SoftBank’s 24.5 billion epic loss: Without Bank, only Soft?

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Masayoshi Son can only laugh at himself as Tokugawa Ieyasu who “fleeed in embarrassment”

Text｜Editor by Du Chen｜Vicky Xiao

Source: Silicon Stars

Earlier last year, Masayoshi Son told employees at an internal SoftBank working meeting: The valuations of startups are still soaring, and your investments are not aggressive enough!

He had his assistant create a form specifically for tracking potential investors who haven’t yet accepted his money. He also further streamlined the rules and processes for investment decisions internally, according to The Wall Street Journal.

Masayoshi Son’s aggressiveness has caused some employees who remember the poor record in iconic cramming investments such as WeWork to feel puzzled and panic.

More than a year later, Masayoshi Son unsurprisingly ate the bitter fruit he sowed again: due to the significant reduction in the valuation of SoftBank Vision Fund’s investment targets and the serious evaporation of the fund’s size, SoftBank recorded a staggering $24.5 billion in this quarter. The loss was the highest in the history of the group.

Masayoshi Son attributed the main reasons to the uncertain environment and the depreciation of the yen, saying “the world is in great confusion”.

And he currently chooses two ways to stop losses: 1) no new investment; 2) all-out spending cuts, “We need to reduce costs, and there is no place to be immune.”

Once upon a time, SoftBank used hundreds of billions of dollars in bills as a sledgehammer to bend the market rules of venture capital. However, the situation facing SoftBank today is that not only is the hammer no longer easy to use, but even the hammer is almost unaffordable.

| The complete bankruptcy of SoftBank’s investment logic

According to the financial report document, SoftBank Group recorded a net loss of about 3.2 trillion yen (about 24.5 billion US dollars in the document) in this quarter. In just three months, it broke the largest single-quarter loss just set in the previous quarter. record.

In fact, SoftBank Group’s investments in other real-world industries are pretty good, and the losses come almost entirely from the Vision Fund, which invests in innovative startups.

In this fiscal quarter (April-June) alone, the Vision Fund lost about $23.1 billion, with the first and second tranches roughly evenly split. Compared to last quarter’s $26.2 billion net loss, this quarter was only marginally better.

A previous article by Silicon Stars mentioned: Sun Zhengyi, who has tasted too many painful lessons of failure, seems to no longer believe in the cramming-style investment logic he once believed in. For example, last year SoftBank took a big part in the investment of Klarna, a European buy-before-pay financial company, but it was miserable because of Klarna’s valuation downgrade.

As a result, compared with the aggressiveness of the first phase, the second phase is not conservative, but radical in a different way.

The total scale of the second phase of the Vision Fund is much smaller than that of the first phase, but it has made several times more investments than the first phase: public information shows that as of the end of March this year, the second phase of the fund has made 252 investments, while the first phase has made 252 investments. Only 94 investments have been made until today. In the disclosure document of the Vision Fund, the list of the first phase is less than one page, but the second phase has a full two and a half pages…

Although the volume is large, the investment amount is much smaller. According to public information, the total investment of the Vision Fund this quarter is only about 600 million US dollars, which is a fraction of the 20.6 billion US dollars in the same period last year…

So if SoftBank a few years ago targeted a few ducks and poured water crazily, today’s SoftBank is more like sprinkling water on a group of ducks.

However, even if the net is cast as widely as the second phase, it will be difficult to catch big fish like the first phase. Taking the listed investment objects selected by Softbank in the disclosure document as an example, it can be seen that the investment portfolio in the first phase is divided into half and half, and the profits are basically completely withdrawn. Not fully exited:

In order to stop losses, Sun Zhengyi announced that he will completely stop the business expansion of the second phase of the fund, and will focus on managing the investments that have been made so far and will not initiate new investments for the next period of time.

——It can be said that all the investment logic of SoftBank has finally completely gone bankrupt this time.

One of the most successful investments in the history of SoftBank’s investment arm, Alibaba has made a lot of money for the Asian investment giant. SoftBank still owns its shares today. However, just last week, the Financial Times reported that SoftBank sold about a third of its Alibaba shares, or about $22 billion, this year by selling prepaid forward contracts.

So far, SoftBank has sold more than half of its Alibaba stock.

Of course, Ali’s long-term growth prospects are still very impressive, which is why SoftBank has not fully cashed out – but today’s SoftBank found that it is not only useless to spend money on investment, but it is almost not enough.

| Tokugawa Ieyasu, who mocked himself as “fleeing in embarrassment”

Once under the control of Masayoshi Son, SoftBank’s investment department was proud of blowing bubbles, and indeed enjoyed an impressive record of six or seven years. And yesterday, Masayoshi Son had to admit that the company’s past valuation bubbles were too big.

Under the bankruptcy of poor performance and investment strategy, SoftBank and Masayoshi Son have completely lost their reputation in the financial investment circle. Even a group of executives who once worshipped Sun Zhengyi and was extremely loyal have left the Asian investment king.

According to Bloomberg, the two Vision Fund partners, Yanni Pipilis and Munish Varma, announced their departure at the end of July, meaning that more than ten top executives have left the Vision Fund in the past two years:

SoftBank’s No. 2 figure, Rajeev Misra, the direct boss of the Vision Fund, also announced his retirement from SoftBank’s front-line work in July this year. Although he still retains the position of CEO of the first fund, according to Bloomberg, he will focus more on his new fund. Katsuki Sago, the chief strategy officer of SoftBank Group and considered a core figure in Japan’s financial industry, left in March last year. Another legendary manager, Marcelo Claure, the chief operating officer who was assigned to WeWork’s “firefighting”, also announced his departure this year – as a result, SoftBank couldn’t even pay the $2 billion breakup fee he asked for…

There are rumors that some SoftBank investment partners have been dissatisfied with Masayoshi Son for missing out on outstanding companies such as ByteDance, Meituan, and Xiaomi. Such frequent brain drain also reflects the serious performance and strategy problems of SoftBank’s investment department, as well as executives’ distrust of Sun Zhengyi himself.

It is worth mentioning that on the first page of the presentation document of the financial report conference, Masayoshi Son’s team put up a very unique and meaningful painting, which also subtly alluded to the dilemma facing Masayoshi Son:

“Frown Statue”

The figure in this painting is Tokugawa Ieyasu, a well-known Japanese historical figure, depicting a famous event in the history of the Warring States Period:

Ieyasu had great political ambitions, but at that time he was entrusted by Oda Nobunaga as a retainer. He was eager to compete for merit and recklessly dispatched troops to provoke his opponent Takeda Army. Ieyasu fled back to his castle in embarrassment, only to find that his pants were sticky and uncomfortable when he recovered. It turned out to be incontinence because he was too scared on the road…

But Ieyasu did not hide the embarrassment at that time, but simply asked someone to paint his embarrassed appearance at that time, put it in the bedroom, always check and remember the lesson of recklessness, and left this famous painting “Frowning Portrait”.

Borrowing this painting, Sun Zhengyi subtly admitted that he was extremely embarrassed in the face of poor performance, tasted the taste of failure, and learned an important lesson: “We lost 6 trillion yuan in half a year, and I also need to Deep introspection and always keep this lesson in mind.”

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