Softbank founder Masayoshi Son has lost his laughter. He of all people, who drove the prices for startups with his investments, is now criticizing the inflated valuations of unicorns.
This time, it seems, there’s more at stake for Son than just a loss: he’s pondering his business model.
So far, Masayoshi Son has exuded optimism even with high losses at the Japanese investment group Softbank. Even if the numbers were red, he continued to invest rapidly with his Softbank Vision Funds 1 and 2. Now he no longer laughed when he presented his quarterly balance sheet. Driven by the bear market and the fall of the Japanese national currency, the yen, Son reported a net loss of 3.2 trillion yen (23 billion euros).
Softbank is another major investor that was hit by the crash in share prices in general and those of technology companies in particular. Berkshire Hathaway, the fund of legendary investor Warren Buffett, even posted a loss of $44 billion for the past quarter. But Softbank’s crisis is more dramatic, as the company has focused on riskier investments in mega-startups that it plans to take public for a profit.
Value of the vision funds fizzled out
Over the past two quarters, Softbank’s Vision Funds have posted a loss of nearly 6 trillion yen. As a result, almost all accumulated profits have disappeared into thin air. The current value of the 473 companies that Softbank manages in the two funds has plummeted to just 112 billion yen. Only at the end of 2019 was the value lower, namely just in the red.
At that time, crises of burned-up stars like the shared office provider WeWork and the mobility service Uber Softbank tore into the basement. But Softbank was saved by the boom in tech stocks triggered by the money glut during the Corona crisis and the global rise of working from home. A year ago, Son’s fund was valued at $54 billion – before the even steeper fall came.
But this time there seems to be more at stake for Son than just a loss: He ponders his business model: rapid investing in a corporate crush with which Son wants to drive the revolution in artificial intelligence and robotics. With the Softbank Vision Fund 1 alone, Son had invested almost 100 billion dollars in 88 unicorns from Softbank and above all from powerful partners since 2017.
With the second fund he changed his hunting strategy and invested smaller sums in smaller companies. But even then he overestimated himself, Son admitted on Monday.
In fact, the value of the second vision fund is now negative, while the first still has a positive impact on the balance sheet thanks to silvered IPOs. In contrast to the past, Son is also skeptical as to whether the situation will improve again quickly. “Three months or three years” – he does not know how long the bear market in tech stocks will last in view of the Ukraine war, the Taiwan crisis, rising interest rates and prices and the pandemic.
Harsh criticism of startups
The Softbank founder is particularly harsh on the start-up industry shortly before his 65th birthday. “The bosses of the unicorns still believe in their high ratings,” criticized the man who, with his enormous investments, had helped drive inflation in startup ratings. As long as non-listed companies are valued many times higher than listed ones, he wants to wait and see, Son promised. “The winter for privately held companies could last longer.”