The near-$100bn SoftBank Vision Fund marked down its portfolio by $18bn offsetting profits in other parts of the Japan-based conglomerate.
The diversification strategy of the Vision Fund had two issues. First, it was concentrated in a narrow window of time – as most venture funds are – and by bidding up startups’ prices buoyed the whole valuations frenzy in the second half of the 2010s.
The wave of down rounds likely to now follow for a swathe of startups beyond SoftBank will be painful as discussed on the Fenwick & West-hosted presentation last week (link) and full webinar here.
Second, the Vision fund’s portfolio of about 88 startups (there is some uncertainty on numbers as portfolio companies swap with the parent) is heavily weighted toward the sharing economy rather than data and artificial intelligence-induced singularity SoftBank had spent more time talking about at the fund’s launch.
The coronavirus-induced global downturn has stopped people physically sharing as much so ride-hailing firm Uber and coworking space provider WeWork are between them responsible for more than half the Vision Fund’s total loss.
If the Vision Fund had taken more time rather than quickly trying to raise a second fund and focused more on the technical building blocks of the future then it might have fared better but hindsight is a wonderful thing (although it was clearly the end of the golden age when the fund was raised as GCV noted at the time and there were better trades to be had with peer group Naspers/Prosus).
Not all, however, is lost.
SoftBank has warned investors it may stop its dividend this year and by selling its stake in an earlier corporate venturing success story, Alibaba, will spend more than $20bn buying back its own shares. This along with general debt reduction and the economies reemergence from lockdown over the next few years will help as long as the leverage structure inside the Vision Fund is manageable.
WeWork might still be a struggle and the fund returns poor for a while longer but Alibaba was a 20-year holding and it is hard to imagine the future in the next 15 or so years will fail to be further transformed and SoftBank might own a good chunk of that future still. The pain is short-term but the future is definitely brighter by 2035 if people hold their nerve.
