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  • Imagining a pool of Middle Eastern oil money.

  • The size of the U.S. budget for public transportation and education combined.

  • And all of that money is entrusted to Japanese businessman who constantly talks

  • about starting some kind of a revolution.

  • That's basically the Vision Fund in a nutshell.

  • For us in the media who cover Vision Fund daily, it's kind of easy to forget

  • how insane and unusual this whole thing is.

  • It was kind of a shocker when Masayoshi Son announced the Vision Fund

  • and his plans to raise one hundred billion dollars to invest in the tech space.

  • It's the largest technology investment fund ever.

  • A hundred billion dollars? In equity to buy things? Man, that's a lot.

  • It made bets on a spectrum of startups, from A.I. to ride sharing apps.

  • Two of the Vision Fund's biggest investments, Uber and WeWork, causing investors to wonder

  • if Masa's Vision Fund is starting to show some cracks.

  • SoftBank, the Japanese corporation that runs the controversial Vision Fund,

  • reported a record operating profit last year, with the Vision Fund as its best performer.

  • But bad investments and the global pandemic have changed everything.

  • In May, the Vision Fund reported a 17 billion dollar loss, contributing to the biggest loss in SoftBank's history.

  • The Vision Fund at this point has lost more money for SoftBank than it made.

  • Masayoshi Son is a very impressive entrepreneur from Japan.

  • U.S. educated, actually got an engineering degree at the University of California, Berkeley;

  • started a few companies while in school.

  • By the time he moved back to Japan in his early 20s, he had all these business projects going.

  • Built up his empire from there.

  • He is willing to take risks, a lot of risks, including in the first dot-com boom and bust around 2000.

  • He placed a big bet on Alibaba, and almost everything he had got wiped out except Alibaba

  • At the bottom of the crash, I actually revived my spirits of the fighting,

  • you know, so actually it was good.

  • SoftBank is now one of the biggest companies in the world. It's a conglomerate.

  • They have lots of interests in mobile phones.

  • And they started this investment fund a few years ago.

  • With the arrival of Vision Fund, SoftBank group was dramatically reshaped.

  • It was reshaped as a holding company with investing as its core business.

  • Now, as to what's Son's vision, I mean, I think he has a really keen sense of these cresting waves of technological change.

  • And he wants SoftBank to be the company that not only survives these sort of cataclysms,

  • but also emerges as a key player and a key investor in the companies who will go on to run the world.

  • So when you told people you were going to raise a hundred billion dollar fund,

  • did they tell you you were a little crazy?

  • Well, some people said.

  • The thing about SoftBank's Vision Fund is it was bigger, bolder, grander than anyone had ever seen before.

  • SoftBank itself is a big investor, but its biggest investor by far is the Public Investment Fund of Saudi Arabia.

  • You had a meeting with a man who was the deputy crown prince of Saudi Arabia, who's now the crown prince of Saudi Arabia.

  • And as I understand the story, you went in,

  • and in one hour you convinced him to invest 45 billion dollars.

  • No, no, it's not true.

  • Okay.

  • 45 minutes. 45 billion dollars.

  • OK, sorry.

  • One billion dollars per minute.

  • It certainly wasn't as controversial until late 2018, when the Washington Post journalist Khashoggi was murdered by Saudi agents.

  • And that suddenly put a spotlight on SoftBank's dependency on Saudi money.

  • Truth be told, it didn't seem to have stopped a lot of companies from taking their money.

  • I think the amazing part of the Vision Fund story was how quickly it all came together.

  • From the first talk of the idea to raising the money to spending the money, it's been just a couple of years.

  • So as of last count, there were 88 portfolio companies at the Vision Fund.

  • More than 10 billion dollars was invested in Didi, a Chinese ride hailing app.

  • Uber took about 7.7 billion. Some four billion dollars went into WeWork.

  • Another three into Grab, a Southeast Asian ride hailing company.

  • So the idea is, you have so much money that anybody even thinking of competing with you

  • just looks at the size of your checkbook and gets scared and doesn't even try.

  • And he does seem to have a particular weakness for very charismatic and very flashy founders.

  • And you know, Adam Neumann of WeWork is a prime example.

  • I mean, Son himself loves to talk about Jack Ma, the founder of Alibaba, his best investment to date.

  • He had no business plan, but his eyes was very strong. Strong eyes.

  • He wants his founders to be the next Jack Ma, to be crazier than the craziest guy in the room.

  • The Vision Fund, I mean let's not forget, they've had some successes.

  • They were a big investor in Flipkart, an Indian retailer that they sold.

