Losses pile up for Vision Fund 1 as SoftBank’s Son acknowledges performance ‘not that great’

The late-stage venture fund has reported annual unrealized losses of more than $17bn and paused marketing for Vision Fund 2.

The SoftBank Flagship Store in Ginza, Tokyo, Japan. CREDIT: winhorse/iStock/Getty Images.

By Alex Lynn, Private Equity International

SoftBank’s Vision Fund has reported annual losses of more than $17 billion as the covid-19 pandemic capped a woeful year for the Japanese tech conglomerate.

The $98.6 billion vehicle posted a ¥1.87 trillion ($17.4 billion; €16.1 billion) unrealized loss for the fiscal year ended March 31, driven by declines of $5.2 billion and $4.6 billion in its Uber and WeWork holdings respectively, according to an earnings statement on Monday.

SoftBank said last month that the poor performance of the Vision Fund was due largely to the struggles of WeWork and the impact of the coronavirus on other companies in its portfolio, including Uber and Oyo.

Of its 88 portfolio companies, 50 posted an aggregate $20.7 billion decline in fair value over the period, outweighing $3.4 billion of growth across 19 companies. A large proportion of its losses came between January and March as the coronavirus battered global markets.

“SoftBank Vision Fund 2 [will be] using our own money and we’ve been continuously making investments, because the performance [of] Vision Fund 1 is not that great,” chief executive Masayoshi Son said via a translator on a call accompanying the earnings presentation.

“Therefore we’ve decided not to do the marketing for Vision Fund 2 for the partners for a while […] If the performance is not very good, then of course the money for Vision Fund 2 cannot […] be asked [from] other people.”

Vision Fund delivered a negative 6 percent net internal rate of return as of March 31. Around 40 percent of its committed capital is preferred equity with a fixed 7 percent distribution to LPs, while the remainder is performance-based, per an earnings presentation.

The vehicle has more than ¥1 trillion of remaining capital earmarked for preferred equity distributions and additional investments, Son noted. It deployed $15.6 billion during the 12-month period, including follow-on investments.

“The stagnation in economic activity, restrictions on social outings, and stock market disruptions in various countries due to the outbreak of covid-19, have had, and are expected to continue to have, a significant impact on the business activities and fair value measurement of the portfolio companies of SoftBank Vision Fund,” the earnings report noted.

SoftBank Investment Advisers, the unit which manages the Vision Fund, has been working closely with portfolio companies to help them prepare for a further deterioration in business conditions, the report noted.

Three new board members proposed

In a separate announcement, ahead of SoftBank’s earnings report, Jack Ma, co-founder of Alibaba Group Holding, said on Monday he is leaving the board of SoftBank after 13 years, effective June 25.

In September, Ma resigned as chairman of Alibaba, which SoftBank has a long relationship with.

SoftBank invested $20 million in the start-up in 2000, and Alibaba went on to become one of the world’s largest companies with a market capitalization of about $550 billion. SoftBank still holds about 25 percent of the company.

Ma is the only board rep to be leaving. Softbank also proposed three new directors: CFO Yoshimitsu Goto; Cadence CEO and Walden International founder Lip-Bu Tan; and Waseda Business School professor Yuko Kawamoto. Kawamoto is the board’s sole female member.

This story first appeared in affiliate publication Private Equity International. Venture Capital Journal contributed to this report.

Alex Lynn is a Hong Kong-based reporter for PEI. He can be reached at alex.l@peimedia.com.