Why Softbank is struggling to attract investment for its second Vision Fund
Softbank’s Vision Fund was created to disrupt the tech sector – and it succeeded. Launched in 2017, the $100bn (£80.2bn) investment vehicle is the world’s largest tech fund, and made Softbank chief Masayoshi Son the industry’s biggest investor.
The unicorn ‘kingmaker’
The gargantuan Vision Fund (VF) quickly became known for making bold bets on promising young tech companies, ploughing billions into so-called unicorns – privately-owned startups valued over $1bn.
“[VF] is essentially a kingmaker in the realm of unicorns”, New Street analyst Rolf Bulk told City PM.
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But now that money is close to running out. Softbank’s Vision Fund 2 (VF2) was intended to surpass its predecessor as the world’s largest pool of tech investment capital.
When he unveiled VF2 in July, Son announced $108bn of capital had already been committed to the fund by firms including Apple and Microsoft.
This figure now seems increasingly uncertain as a string of disappointing or shelved market listings appear to have subdued investor interest in VF2.
Not only does this have the potential to be a major embarrassment to Softbank, it could also amplify concerns about Son’s aggressive strategy and the rationale behind the two Vision Funds.
Sceptics turn on Softbank
It has been a challenging year for the first Vision Fund. Of its six listed investments, only two – Guardant Health and 10x Genomics – are trading above their initial public offering (IPO) price. Uber, which listed in May, is currently floundering more than 27.5 per cent below its IPO price.
Then, of course, there is Wework. Parent firm the We Company postponed its long-awaited IPO last week after its plans received a lacklustre response from investors.
The office space giant is expected to slash the valuation it will seek when it goes public to under $20bn – less than half of the $47bn in received in private fundraising in January.
Softbank, combined with its Vision Fund and Delta Fund, is the We Company’s largest outside shareholder.
As well as being “embarrassing” for the Japanese tech giant, these lacklustre performances are denting investors’ confidence, City Index analyst Ken Odeluga told City PM.
“Sentiment has changed towards Softbank”, Odeluga said.
“There is a higher volume of scepticism and questions about Softbank’s investment strategy and investment rationale.”
Subdued responses
Despite the record-breaking fundraising figure cited by Son when he first announced VF2, Softbank has received a cool response from some of the biggest VF backers as it tries to fundraise for its successor.
Saudi Arabia’s sovereign wealth fund, the Public Investment Fund (PIF), was the biggest investor in the original VF, pledging $45bn. The Wall Street Journal reported that PIF is planning to invest a smaller sum in VF2, while Bloomberg reported it is now only planning to reinvest profits from the first fund into its successor.
Another big contributor to VF, Abu Dhabi’s Mubadala Investment, may invest less than $10bn in VF2, according to Bloomberg. Mubadala invested $15bn in the original fund.
The Wall Street Journal reported last month that the $108bn figure quoted by Son included contributions from potential investors that were not yet listed in the company’s statements, casting further doubt over the solidity of the figure.
A ‘more modest’ VF2
“I don’t think that momentum towards a second entity has slowed sufficiently to actually take [VF2] off the cards,” said Odeluga, “but I do think it’s going to be somewhat more modest than has been mooted so far.”
The recent succession of disappointing IPOs has led to investors becoming “more demanding” over listing conditions “in a way that was unthinkable” even a couple of years ago, he added.
But despite these cultural shifts, many remain certain that there is still justification for the bold strategy that underpins the Vision Funds.
“The rationale behind VF is still that Softbank invests in companies that are transforming industries and that are clear winners in their respective market segments. That has not changed,”said Bulk.
“The fact that we see the valuations reversing or at least contracting is not a positive, but the case for VF is still there,” he added.
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Although a fund that is smaller than its predecessor could be considered an embarrassment to Softbank, VF2 is still likely to dwarf most other tech funds.
The success of VF2 ultimately will depend on whether Softbank can explain its underlying rationale to investors in a compelling way, and whether Son can persuade them to subscribe to his vision – again – remains to be seen.
Main image credit: Getty