Could SoftBank’s clouded vision lead to its demise?

Softbank's technology-investment fund has had a terrible year. Could Masayoshi Son’s empire collapse?

The “Godfather of venture capitalists” © Getty
(Image credit: Masayoshi Son of SoftBank © Koki Nagahama/Getty Images)

Japanese conglomerate SoftBank, the “world’s largest technology investor”, has admitted that it expects to suffer its “first loss for 15 years”, says Louisa Clarence-Smith in The Times. It is pencilling in an operating loss of $12.5bn in the year to 31 March thanks to the coronavirus outbreak and “ill-judged investments”. Its $100bn Vision Fund, which is backed by Saudi Arabia’s sovereign wealth fund, lost $16.7bn in the company’s latest fiscal year owing to a “string of bad bets on start-ups”.

The most high-profile of these mistakes has been the $10bn invested in WeWork, the serviced-offices group, which had to abandon an attempt to list on the Nasdaq exchange last September. That forced SoftBank to write down the value of its investment drastically.

WeWork, which had its value written down from more than $40bn to $8bn, was SoftBank’s most spectacular failure, say Jonathan Shieber and Alex Wilhelm on TechCrunch. But it was hardly the only dud investment. Others include satellite communications group OneWeb, which collapsed “under the weight of its own capital-intensive vision” and Zume, SoftBank’s robotic pizza-delivery business, which has also folded.

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The only things preventing SoftBank’s credibility from being “completely destroyed” have been older investments such as the company’s stake in the Chinese e-commerce site Alibaba, which has proved to be a “cash cow”, as well as a “relatively strong” core business in telecommunications and semiconductor holdings.

The price of over-ambition

Much of the blame lies with SoftBank’s founder and CEO, Masayoshi Son, says Tim Culpan on Bloomberg. Son’s desire to become the “Godfather of venture capitalists” means that he has abandoned the traditional venture-capitalist role of being the “voice of reason” in favour of showering promising startups with cash in order to spur growth. As a result, many of the firms in the portfolio have become “addicted to spending” at the expense of “building fiscal discipline into their business models”, which means even when they do achieve revenue growth they struggle to make money.

One bad quarter isn’t enough to invalidate Son’s ideas about the “long-term potential of tech to create investment value”, says Richard Beales on Breakingviews. Still, those still willing to stick with SoftBank should be aware that Son has pledged as much as 60% of his SoftBank holding to banks as collateral against personal loans.

He has also personally backed bank loans to the founder of India’s Oyo Homes & Hotels, another investment currently suffering. While these actions show “commitment” they also suggest that Son’s ability to see his vision through is becoming “stretched” and that further reversals could bring his whole empire down.

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

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