SoftBank To Now Offer Credit Funds To Tech Startups?

Facing challenges including yielding good returns from IPO exits amid the funding winter and a weakened market condition, SoftBank Investment Advisers is now reportedly exploring plans to launch a private credit strategy that would finance late-stage tech startups in a debt or debt-like structure.

Sources aware of the development told Reuters that the credit funds would aim to offer liquidity options to tech startups, including some of SoftBank’s existing portfolios. The VC behemoth is targeting returns in the mid-teens, as per a source.

While the plan is still in the early stages and might change, according to the news agency, it goes without saying that launching credit funds would help SoftBank finance the late-stage tech startups that are delaying IPOs given the weak macroeconomic environment but need to survive for longer without fresh capital.

Besides, it must be noted that given the underperformance and dwindling valuation of some of SoftBank’s major investments globally and in India, which has cost the VC firm heavily in the past few years, launching credit funds could be a strategic move to lessen the impact of the slide in the near future.

Sources told Bloomberg that senior investors at SoftBank have already spoken to market participants about directly lending to tech firms and are exploring the possibility of deploying $1 Bn via SoftBank Investment Advisers.

SoftBank’s Loss-Making Bets

SoftBank’s Vision Fund (SVF) segment saw its losses widen over 68.7% year-on-year (YoY) to 4.3 Tn Yen ($32 Bn) in the fiscal year ending March 31, 2023. 

The Japanese firm’s total loss on investments at Vision Funds and LatAm Funds rose to 5.3 Tn Yen ($39 Bn) during the period. While SVF1 contributed 2.3 Tn Yen ($17.2 Bn) in the loss, SVF2 contributed 2.4 Tn Yen ($17.9 Bn) to it during the year.

In India, SoftBank’s portfolio includes listed majors such as Paytm, PB Fintech, Zomato, and Delhivery, whose market prices have nosedived in a range of around 40%-60% in 2022 alone. In its global portfolio, the picture is quite similar with the likes of WeWork, Didi Global, Grab, and Getaround, among others adding more to SoftBank’s losses due to their falling market price.

However, the situation has recently improved slightly for its Indian tech startup portfolio. While Zomato added $28 Mn to SVF1’s loss in the March quarter, the fund gained $54 Mn from PB Fintech, $111 Mn from Paytm, and $7 Mn from Delhivery during the quarter.

SoftBank’s unlisted Indian startup portfolio, which includes the likes of loss-making ventures such as Ola, Flipkart, Unacademy, OYO, and Meesho, has also not been in a very healthy shape. These startups have also laid off thousands of employees since 2022 due to a funding crunch.

In a situation that looks like a vicious cycle, SoftBank has also slowed down its equity investments over the last few years. In India, while it had invested over $3 Bn across 17 deals in 2021, last year the number fell to four.

Meanwhile, several of its India portfolio startups, who were aiming for an IPO, have either withdrawn or postponed their plans to go public. For a few, the status is still unclear.