The ongoing financial challenges for SoftBank are far from getting over anything soon.
It looks like all the huge bets that the SoftBank Group’s Vision Fund placed on tech companies are coming to bite them back. The company has been recently revealed that much-talked Vision Fund is to book a 1.8 trillion yen or $16.5 billion loss in the financial year ended March 2020, also known as fiscal 2019.
In a statement on Monday, the SoftBank Group Corp said that with a consecutive third quarter of loses by the Saudi Arabian-backed Vision Fund, the company as a whole is all set to be pushed to a 1.35 trillion yen (US$12.5 billion) worth of annual operating loss in Fy’19. They also mentioned that this is the first time in 15 years that they are having to incur a loss.
The SoftBank Group will also be booking losses of 800 billion yen outside the Vision Fund which includes WeWork along with OneWeb which filed for bankruptcy after being denied further funding by the tech conglomerate.
SoftBank blamed the deteriorating market conditions which were further amplified by the COVID-19 outbreak for their Vision Fund’s poor performance. According to them, these same conditions also thwarted Masayoshi Son’s attempts to revive his reputation among other investors.
SoftBank’s Vision Fund: What Exactly Went Wrong?
For the SoftBank’s Vision Fund financial trouble started brewing the moment they decided to make a severely ill-fated investment in the infamous venture WeWork which was into flexible office leasing. WeWork managed to attain a humongous valuation of a whopping $47 billion and started being hailed as one of the top US tech startups. It also started gunning for an IPO soon after.
However, within the span of a few months, WeWork was caught in various serious accusation and allegations. This lead to prospective IPO investors backing off. Soon, the original valuation of WeWork tanked from $47 billion to a figure closer to $12 billion as things started to going horribly wrong. WeWork’s co-founder and CEO Adam Neumann stepped down as the CEO and the IPO was withdrawn as well. Eventually, Softbank charted out a bailout plan for WeWork to keep it afloat, but this created a big dent on the prospective growth plan of Vision Fund.
All of this combined with disappointing IPOs of Uber and Slack pushed the SoftBank’s Vision Fund to report operating losses worth ¥225 billion during Q3.
In a recent interview with Forbes, Masayoshi Son has reportedly said that he predicts 15 companies in their portfolio out of the 88 to go bankrupt because of the business slowdown sparked by the outbreak along with WeWork’s failed IPO.
As of now, to deal with the COVID-19 induced financial crisis and to put a rest to the rising concerns of the investors involved in the Vision, SoftBank has decided to back off from the $3 billion tender offer for WeWork. Interestingly, they have been sued for the same by WeWork, in return.
In addition to this, SoftBank has also announced a $41 billion share buyback scheme which will reportedly be involving the sale of assets to shore up share prices and reduce debt. Also, a $4.8 billion buyback scheme which is completely separated from the latest program is in the motion as well.
SoftBank incurring this huge loss is just a result of their insistence that startups grow faster than their founders had actually planned for. They forced companies into taking more money than they might have needed or wanted at the moment, which in turn made them addicted to spending. This enabled majority of their portfolio companies to miss out on being able to build fiscal discipline into their business models and ultimately turn into nothing but failed ambitious bets!