The economic storm is upon us, but it hasn’t changed SoftBank’s expectation that its portfolio companies will continue to prosper if only they focus on product and growth. That’s the message Masayoshi Son’s Japanese conglomerate is sending to its startups even as SoftBank posted a bruising $27 billion loss over the last fiscal year as inflation spirals, war siphons resources and interest rates head skyward.
Forbes contacted around half of SoftBank’s Vision Fund portfolio companies to learn how tech’s largest investor was advising founders to weather a slowdown that has already erased billions of dollars from the valuations of public and private technology companies.
“No matter we are in a bear market, they still think that the most relevant thing is growth, and product, and that from the founder’s perspective is great,” says Juan Urdiales, CEO of Spanish hiring platform Jobandtalent, which raised $120 million in a SoftBank-led round in March 2021. Urdiales is not alone.
Forbes spoke with 20 other founders out of a pool of 300 startups worldwide backed by SoftBank’s $140 billion Vision Fund 1 and 2. Founders such as Kevin Gosschalk of Captcha maker Arkose Labs, say they were told that “focus” and “lean” growth were the priorities in an economy sagging under rising interest rates and untamed inflation
As signs of a bear market appeared on the horizon this year, SoftBank sharply dialed back the pace of its financings after making a record 183 investments last year. It has made just 32 investments since the start of the war in Ukraine at the end of February, as SoftBank founder Masayoshi Son told investors that he intends to pull back on such deals by 50% to 75%.
That shift was preceded by an earlier change of strategy at the Vision Fund, the world’s largest tech investor. The London-based team shifted from the $1 billion wagers in capital-hungry companies such as Uber and WeWork it made with its Vision Fund 1, to make more traditional venture-style investments with cheques as low as $10 million spreading its chips across industries and countries.
“The reality is that if you want to continue investing multi-billion a year it’s very hard to concentrate on a few positions and find these very large companies that can digest that,” says Yanni Pipilis, EMEA Managing Partner for the SoftBank Vision Fund.
As a minority investor in many of the Vision Fund 2 companies, SoftBank had a smaller role to play in talks about a startup’s future, says Pipilis. “So the discussions we have are more often at a board level are advisory rather than telling founders what they should do,” he says. “There’s no one-size-fits-all approach but of course in an environment like this one we will look at your cash burn, hiring, marketing plans and see how we can adjust that to potentially increase your runway.”
SoftBank has, like many of its rivals in Silicon Valley, refocused on European startups over the past 18 months after valuations and founders’ demands in the U.S. surged. SoftBank nearly doubled the capital allocated to European startups to 25% in its second fund after Vision Fund 1 was dominated by large American and Asian companies.
Even so, the speed and scale of SoftBank’s spending across its sprawling operations can lead to overlaps and confusion. Just days apart in April 2021, two separate Vision Fund teams invested over $3 billion in two Norwegian startups with rival warehouse robotics technology. The stablemates could soon be pitted against each other as online grocer Oda expands into Germany while Autostore seeks to power Germany’s retail giants.
Some of SoftBank’s rivals have struck a more cautious tone. In a memo to founders in its portfolio last month, Sequoia Capital issued a gloomy warning that “Cheap capital is not coming to the rescue” to bail out struggling startups. Tiger Global, SoftBank’s rival in what critics brand “spray and pray” investing in late-stage startups, has also faced major headwinds and has written off $17 billion across its portfolio.
In May, Tiger invested in 33 companies, down from 50 in January, according to Pitchbook. But despite the looming signs of a downturn, Tiger’s backers appear undaunted, raising $12.7 billion in March for a new growth fund, and is reportedly in talks to raise yet another fund focused on private markets.
SoftBank has come down to earth since this time last year, when it smashed Japan’s record for corporate profits on the listing of South Korean ecommerce player Coupang and the then-booming valuations of companies in its Vision Fund portfolio. Those milestones were before rising interest rates, sharp stock-market declines and fears of a recession hammered public and private tech valuations.
Meanwhile, banner Softbank investments such as Alibaba and ride-hailing app Didi have been swept up in China’s tech crackdown. SoftBank’s own share price has plunged 36% over the last year. It is also managing a $140 billion corporate debt pile, among the largest in the world, and a raft of high-profile executive departures.
Most recently, some of SoftBank’s biggest bets in Vision Fund 2 have started to wobble. Last month, Klarna, Europe’s most valuable startup, laid off a tenth of its employees and cut back expectations after posting a nearly $500 million loss last year. GoPuff, the $15 billion instant delivery app, is shuttering more than a dozen warehouses and laid off 400 employees in May. And View, a “smart glass” window maker, which raised $1 billion from SoftBank before going public via SPAC, is at risk of being delisted by the Nasdaq while trading at a 81% discount from its peak a year ago.
SoftBank’s star investment Alibaba, now trades at a 50% discount to its price last year, says Amir Anvarzadeh, a Singapore-based analyst with Asymmetric Advisors, who recommends shorting SoftBank. “Over the last few years, SoftBank’s transformation to become a venture capital firm has been a disaster,” says Anvarzadeh.
SoftBank has been here before. Son was one of the biggest winners of tech investing in the 1990s, just before the dot-com bubble burst, thanks to massive bets on Yahoo and E-Trade. But the subsequent selloff saw SoftBank lose 99% of its market cap, and Son’s personal wealth took a major hit. Son revived SoftBank as a major telecom operator but has more recent brushes with disaster from multi-billion bets on failed startups like WireCard, Greensill Capital, and Katerra – each raising questions about SoftBank’s due diligence process. The WeWork saga in particular took a financial and reputational toll on both SoftBank and Son.
Founders interviewed by Forbes say they have also got the message from SoftBank that it can’t be expected to bail out a floundering startup. SoftBank has led scores of rounds for loss-making startups but now pushes for another investor to lead any subsequent rounds. “We deliberately embarked on a strategy several years ago of having rounds led by others, and being willing to participate and support rounds,” says Anthony Doeh, a partner at SoftBank Investment Advisers.
“As a founder you should never count on continued support from your investors financially,” says Rob van den Heuvel, CEO of Netherlands-based shipping startup Sendcloud, which raised $175 million in September in a round led by SoftBank. “Our business is doing well and they reiterated their support a couple of weeks ago. … I would understand if they don’t support businesses that are not doing well.”
Though for now, such factors have not shaken the confidence of its portfolio companies, outwardly at least. Urdiales says he was warned by other founders that SoftBank’s exposure to public markets could determine whether it was a long-term investor. “We have seen many investors who are tremendously affected by market trends,” Uriadales says. “You don’t want an investor that changes their mind every quarter.”
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