Is SoftBank Planning A New And Smaller Vision Fund?

After another loss-making quarter due to portfolio investments, SoftBank chief Masayoshi Son is now pondering about a smaller-ticket size fund.

Son was addressing analysts questions on the Earnings call after announcing Q3 FY2019 results where he said,” A lot of our planned investors have been worried by the trouble at WeWork and Uber and we heard their feedback.”

He added, “So before we officially launch SoftBank Vision Fund 2, maybe we start from a smaller scale and start from a shorter period in terms of investment as sort of a bridge.”

SoftBank chief said that he is thinking about a two-step approach. “We have not made any official decision yet, but that’s one of the options that we started considering. Again, we have not come to a conclusion yet,” Son added.

The comments are in the light of an operating loss of ¥ 225 Bn ($2.2 Bn) for the quarter for Vision Fund and other SBIA-managed funds, blaming unrealised losses on WeWork and Uber for the hit.

For the nine months ended December 31, 2019, the firm said that it had an unrealised loss on valuation of ¥7.27 Bn ($6.6 Bn) from investments held by SoftBank Vision Fund. Overall, SoftBank reported operating income of ¥2.59Bn ($23.6 Mn) for the three months ended in December 2019, a Y-o-Y fall of 99%.

Masayoshi Son had also accepted that the $108 Bn may become hard to achieve. In the earnings presentation, Son noted that the fund’s recent poor performance and losses have spooked potential investors for the second fund.

“WeWork’s failed IPO and Uber’s declining share price “have caused concern amongst potential investors in SoftBank Vision Fund 2,” Son said. “At the moment, I think that our next fund size should be a little bit smaller because we have caused concerns and anxiety to a lot of people,” he added.

For Vision Fund 2, SoftBank wanted to continue its initiative of accelerating new-age technology by investing in startups that show the most potential. SoftBank Vision Fund expects to reach $108 Bn in fund size based on the memorandum of understanding (MoUs) it has signed with investors, but this has become increasingly difficult.

Recently, reports surfaced that SoftBank may just be able to raise half of the desired $108 Bn corpus for the second fund, with nearly all of the capital coming from its own pocket. The report noted that smaller investors like Taiwanese and Japanese insurers, Goldman Sachs and Standard Chartered aren’t likely to invest this year.

Softbank’s biggest investors Saudi Arabia’s Public Investment Fund (PIF) and Abu Dhabi’s state-owned fund Mubadala Investment Co have also tightened purse strings. Both the investors have told SoftBank that any cash they put into Fund II must come as a profit from Fund I.

But Masayoshi Son has emphasised that despite investor concerns, they have enough money from their own commitment to invest for now. “We made several investments because we do have a very good pipeline. It’s a hundred of billions yen level,” Son said.

The SoftBank chief also said that he is no longer targeting $108 Bn for the second fund and wasn’t precise about what the expected size would be. “We shouldn’t be postponed too long,” he said. “First, make it a little bit smaller for 1 to 2 years, raise some bridge money, while were are building a track record. Then once we have results, I want to raise an official second fund.”