For years, the multinational conglomerate holding company has made headlines for their bold investment strategies. The company, headquartered in Tokyo, has large stakes in many companies across different industries, from Sprint to Boston Dynamics to Uber. It has dominated the business world in the last couple of decades, and is ranked as the second largest publicly traded company in Japan. It is notable for running Vision Fund, one of the largest venture capital funds in the world, with $100 billion in capital.
However, Softbank’s Vision Fund has come under scrutiny due to its recent history of bad deals.
Vision Fund specializes in late-stage startup companies that are valued at or over $1 billion, also known as “unicorns”. Their strategy has been to take large stakes in these companies and inject massive amounts of capital, offering management counsel and providing a network of other SoftBank-owned companies. Their extreme level of spending is unique among private equity and venture capital firms. Whenever they identify a target company, they essentially give them a blank check.
Vision Fund currently has a $100 million minimum investment into a company. Softbank’s CEO Masoyoshi Son reasons that removing the capital constraint that many of these unicorns face will allow them to flourish. They play the long game, confident that their investments will eventually pay off. In theory, it’s a good idea. But in practice, it is much different.
Take WeWork, for instance. Once touted as the future of coworking spaces, the company is currently in complete disarray. After being valued at $45 billion two years ago and receiving $10.6 billion dollar in capital from SoftBank, the future looked bright. Recently, they have mishandled their IPO, received diminishing valuations, and received concerns about its corporate governance that led to CEO Adam Neumann’s resignation this September.
While Softbank is not the only one at fault for WeWork’s current dysfunction, they share the brunt of the blame. Sun has encouraged companies like WeWork to “not worry about money” and chase their vision. However, the large capital that WeWork received allowed them to have an unrealistic business model that ultimately led to their demise.
SoftBank’s failure with WeWork is not an anomaly. They have made significant expenditures on other American companies that are underperforming, such as Uber and Slack.
Part of the issue may also be the level of discretion that Son and his associates make when deciding to invest in a company. He notoriously gave the $4.4 billion in capital to WeWork after just a 12 minute meeting. Vision Fund has already invested over 80% of its $100 billion in just three years. Outsiders have questioned the amount of research that SoftBank does on its targets.
SoftBank has dealt with issues before. In 2000, their value decreased by 99% due to the dot-com bubble. They were saved by a $20 million investment in AliBaba that turned into $60 billion. This is not their first bump in the road.
They have changed their model before, and they may need to again if they want to continue their global dominance.
Brandon Pride is a freshman who is intending to concentrate in Finance. At Penn, he is an employee at the Student Federal Credit Union (SFCU) and writer for the Daily Pennsylvanian. He is from San Jose, California and enjoys doing community service, watching sports, and exercising.