After WeWork's IPO went bust, the investment world's attention zeroed in on its chief backer, SoftBank. In the wake of such a disaster, would the tech industry's most prominent investor continue to back money-losing startups with extraordinary sums? Or would SoftBank CEO Masayoshi Son go from gutsy to gun-shy?
SoftBank is back to its old, bold ways after a brief lull. But to keep up the pace, it will need major new commitments from the world's largest investors.
The Japanese conglomerate closed out 2019 with a slew of funding rounds that showed it continues to hunt for big deals in daring startups. In November and December, SoftBank participated in rounds worth more than $4 billion, including billion-dollar-plus rounds for Indian financial technology startup Paytm and Chinese real estate tech company Beike, as well as six other mega-rounds of more than $100 million, according to PitchBook data.
The recent activity shows that SoftBank was busy placing new bets even as it orchestrated a $9 billion bailout for WeWork, a period during which it announced few deals.
SoftBank investment timeline
Exactly how long SoftBank can continue this pace remains unclear. The company has reportedly deployed 85% of the Vision Fund and plans to use what's left on follow-on investments rather than new deals.
Meanwhile, SoftBank has reportedly only closed $2 billion of its second Vision Fund. The two sovereign wealth funds that contributed nearly half of the original Vision Fund—Saudi Arabia's Public Investment Fund and Abu Dhabi's Mubadala Investment Company—have yet to commit to the new fund.
The Vision Fund reported an operating loss of $8.9 billion in October related to WeWork and Uber. The losses are especially concerning because of the financial structure of the fund, 40% of which takes the form of preferred stock that promises investors 7% per year. That interest works out to as much as $2.8 billion annually.
When SoftBank announced that it expected to raise more than $100 billion for Vision Fund 2 in July, the firm touted corporate backers Microsoft, Amazon, Foxconn and several financial institutions. But it only mentioned one sovereign wealth fund, from the government of Kazakhstan, which has roughly $60 billion in assets—a far cry from the hundreds of billions controlled by PIF and Mubadala.
If SoftBank wants to keep the good times rolling, it will most likely need to convince the world's largest sovereign wealth funds that the strategy is working.
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