Softbank, Vision Fund, First Vision Fund discussed on The Information's 411
So corey. Softbank Lot in the news. Recently we've had a pair of stories in the last two weeks actually talking about what is going on there. Let's start off with just the last week story that you co bylined with Amir because that came a off the news that a Softbank Partner was leaving and gave you guys an opportunity to get inside the fund right now and what sounds to be fairly. Dysfunctional is the right word but tense and maybe chaotic situation. Those three words are okay to use to describe the world's largest tax fund right now just to obviously Softbank has been sort of one of the dominant stories of private tech in the last three years when the hundred billion dollar fund one hundred billion dollar fun reshaping the landscape of tech by just funneling as much money as possible to various companies that they choose and having this ripple effect across venture capital where the sequoias Andriessen of the world are also raising writer Growth Fund in order to keep up and so basically where we're at now you know is essentially Softbank burned through the First Vision Fund in less than three years. Essentially they are no longer making new investments out of that one hundred million dollar fund hundred Billion Dollars Yucky and they've set aside about fifteen billion dollars. Fifteen to twenty billion dollars for follow on investments and so companies that they already invested in from Ohio to cruise to bite. Dance can tell the biggest names in tech can take advantage of that. But we're really seeing now is sort of the after shocks of we works failure right which is the maybe not as much as Uber. I can't remember now but easily nearly yeah okay. So their headline investment. I mean the one that really Exemplified Masa Strategy and his belief in a game changing tech companies right. So what we uncovered last week was essentially the internal dynamics of vision. Find and how they've led to sort of poor outcomes for a lot of these companies and I think if you want to understand sort of why there was Bain a fair number of if not failures than at least souring that's from the Vision Fund. You have to understand how was how was created and how decisions get may get get made and what a mirror. I kind of found after some reporting was you have a fairly unique environment at the Vision Fund where you have investing partners who are incentivized to essentially just grow the number of deals that they're bringing to Masayoshi Yoshi Sutton Softbank. Ceo They're not necessarily incentivized to really think about sort of long-term long term fortunes of the fund. So you've had this environment. Where partners are suspecting each other of handing One company that they've invested in. You know another partner kind of taking that data and giving it to a competitor that the other partner also wants to invest in. Yeah so he's really been this bitter. There's there's in fighting and all of it to me comes down to the central. It's fun to think of it this way but challenge of. It's not actually that easy to spend one hundred billion dollars in a brewster's billions kind of way like you need to optimize your system in order to get that to happen. And that's just difficult and just played. I think it's not that's right and and we should be clear. I mean right now. The on paper the top bank just report their earnings and they have to disclose a lot. More than what a typical. Vc firm would. I mean we've gotten our hands on on sort of the fun track record of the injury of the world. You know I think it needs to be couched with with kind of understanding you know. These are tenure funds. And it's still early for for a lot of these bets but right now on paper you know about a third of the kind of companies in the Vision Fund that are privately held have been marked down within the last nine months. The South Bank is saying that their fair value is less than we're bank invested and that's on top of the on paper losses that we've seen from we work the thing that's really been holding the Vision Fund up and why may be a success is in some ways like late. Stage private investing can still be a very good business. And so you've seen some bats like invidia and flip cart and even uber now is in the black from where sopping invested. They're still at least Uber. Stock Prices Right now and we're slack stock prices right now. Softbank would make money if they sold the shares. So we're not trying to say the things are hopeless. But certainly I think the way that the Vision Fund was developed where you did have of these misaligned incentives. You had a team built of mostly former bankers rather than venture investors and I. We're seeing at least the challenges around that yeah and closing on this kind of broader elements of the whole story. I mean Do we have a clear sense yet? Of whether the whole thesis behind Softbank which is like money can be its own weather system and if we deploy it with enough velocity we can rearrange the climate the climatological map of of tack in order in our favor. That's yeah I think that that's proven to be just a bad assumption on soft bank's part. I think when you when I would have another reporters would have some early conversations back in two thousand eighteen when the fund was really just getting going. You know the idea is okay. Let's take it from bank. They would kind of voice this line of thinking you know if we can just take a company. And they're going. Well you know with fifty salespeople. What if they had five hundred right? Wouldn't that just supercharge the growth and and they've just been time and time again. Where that actually masks? The core business challenge or exacerbates. We're excessive and I think even Masayoshi Sun at Softbank earnings at a press conference early this week. You know he still has not sort of internalized that message or at least publicly saying it. I think he had a quote you know. Essentially saying that companies still need war chests companies for sure companies need money survived but now they've sort of shifted their focus at least sort of publicly towards show helping their company show a path towards profitability or unit economics. But it almost feels like they still have an internal is sort of the core lesson which is money doesn't solve every sort of business challenge. Yeah at some points. If you give an entrepreneur this much money then it's going to be. Yeah I mean I mean just to really just lay heavily on on the metaphors. Throwing out casualty here. It's like you attach like a rocket engine to something that's on a potentially rickety track. And if you do that I mean obviously you're increasing the speed of the vehicle but that thing could just fly the fuck off. Yeah and I think the I think the key question to be watching over the next year so I think over the past six months we've seen at maybe a half dozen very high profile at least in the valley flameouts young companies that are One recently by the way brand lists ran. This was the first company to actually close like they shut down after taking about one hundred million dollars from top bank and last year Zoe Bernardo story about kind of that exact issue. How soft coming in really to stabilize that. Exactly and you've seen significant write downs with the WAG investment with the we investment. And you've had some situations that companies called fair which the car leasing company and Zoom which was a robot pizza maker those companies essentially laying off nearly half the staff or pivoting. The business pretty strongly. Those are the really troubled cases. I think we see maybe another ten to twelve cases out of this portfolio ninety company portfolio. Where it's it's already pretty clear that things are going good. I think the question for the next year is just how many more cases are going to emerge where taking Softbank money became a real inhibitor and actually was damaging right and I don't I don't think we're it's quite clear yet. I think it's right now. Trendy in the valley to say that they just totally screwed with some of the patch of these companies. I think we're going to need to see more reporting. Yeah and you know it just I in fact I don't want to say in fairness to them but there's always a broader story for each individual case and it might be a convenient explanation for some companies to be that were already troubled saying. Oh that's Softbank. Money really threw us off our game really. So many of these companies just.