SoftBank Group Corp founder Masayoshi Son's dream of a global tech empire is unravelling, with the coronavirus crisis compounding losses at his $100 billion Vision Fund and distress at his big bets portending more pain.
More than half of the fund's capital is in startups that are suffering from the virus impact or exhibiting stress pre-dating the outbreak, a Reuters analysis showed. Ride-hailing usage at flagship transport investments has fallen more than 50% and six SoftBank-backed startups have pushed IPO plans from this year to next.
The Japanese conglomerate has already flagged a 1.8 trillion yen ($17 billion) loss at the fund for the year to March - during which Son's "intuitive" bet WeWork spectacularly imploded - unsettling Middle Eastern backers which stumped up much of the fund's money.
Though many problems at portfolio firms pre-date the pandemic, the resulting economic meltdown has exposed what critics have long called an extraordinarily risky strategy of ploughing huge sums into unproven businesses in the expectation that would enable them to dominate big new markets.
"The Vision Fund has been a mess. It has been a case of an organisation with too much money just splashing it around without doing enough due diligence," said Joe Bauernfreund, chief executive of SoftBank shareholder Asset Value Investors.
Son transformed SoftBank into a tech investor over the past three years and raised the world's biggest late-stage investment fund in the Vision Fund. To be sure, some investments are doing better, but examples are scant as the pandemic magnifies problems.
The pain is particularly keen in transport and real estate, which make up $43 billion of investment and include car-share firm Getaround, home-seller OpenDoor and real estate brokerage Compass.
Restrictions on movement worldwide has hit the market for the portfolio's four major ride-hailing firms, with India's Ola suspending operations in cities in Britain, Australia and New Zealand, three people with knowledge of the matter said.
SoftBank and Ola declined to comment.
U.S. peer Uber Technologies Inc, whose stock is stuck 40% below its 2019 initial public offering (IPO) price, last month said it had sufficient cash reserves to weather the crisis. Southeast Asia's Grab said its food delivery business is doing well. China's Didi declined to comment.
The fund does not include all $13 billion invested with SoftBank itself in office-share startup WeWork, or SoftBank's bet on satellite operator OneWeb, which filed for bankruptcy protection last month.
Among SoftBank-backed startups, at least six that have pushed back IPO plans to 2021, including BigCommerce, which powers e-commerce sites for the likes of Toyota Motor Corp and Sony Corp, said the three people, who were not authorised to speak with media so declined to be identified.
Vision Fund bet DoorDash, a U.S. food delivery startup which earlier this year confidentially filed to go public, is also re-evaluating IPO plans given capital market volatility, a fourth person said.
DoorDash declined to comment. BigCommerce did not respond to a request for comment.
IPOs are a vital means of raising capital for the Vision Fund, with investors such as Saudi Arabia's Public Investment Fund (PIF) and Abu Dhabi's Mubadala receiving dividends - an unusual arrangement for such a fund.
PIF and Mubadala in recent weeks have expressed fresh concern about the fund's performance and its ability to pay dividends, said two people directly aware of the conversations.
"As partners with a long-term view, we have discussions with (SoftBank) on ways to best optimise the fund's performance as we all navigate these difficult economic times," said a Mubadala spokesman.
PIF declined to comment.
Consumers housebound due to movement curbs has brought the portfolio some bright spots. For instance, use of short video app TikTok is growing, with Chinese operator Bytedance pledging to nearly double headcount by year-end.
Orders have surged at South Korean e-commerce firm Coupang, and shares of China's Ping An Good Doctor - formally Ping An Healthcare and Technology Co Ltd - have doubled in price year-to-date on demand for online consultation.
Overall, provided startups have enough cash to ride out the downturn, then recovery could follow, experts said.
But bright spots are scant.
Indian hotel startup Oyo exemplified Son's approach of providing huge sums for rapid expansion before the business had proven it could make money. Movement curbs have since precipitated the collapse of the global travel industry.
Oyo has backtracked on hotel revenue guarantees that are at the heart of its business model claiming force majeure, and is adjusting workforce and slowing expansion, the three people said.
Oyo declined to comment.
Chief Executive Son's investor credentials rest on an early bet on Chinese e-commerce leader Alibaba Group Holding Ltd. However, the billionaire has had a string of setbacks including bailing out WeWork after a failed attempt to float.
Startups across the portfolio have struggled to demonstrate paths to profitability or have taken measures such as cutting staff as rapid, SoftBank cash-fuelled expansion came to an end.
With the Vision Fund's estimated losses, analysts said its investments are now likely valued below cost. Moreover, the troubles have left Son's plans to raise a second mega-fund in tatters.
Fund backers and SoftBank stakeholders including U.S. activist investor Elliott Management have called for a committee on the board to oversee Son's big investments, the people said.
"I don't think the Vision Fund has worked out quite the way many anticipated," said venture partner Ben Narasin at New Enterprise Associates. "In some cases it's an open question as to whether (SoftBank's) bets made sense as laid. Others were spot on, but likely to be hindered by the new COVID realities."
The economic hit from the virus has far exceeded what the fund expected in the early days of the outbreak, a Vision Fund partner said on condition of anonymity.
"In November, SoftBank indicated that about 15 of the Vision Fund companies would likely go bankrupt. Clearly the world has changed since November," said Sanford C. Bernstein analyst Chris Lane, who remains bullish on SoftBank stock. "It wouldn't surprise me if ultimately about 30 of them go bankrupt."