SoftBank On Uneven Grounds With Vision Fund 2: Spent $2.5 Billion To Boost Confidence

SoftBank spent $2.5 billion of its own money since October last year in a bid to boost the confidence of investors in Vision Fund 2. After the debacle of WeWork and Uber, the lead investors, Abu Dhabi’s Mubadala and Saudi Arabia’s Public Investment Fund (PIF) have reportedly given cold shoulders to SoftBank.

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The Japanese tech conglomerate SoftBank Group Corp seems to be highly optimistic about the investment scenario worldwide even after a few recent debacles, WeWork being the primary one among all. To keep the growth intact and to portray a very optimistic picture the company has reportedly infused its own cash and $2.5 billion was reportedly put into new investments since October 2019.

It is being said that it was done with the intentions of restoring their credentials for the ability to churn out money since they are in talks with investors for a successor to their Vision Fund. It is also being said that they are considering investing another $2.5 billion of their own money according to one of the sources of Reuters.

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SoftBank’s Vision Fund invests $100 million or more in growth stage leading companies. Sectors that the fund invests in includes internet-of-things, artificial intelligence (AI), robotics, communications infrastructure, telecoms, computational biology, biotech, cloud technologies and software, consumer internet businesses, financial technology, and mobile apps. They constantly aim to invest in businesses and foundational platforms that they believe will revolutionize and innovate the world tomorrow. Some of their popular companies in which they invested are Uber, Nvidia, Flipkart, Lenskart, One97 Communications and so on.

Last week, SoftBank’s Chief Executive Masayoshi Son said that his company is willing to spend up to two years of their own money in a bridge fund so that they have a viable portfolio to present to their investors, therefore, giving them enough motivation and trust to participate in a second Vision Fund. He also happened to mention that SoftBank has already invested billions of U.S. dollars without providing a specific or approximate figure.

It was previously known that the company targeted to raise $108 billion for the second Vision Fund and set aside $38 billion of their own for the same. However, it was later revealed by Masayoshi Son as investors were concerned with the performance of the first $100 billion Vision Fund, which has delayed the launch of the second Vision fund. The latest investments stand in stark contrast in terms of its pace with that of their first Vision Fund wherein they deployed over $80 billion in May 2017 after its major fundraising close.

Vision Fund was the primary reason behind the exponential growth in valuation of the technology companies they invested in such as that of WeWork and Uber. These huge valuations, however, tanked once these companies started accumulating exponential losses along with their exponential growth. SoftBank had to recently forcibly bailout WeWork from bankruptcy last year in a roughly $10 billion financing deal. On the other hand, shares of the ride-hailing service technology company Uber Inc are being traded for more than 10% below the price of their initial public offering in March 2019, even after a recent rally.

In a recent statement given by SoftBank last week, the first Vision Fund had realised $9.5 billion in cash and mark-to-market gains as of December-end which, versus 25% in the S&P 500 Index over the same period, represents a 9.5% gain since its first major fundraising close.

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Last week, at an investment conference being held in Abu Dhabi, a SoftBank Executive Rajeev Mishra who also happens to run the Vision Fund mentioned that since October the company has made seven major investments which include U.S. drug retailer Alto Pharmacy and Indian eyewear retailer Lenskart – and has half a dozen more in the pipeline.

A bulk of the first Vision Fund at $60 billion was accounted for by Abu Dhabi’s Mubadala and Saudi Arabia’s Public Investment Fund (PIF). However, it still remains unconfirmed whether they are willing to commit to the second fund. Some sources at Wired happened to confirm that Saudi Arabia’s Public Investment Fund (PIF) will not be participating in the second Vision Fund.

SoftBank has 3.8 trillion yen ($34.65 billion) in cash on hand, however, they are currently being put under pressure by Elliott Management Corp to buy back shares, to boost the value of what the hedge fund considers underperforming stock.

Meanwhile, it was disclosed last week that the first Vision Fund has invested $80.5 billion in 88 companies. Son mentioned that while SoftBank raised over $100 billion, the fund needs to retain the remainder for potential re-investment in portfolio companies, as well as for coupon payments on outstanding debt.

Future of SoftBank’s Second Vision Fund

In July, it was mentioned by SoftBank that high ticket investors such as Microsoft Corp, Apple Inc, Hon Hai Precision Industry Co Ltd (Foxconn) and Japanese banks were willing to commit $108 billion to the second Vision Fund. However, seven months later, the fund has not received any money from outside investors.

As of now, the first Vision Fund and SoftBank are currently plagued by negative news coverage over their incompetence. Softbank’s losses include WeWork’s implosion that saw the startup’s valuation tumble from $47bn to $10bn, Uber’s underwhelming IPO last year as well as several other SoftBank companies that are floundering.

These happen to be an obvious turnoff for investors. However, it’s too early to say whether SoftBank will be able to recover or if the second Vision Fund will be able to rope in prospective investors with their portfolio as they plan to. In saying that, the first Vision Fund still boasts of investments that are performing well. Notably, the UK semiconductor and software design company ARM holdings.

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