies, as well as the market sentiment and investor confidence. SoftBank will also have to contend with the competition from other investors, such as Tiger Global, Sequoia, and Andreessen Horowitz, who have been more active and successful in the tech space. SoftBank will have to prove that it can still deliver on its vision of creating a network of world-changing companies, and that it can learn from its mistakes and evolve with the times.
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