Japanese investment conglomerate SoftBank has been investing heavily through the $100 billion Vision Fund in the global tech industry and Silicon Valley, in companies such as Uber, Slack and WeWork.
However following the IPO debacle of WeWork and the removal of the chief executive of the office space renting startup, as well as a the dismal performance of Uber and Slack as at the stock market since their listing earlier this year, there is increasing scrutiny of the Vision Fund’s investing prowess.
The value of assets invested in by SoftBank’s Vision Fund are being marked down by investors despite profits of more than $11 billion being booked by the Vision Fund of the Japanese investment giant in the last fiscal year. Analysts fear that this could result in billions of dollars being written off by SoftBank which in turn could jeopardize the plans for launching of a second tech fund by it.
After a debacle while trying to launch an IPO – which had to be postponed by WeWork, the co-founder and chief executive of the company, Adam Neumann was forced to relinquish his post. The postponement of the IPO was because of lack of interest among investors and the bringing down of the valuation of the company. Investors were also concerned about the corporate culture at eh company under the leadership of Neumann.
However the market value problems for WeWork and its parent company The We Company are not resolved by the ouster of Neumann. This was reflected in the drop of the share price of SoftBank by more than 2 per cent in Tokyo even after the stepping down of Neumann.
According to brokerage firms CLSA and Bernstein Research, over the last two year, the Vision Fund and SoftBank took part in multiple funding rounds and have invested almost $11 billion into The We Company and taking up stakes of between 27 per cent and 29 per cent. WeWork was valued at $47 billion in January during the last funding round led by SoftBank.
However that valuation was not agreed to by potential investors and it was reported that WeWork, which is yet to make profits, was contemplating to reducing its valuation to lower than one fourth of the $47 billion in January – top as low as $10 billion. It later cancelled its IPO launch.
Apart from WeWork, SoftBank’s investments have also stumbled because of the stock performance of Uber, the stock price of which has dropped by 30 per cent compared to its IPO launch. In 2017, more than $7 billion in the ride hailing firm was invested by SoftBank’s Vision Fund. According to financial data provider Refinitiv, SoftBank is the largest shareholder of Uber with a 13 per cent stake.
And despite making loss of $5 billion in the last quarter, Uber’s CEO Dara Khosrowshahi said in an interview this week that the company’s business is “absolutely sustainable”.
And since hitting a high in June, the stock price of Slack is also down by 40 per cent is 25 per cent lower than the reference price set when it went public. According to brokerage firm Daiwa, a 7.3 per cent stake in Slack is owned by the SoftBank Vision Fund.
“Valuations in the private equity market, where participants are limited to venture capital firms, can lose credibility before shares are listed. Profit in SoftBank’s Vision Fund] business can slump when it is based on such valuations,” Daiwa analyst Yoshi Ando wrote in a note earlier this month.
(Adapted from CNN.com)