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Who is the world's biggest tech investor? The answer might surprise you. It's Japanese company SoftBank. It has piled money into tech start-ups Uber, Slack Alibaba, ByteDance, and Oyo. These are just a few of its high-profile investments. With $97bn in assets, its Vision Fund is the biggest private pool of money ever raised.
But it is the nearly $11bn it has sunk into WeWork that has put the Japanese company and its investment fund under scrutiny. The shared workspace provider has seen its valuations slashed by 70 per cent. The massive downgrade has raised concerns about whether SoftBank Vision Fund wields more dollars than sense.
SoftBank was founded by Masayoshi Son in 1981 to distribute computer software. Today, it has interests in telecommunications, internet, transportation, finance, media, robotics, venture capital, and much more. This entrepreneurial zeal has made Masa, as he's known, Japan's second richest man. It took his Vision Fund just under one year to raise that $97bn, mostly from sovereign wealth funds. But that money is not exactly what it seems. Most venture capital funds are based on equity.
But the Vision Fund works a little differently. Roughly $40bn put in by investors is in the form of preferred shares that work like debt. Only SoftBank has a full equity stake. That means the Vision Fund has to find up to $2.8bn in interest payments each year.
SoftBank finds that money by selling stakes for a higher price, or by listing companies on the public market. The fund has reported annual returns of 29 per cent for investors based on companies' sky-high valuations. The problem is few of them are actually profitable.
Those that have tested their valuations by listing on the stock market haven't lived up to the hype. Shares in ride-hailing group Uber and messaging company Slack have both plummeted since going public. Undeterred, Masa has just unveiled the Vision Fund 2.
However, this time, investors are proving a lot more cautious. The high-risk strategy of betting on untested business models and paying huge dividends on companies that are not yet profitable could be the Vision Fund's undoing. That would hit SoftBank's bottom line. But the real damage would be to its reputation and that of its flamboyant founder.
