The Extravagant Chronicle of the $100 Billion Fund
The SoftBank Vision Fund is the highly ambitious investment project of Masayoshi Son, the charismatic founder of SoftBank Group, to revolutionize the tech space. Son’s seemingly utopian venture capital fund aimed to generate a hundred billion dollars and be a last-stage investor in startups having the potential to drive imminent technological advancements especially in Artificial Intelligence, Robotics and the Internet of Things. This idea, which was under talks until 2016, materialized fairly quickly in generating and spending capital. Speaking of raising capital to sustain the Vision Fund, major investments were made by the SoftBank Group itself, the Public Investment Funds (PIF) of Saudi Arabia and Abu Dhabi and global tech players such as Apple Inc., Foxconn, Qualcomm and Sharp. Out of the $98.8 billion that was accumulated as on May 20th, 2017, the largest backing came from the PIF of Saudi Arabia, with around $45 billion. SoftBank Group invested some $33 billion while PIF of Abu Dhabi gave in around $13 billion. Interestingly, Son persuaded the Crown Prince of Saudi Arabia, Mohammed bin Salman (MBS), to invest $45 billion in his Vision Fund, in a matter of just forty five minutes!
Son’s fascination with startups having the calibre to reinvent possibilities of the future as well as his instincts drove the major investments of the Vision Fund. His judgement for investing in a startup is based on the founder’s vision for quick growth. His investor meetings with his potential portfolio CEOs are less about profit margins and more about how the founder would amplify their company 100x if money is no barrier. The portfolio CEOs were not used to the kind of motivation and larger vision that Son propagated. He pushed them to think in directions that were novel and unseen anywhere in the world. As on September 12th, 2019, the Vision Fund had spent 85% of its capital ($83.8 billion) and remaining dry powder, which in effect implied that in about 845 days, $100 million per day had been spent.
With an intuitive investment strategy and a penchant for having the biggest industry players in his kitty, Son had 88 portfolios at the end of the first Vision Fund which were diversified in the fields of Real Estate (WeWork, Compass, OYO, OpenDoor, Katerra, etc.), Mobility (Uber, Ola, Grab, DiDi Chuxing, etc.), Commerce (Flipkart, PayTM, Alibaba, Zume, etc.), and Industries of the Future (ARM, Slack, Cohesity, Light, Brain Corp., etc.).
The Vision Fund has a unique and hybrid investing model. While traditional investment funds place their bets for high returns on just two or three portfolios, Son encourages a culture of ‘family synergy’ where he promoted his portfolio companies to do business with each other and support each other on the road to growth and profits. To endorse ‘cross-pollination’ of the VF portfolios, Masa often hosted dinners and events which provided an excellent opportunity for the respective executives to network and even seal unprecedented business deals. Prime examples would be Uber and Compass renting work spaces from WeWork; Mapbox, an AI powered navigation system signing a deal with Uber; and Nauto meeting executives from GM Cruise, the self-driving software maker to discuss prospects. These events made the entrepreneurs feel more connected not only to each other but also to a bigger purpose.
The Vision Fund became quite controversial as news about involvement of MBS in Jamal Khashoggi’s assassination, a prominent critic of Mohammed’s policies broke all over in November 2018. This pressured Son as nobody wanted to associate with blood money. But Son being a businessman, certainly couldn’t have overlooked the Prince’s commitment of $45 billion.
By the end of 2019, one of Son’s largest investments (a total of $18.5 billion), WeWork, which was once valued at $47 billion was on the brink of bankruptcy as it attempted an IPO. Son had huge bets placed on WeWork turning out to be another Alibaba. In the 2000s after the dot-com bubble burst, Masayoshi had invested $20 million in a nascent e-commerce startup, Alibaba. But in 2014, when this e-commerce giant went public it was valued at $25 billion, the world’s highest in history. Unlike Alibaba, WeWork turned out to be a huge mistake, as admitted by Son himself at the meeting in May 2020. Adam Neumann, founder of WeWork, started off as an ambitious entrepreneur who mirrored Son’s dreams of making it big, but he lacked the fiscal discipline required to record a profit on his balance sheet.
Although the Vision Fund made a series of successful investments in the Indian e-commerce retailer Flipkart and Indian fintech payment system PayTM, Son probably faltered while putting his stakes in companies like Uber and OYO. These companies grew and expanded with the large pool of money coming in from the Vision Fund, but they too failed to document an expected output for their benefactor, the Vision Fund. Throwing the unforeseen impact of the COVID-19 pandemic on the global economy, the SoftBank Group in May 2020 reported a loss of $17.7 billion, which is the worst ever in the 39 year history of the company. The Vision Fund which was the largest contributor to the earnings of FY 2018-19, had lost more money for SoftBank than it had generated in total.
In 2019, Masayoshi had expressed his interest in forging Vision Fund II with a target of $108 billion, greater than the Vision Fund I. With a negative investor sentiment due to poor returns, Son launched the Vision Fund II in February 2020 by infusing a $2.5 billion investment to restore confidence and attract investors. With improvement in the macroeconomic situation of markets, things might soon begin to look upwards for Son and Vision Fund II. Although Masayoshi Son has managed to pull-out this pitfall, given his high risk appetite, he is likely to encounter many more on his way to make the Vision Fund II successful, that is if it happens!
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