Vision Fund Struggles Expected To Mean Softbank Record $12 Billion Loss

Japanese investment giant Softbank has warned investors that it is anticipating the booking of a record annual operating loss of around $12.5 billion. It will be Softbank’s first annual loss in 15 years and a result of a combination of the Covid-19 pandemic and, more significantly, a plunge in the value of several investments held by the corporation’s flagship Vision Fund.

The fund is widely regarded as the world’s largest, and most influential, investor in technology start-ups. Over $100 billion has been invested by the Vision Fund over the past few years. But a “deteriorating market environment” means the combined valuation of equity stakes held in companies such as Uber, WeWork and Indian budget hotel franchise Oyo have plunged by $16.7 billion over the course of the last 12 months.

Softbank founder and CEO Masayoshi Son, the charismatic inspiration behind the huge ambition of the Vision Fund, had announced in February that he was convinced the fund had “turned the corner”. A major ownership stake in Chinese ecommerce giant Alibaba had increased in value and Son believed it was only a matter of time before other investments started to come good.

Investing in start-ups, especially as aggressively and richly as the Vision Fund’s approach, is always risky and it inherently takes time for such companies to start providing a return on investment. Investors understand that but had increasingly arrived at the conclusion that the fund had been pumping up valuations beyond those justifiable on any standard metrics. And that the largesse of the sums of capital going into start-ups was leading to cultures of waste, extravagance and heightened risk taking.

Still, Softbank has come along way since being founded by Mr Son as a telecoms company in 1981. A hugely successful early investment in Alibaba helped the company bounce back from near ruin during the collapse of the dotcom bubble. Son had enthusiastically invested in the new online sector and sustained what is still considered the largest ever individual loss of personal wealth – $70 billion. Softbank’s share price also plunged by 95%.

Investors in the Vision Fund hope that history will not repeat itself. The fund has stakes in tech start-ups from professional messaging platform Slack, Uber and Tiktok-owner Bytedance. The social media platform for the sharing of short video clips has become a favourite with Gen Z across the world and is one of the first Chinese apps to achieve such international popularity.

The Vision Fund was launched in 2017, a year after Softbank acquired UK chip designer Arm Holding for £24 billion – the richest ever acquisition involving a private British company. Softbank itself is a major backer of the Vision Fund, alongside the Saudi Arabia sovereign wealth fund.

To date, the fund’s most expensive mistake has been the more than $10 billion invested in coworking space manager WeWork. The company failed in an attempt to go public last year, after investors shunned an IPO intended to see it list on the Nasdaq exchange. Softbank has since recently pulled out of a takeover rescue package that would have seen it invest another several billion dollars into the company but take over full ownership. OneWeb, the start-up planning to launch a globally accessible high-speed internet based on a network of low orbiting satellites, filed for bankruptcy late last month.

Softbank has said that it will write down $7.4 billion on investments held outside the Vision Fund, including those in WeWork and OneWeb. The company didn’t disclose which investments inside the fund will be written down and by how much. The company intends to reduce its debt by around $41 billion by selling off some assets to reassure investors the ship is steady for the long haul. The company’s share price is down around 12% since the beginning of this year.