When the SoftBank Group announced its $ 100 billion Vision Fund in 2017, it stunned the venture industry. This unique fund was 50 times the size of the largest hedge funds at the time, and much larger than most private equity funds.
At the center of SoftBank’s initial investment approach was betting huge amounts on its portfolio companies to help them become market leaders, creating the so-called “money pit” against competitors.
But three years later and the Vision Fund had racked up a long list of flames and lost billions in market value.
WeWork’s parent, The We Company, in which Tokyo-based SoftBank had invested a reported $ 18.5 billion, withdrew its planned annual public offering in late 2019 amid pointed questions about its path to profitability. and the possible autonegoto of founder Adam Neumann.
A few months later, Brandless, an e-commerce company where the Vision Fund led a $ 240 million Series C funding, closed in February 2020. Zume Pizza, which aimed to revolutionize fast food, raised $ 375 million dollars in November 2018, but closed its pizza business just over a year later, in January 2020. India’s cheap hotel site Oyo reported layoffs in early 2020, before the pandemic hit the industry. travel.
In total, Vision Fund 1 (SVF1) had $ 8 billion wiped from its fair value between December 2019 and March 2020, going from $ 90 billion to $ 81.9 billion, according to SoftBank earnings reports.
While SoftBank and its Vision Fund have continued to hit potholes this year, including the collapse of two high-profile unicorn portfolio companies, construction technology Katerra and finance firm Greensill Capital, company leaders say there are also a behind-the-scenes change in the works. Despite its high-profile flaws, SVF1 has seen its value improve significantly in the last year as a result of successful outings like Coupang and DoorDash. And SoftBank is now taking a very different approach with its second fund, eschewing the “capital as a weapon” approach of its first fund in favor of smaller, earlier-stage investments in startups.
Take 2
While SoftBank is still investing heavily in startups, including $ 14.2 billion last quarter alone largely through its second fund, the Japanese conglomerate has seen a fundamental shift in its approach to venture financing.
“The biggest change in Fund 2 should not be concentrated,” said Navneet Govil, managing partner and CFO of the Vision Fund, in an interview with Crunchbase News, discussing the strategy behind his second fund. “The differences are that we are making a much smaller ticket size. It is not the large size of a multi-million dollar ticket.”
SoftBank announced its second investment vehicle, Vision Fund 2 (SVF2), in July 2019. After many limited partner commitments evaporated due to the WeWork debacle, the fund now stands at $ 40 billion, all raised from SoftBank, no external LPs.
SVF2 has significantly increased its investment pace in the last quarter and led some heady funding rounds, including a $ 775 million Series A at Perch, a $ 676 million Series D at SambaNova Systems, and a $ 640 million Series E at Trax. .
He also led a $ 639 million round at Klarna. The Stockholm-based “buy now, pay later” unicorn is the highest valued of the Vision Fund 2 companies, at $ 45.5 billion.
But while the second fund has made a total of 91 investments, a similar count to SVF1, it has invested only $ 19.5 billion to date, as those deals tend to be smaller.
“The other change is to go into the earlier stages, and then participate in follow-up rounds, as one company does it well,” Govil said.
In the last quarter alone, the Vision Fund has increased its number of investments to 47 new companies with $ 14.2 billion invested.
Change of Fund 1
Along with a new investment thesis for SVF2, SoftBank has also worked to turn its fortune around with its first fund.
The Vision Fund 1 portfolio value has improved significantly in the last year to $ 146.5 billion.
“In the first fund we are really focused on two things, which is helping our companies go public and monetizing our positions and returning capital to our limited partners,” Govil said.
As of March 31 of this year, SVF1 has substantially improved its outlook with an investment profit of more than $ 57.1 billion, according to SoftBank’s earnings report. The most recent quarter has increased by $ 60.3 billion.
SVF1’s investments count up to $ 86.2 billion, with a portfolio worth $ 146.5 billion according to the company’s most recent earnings report.
The investment window for new company investments in the first fund was closed in September 2019, but the fund has a useful life of 12-14 years to provide liquidity to its limited partners.
The majority – 69 percent – of the value in SVF1 is represented by portfolio companies that have exited, or public companies where the Vision Fund still has shares. The private companies in the first fund’s portfolio, including Bytedance, Grab, Ola and other highly valued unicorns, are valued at $ 45.5 billion collectively, according to their earnings report.
The most prominent departure from SVF1’s portfolio in 2021 is Coupang. The Seoul-based e-commerce platform was valued at $ 60 billion in its initial public offering, with the Vision Fund’s multiple at 8.7x according to SoftBank’s most recent earnings report. SoftBank invested $ 1 billion in Coupang in 2015, before the Vision Fund, and another $ 2 billion in the company in 2018 through SVF1.
Another big outing for the Vision Fund this year was from Didi, which went public with a valuation of $ 73 billion, which has been trending lower since its debut and is valued at around $ 42 billion as of May 24. August 2021, down from its private valuation of $ 56 billion in 2017. Vision Fund’s multiple in Didi stands at 1.1x as of SoftBank’s June 30 earnings report.
Competitor financing
The fund has analyzed about 3,300 companies to date and invested in 183 of them, Govil said.
It invests in competing companies, as it did with Uber and Didi, but creates firewalls between rivals, according to the firm. “The markets are big enough that there is a place for more than one,” Govil said.
The Vision Fund’s current private portfolio includes 94 unicorn companies worth $ 655 billion based on the latest private company valuations. It also includes 14 companies that are emerging unicorns, valued between $ 500 million and less than $ 1 billion, and collectively valued at $ 8.3 billion.
“We want to see companies that have significant income, and have a positive unit economy, and are profitable or have a path to profitability in the short term,” Govil said, further underscoring a significant departure from the first fund’s investment focus. .