  • They've had some companies that have IPO'ed.

  • Unfortunately, there are some high profile investments that have just lost tons of money.

  • WeWork being the prime example.

  • They aren't making any money. They're far from making money.

  • No one really quite understands their business model.

  • According to people with knowledge of the discussion,

  • SoftBank is concerned about the valuation that WeWork could get in the public market.

  • When WeWork IPO so spectacularly imploded, SoftBank essentially had to step in and pretty much buy the company.

  • They came up with a 9.5 billion dollar rescue package and now own about 80 percent of the startup,

  • which essentially makes it their problem to make them profitable.

  • They had a fairly credible plan for how this could happen.

  • Time will solve the WeWork problem. We'll make money once the WeWork building portfolio is allowed to ripen.

  • How? Stop the new building developments and the profitability will drastically improve,

  • and we can expect the costs to go down by half or even more.

  • WeWork declined to comment for this video about SoftBank's investment in the company.

  • There are some bits that are, that just in retrospect seem silly.

  • For example, Zume, the company that wanted to make robot pizza

  • and then pivoted to revolutionizing the food industry and eventually basically crashed and burned.

  • Probably the best example of a sort of self-inflicted injury is Oyo.

  • This is a company that came out of India, created a platform for hotels where people could book a room

  • and expect reliable service, which was a considerable feat for India.

  • Their target seems to have been just the raw number of rooms available on their platform.

  • And as of last count, they had over one million rooms, but they were nowhere near profitability.

  • It's a prime example of the kind of growth at all costs that does come with Vision Fund money

  • that could take a good company and a good business idea and essentially ruin it.

  • SoftBank has declined to comment on its investment strategy.

  • Despite some large and high profile losses, the Vision Fund actually seem to be doing okay.

  • Last year, SoftBank said that based on its analysis of the companies in the Vision Fund's portfolio,

  • the fund was making money.

  • But then 2020 happened.

  • Churches shut down, world landmarks closed as more nations report the spread of the disease.

  • Companies in the gig economy, including Uber, Lyft, DoorDash, Postmates and more,

  • are facing a host of challenges relating to the virus outbreak.

  • The Vision Fund is in a lot of companies that have been hit so hard by this pandemic.

  • So Uber is one of those. It's had to lay off a lot of people.

  • Another company in a similar position is Oyo.

  • Covid-19 is certainly going to be a death blow for a lot of companies on the Vision Fund portfolio.

  • Son himself has said that about 15 of them will go bust.

  • But Son still has confidence in the fund's bigger companies.

  • Those large size investees are surviving and actually doing steady.

  • They have a better chance going through this valley of coronavirus

  • The exception is WeWork. We made a mistake in investing in WeWork,

  • and I've admitted that several times. I was foolish and made the wrong decision.

  • You know, I guess some of the Vision Fund's investment practices

  • have made it uniquely vulnerable to the Covid pandemic.

  • In part, their heavy exposure to ride hailing. They invested in all the top companies,

  • and that's by far their biggest segment.

  • The fact that their companies are geared for high growth and not necessarily profitability.

  • SoftBank group says its Vision Fund lost 17.7 billion dollars in its last fiscal year.

  • That's after writing down the cost of bad investments.

  • The Vision Fund went from SoftBank biggest profit maker a year ago to its biggest drag on earnings,

  • and Vision 2? I don't know, seems like an uphill battle for sure.

  • I think the real takeaway from the Vision Fund is that money really can't buy success.

  • That all of that cash, the huge checks that Masayoshi Son was cutting

  • were actually hurting the founders and the companies who he was investing in, more than they were helping.

  • At first, it looks like having all that money allowed them to burn cash longer, to beat other companies, to survive longer.

  • But the problem is that they were hiring a lot. They didn't have fiscal discipline.

  • And so in the end, all he was doing was creating bigger, bigger bubbles that were bursting and collapsing at a much grander scale.

  • In these past few months, Son often stood on stage and said that he's learned the lesson.

  • But he's actually quite short on details.

  • The lesson he seemed to have learned is that investing in WeWork was a mistake.

  • It's not at all clear if he learned the lesson of the kind of hyper growth the Vision Fund has promoted.

  • Maybe that's what's his strength. Nothing will stop him. He's so determined.

  • He's so stubborn. He's got such incredible self-confidence. That really is his greatest gift.

  • He's an incredible showman. But at some point, there is going to be a reality.

Imagining a pool of Middle Eastern oil money.

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The Troubled Saga of Masa Son's $100 Billion Fund

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    joey joey posted on 2021/05/27
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