The economic storm has arrived, but SoftBank is confident that its portfolio firms will prosper as long as they focus on product and growth.
That’s the message Masayoshi Son’s Japanese conglomerate is sending to its startups, despite the fact that SoftBank lost $27 billion last fiscal year as inflation rises, conflict saps resources, and interest rates rise. Forbes reached out to roughly half of SoftBank’s Vision Fund portfolio businesses to learn how the world’s largest investor was counselling founders to weather a downturn that has already wiped billions of dollars from public and private technology company valuations.
“Regardless of whether we’re in a bear market or not, they still believe that growth and product are the most important things, which is great from a founder’s perspective,” says Juan Urdiales, CEO of Spanish hiring platform Jobandtalent, which raised $120 million in a SoftBank-led round in March 2021.
Urdiales isn’t the only one. Out of a pool of 300 firms backed by SoftBank’s $140 billion Vision Fund 1 and 2, Forbes spoke with 20 more founders. Founders like Kevin Gosschalk of Captcha maker Arkose Labs claim they were advised that in an economy falling under rising interest rates and uncontrolled inflation, “focus” and “lean” growth were the priorities.
After making a record 183 investments last year, SoftBank slowed down its financings as hints of a bear market were on the horizon this year. Since the beginning of the crisis in Ukraine in late February, it has made only 32 investments, with SoftBank founder Masayoshi Son telling investors that he plans to cut back on such acquisitions by 50 percent to 75 percent.
A previous adjustment in strategy at the Vision Fund, the world’s largest IT investor, preceded this one. The London-based team moved its focus from its Vision Fund 1’s $1 billion bets on capital-hungry businesses like Uber and WeWork to more traditional venture-style investments with checks as small as $10 million, spreading its chips across industries and countries. “The reality is that if you want to keep spending multi-billion dollars a year, it’s really difficult to focus on a few positions and find these very massive companies that can swallow that,” says Yanni Pipilis, SoftBank Vision Fund’s EMEA Managing Partner.
After valuations and founder demands in the United States skyrocketed, SoftBank, like many of its Silicon Valley rivals, refocused on European businesses over the last 18 months. After Vision Fund 1 was dominated by huge American and Asian companies, SoftBank nearly quadrupled the capital given to European startups to 25% in its second fund.
Despite this, the speed and scale of SoftBank’s investment across its vast activities can cause confusion and overlap. Two Vision Fund teams invested nearly $3 billion in two Norwegian businesses with competing warehouse robots technology just days apart in April 2021. As internet grocer Oda expands into Germany and Autostore tries to fuel Germany’s retail behemoths, the stablemates may soon be pushed against one another.
Some of SoftBank’s competitors have taken a more cautious approach. Sequoia Financing delivered a bleak warning to its portfolio founders last month, saying that “Cheap capital is not rushing to the rescue” to save faltering businesses. Tiger Global, SoftBank’s rival in “spray and pray” investing in late-stage firms, has also experienced huge headwinds and has written off $17 billion across its portfolio, according to critics.
According to Pitchbook, Tiger invested in 33 firms in May, down from 50 in January. Despite the approaching symptoms of a collapse, Tiger’s backers appear unfazed, raising $12.7 billion for a new growth fund in March and apparently in talks to create yet another private markets fund.
SoftBank has returned to earth since breaking Japan’s record for corporate earnings on the listing of South Korean ecommerce firm Coupang and the then-rising valuations of companies in its Vision Fund portfolio around this time last year. Those milestones were achieved before increasing interest rates, dramatic stock market drops, and recession fears slashed public and private tech values. Meanwhile, Alibaba and Didi, a ride-hailing app owned by Softbank, have been caught up in China’s digital crackdown. SoftBank’s stock has lost 36% of its value in the last year. It’s also dealing with a $140 billion corporate debt load, one of the world’s heaviest, as well as a slew of high-profile management departures.
Some of SoftBank’s largest bets in Vision Fund 2 have recently begun to sway. After declaring a roughly $500 million loss last year, Klarna, Europe’s most valued company, laid off a tenth of its employees and lowered expectations last month. In May, GoPuff, the $15 billion quick delivery service, announced the closure of more than a dozen facilities and the layoff of 400 staff. View, a developer of “smart glass” windows that received $1 billion from SoftBank before coming public via SPAC, is in danger of being delisted by the Nasdaq, despite trading at an 81 percent discount to its peak a year ago.
“As a founder, you should never expect on continuing financial support from your investors,” says Rob van den Heuvel, CEO of Sendcloud, a Netherlands-based shipping business that raised $175 million in a round headed by SoftBank in September. “Our company is doing well, and they reaffirmed their support a few weeks ago….” If people don’t support enterprises that aren’t doing well, I can understand.”
Though, at least on the surface, such considerations have not undermined the trust of its portfolio firms. Other entrepreneurs told Urdiales that SoftBank’s exposure to public markets may determine if it was a long-term investor, according to him. “We’ve seen a lot of investors who have been impacted significantly by market developments,” Uriadales says. “An investor that changes their mind every quarter is not someone you want.”