Visionaries often make risky bets, and sometimes those bets don’t play out well. The consequences, however, can be disastrous when those bets are made with money that’s just too easy to come by, chasing opportunities that are just too slim.
That’s one way to account for what seem to be a poor set of choices of late on the part of Masayoshi Son, the billionaire chairman of Japanese conglomerate SoftBank (SFTBY) . SoftBank owns the much ballyhooed “Vision Fund,” a $103 billion venture capital vehicle that Son set up two years ago to put money into cutting-edge tech startups.
The most prominent of the Vision investments, in firms such as ride-sharing company Uber (UBER) , enterprise software vendor Slack Technologies (WORK) and newfangled property manager WeWork, are looking at lot less astute these days than they did at the beginning of the year, and that has hurt SoftBank’s share price. SoftBank invested $7.7 billion in Uber and presently owns a 13% stake in the company that is now valued just slightly less than that amount, at $7.6 billion. And the Vision fund has put $10.7 billion into WeWork, which is more than the latest rumored valuation for WeWork of just $10 billion.
The underlying fact of Vision’s stumbles has been easy access to capital that, in turn, distorted investment rationale. Son’s visionary bets in this case were overwhelmed by the myopia of easy money looking for a place to park itself. Fully sixty billion of the hundred billion invested in the fund was provided by just two investment partners — Saudi’s Arabia’s Public Investment Fund, and Abu Dhabi’s Mubadala Investment Co. Bloomberg reported on Monday that both entities were reconsidering whether to put any more money into a follow-on fund. It might be the best thing that could happen to Son and his company if both partners walked away, as their influence has seriously distorted priorities.
SoftBank stock had been up over 70% from the end of December through mid-April. However, since the IPO of Uber on May 10, Uber shares are down 17% from their first day close, while Slack is down a whopping 34% since its own June 20 debut. Both of those flameouts have driven SoftBank shares down over 20% since May to a recent $21.42.
Meanwhile, the postponement last week of the IPO of WeWork’s parent, The We Company, is prompting a ton of bad press about the conduct of founder and CEO Adam Neumann, and about the long-term prospects for the debt-laden company.
All this feels a bit like the dotcom era, when Son made numerous tech investments, some of which played our brilliantly, such as an early bet on Yahoo!, but many of which didn’t, such as the ill-fated delivery service Kozmo.com.
Fair enough, an investor can have stumbles, even many of them. And Son’s enthusiasm for technology has always been genuine, which means that sometimes it may lead him down a blind alley.
But the involvement of Saudi Arabia and Abu Dhabi is a different matter altogether. Tech is a famously capital-light industry, for the most part, since it doesn’t take tens of billions to devise and promote a brilliant new software program.
As a consequence, the profile of the Vision fund reeks of excess. Both Uber and WeWork are companies with little prospect of profit, built on the proposition of marshaling a ton of capital, way more than the actual technology innovations in either would justify. In the case of Uber, much of the company’s revenue has been built by subsidizing cut-rate fares to motivate drivers and riders to flee the existing livery business. And in the case of WeWork, the parent company has been loaded down with tens of billions worth of lease obligations far into the future, billions that will likely never produce real value.
The Vision Fund’s slogan, trumpeted on the Fund’s home page, is “Shared Vision, Amplified Ambition,” but the foolish plowing of money into Uber and WeWork feels more like amplified greed.
The smaller bets, such as Slack, could yet turn out to be decent investments. But the overall lesson is that the Vision Fund needs to be scrapped and replaced with something of a very different profile. Shoveling vast amounts of money into investments simply because limited partners need to park money somewhere is the kind of thing that can kill the discipline necessary to have real investment acumen. Thrift and economy can lead to great businesses, whereas exorbitance rarely ends up justifying itself.
This won’t be Son’s last hurrah. He and SoftBank bounced back from some real losers during the dotcom era. Hopefully, the next fund will prioritize true mission and insight above capital largesse.