How SoftBank’s Vision Fund turned losses into gold this summer

It’s hard to think back to the Vision Fund era today, given the oddities that 2020 has brought. But SoftBank’s gravity-bending investment vehicle only stopped investing last September, ending its disbursement of huge blocks of cash from a total committed capital pool worth nearly $99 billion.

The Vision Fund was a wrecking ball, smashing into any company it chose with a big check and demands for rapid growth. By the time it was done investing, the first Vision Fund had deployed around $100 million every day of its existence, according to TechCrunch calculations.


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But even before SoftBank and eccentric leader Masayoshi Son were done cutting checks, things were going awry. TechCrunch compiled a list of issues that cropped up inside the portfolio in 2019, including layoffs at the overstuffed Wag, Uber’s lackluster IPO, turmoil at Brandless, the enormous WeWork IPO fiasco and its ensuing chaos, executive changes at Compass, layoffs at Fair and Katerra and OneConnect’s IPO fizzle.

2020 picked up where 2019 had left off, with more issues at OYO, layoffs at Zume Pizza and some public flak for breaking terms sheets.

By this April, SoftBank admitted that it was on track to take stiff losses from its Vision Fund portfolio, which, when combined with other investing losses, pushed the company into a rare loss for the year.

And then things got better: SoftBank’s Vision Fund had a much better last six months than you probably guessed, and we need to understand why.

So, into the data we go, to have some laughs at the art that SoftBank cannot leave out of its reporting and learn a bit about what changed for the Vision Fund family.

A comeback

Before we get to the turnaround, we need to understand how much damage the Vision Fund caused its parent company earlier this year.

To grok the impact that the Vision Fund’s rough patch caused SoftBank Group during the 12-month period ending March 31, 2020, we can glean all that we need from a single chart. Here’s SoftBank Group’s net income through its fiscal 2019:

Image Credits: SoftBank

The period’s loss stands out like a sore thumb.

What drove the deficit? A ¥1.9 trillion segment loss from the Vision Fund, produced by declines in the “fair values of Uber and WeWork and its three affiliates,” along with the fair value of “other portfolio companies decreas[ing] significantly in the fourth quarter primarily due to the impact of the COVID-19 outbreak.”

It was brutal and humiliating to have raised so much money and invested it with such confidence only to have so many deals go sideways.

At the end of its fiscal 2019, SoftBank Group reported that the Vision Fund held 88 investments that had cost it $75 billion. The whole group was worth $69.6 billion, “excluding exited investments.”

Fast-forward to the company’s most recent report, covering the following six months — a period ending as September came to a close — and it’s hard to compare the two sets of results: SoftBank Group was back in the black, posting solid year-over-year gains from the same period of its preceding fiscal year.

Of course, SoftBank Group is far more than the Vision Fund — the company is a Japanese conglomerate with a huge telecom business that makes lots of money. But we care about its startup investing performance, so how did the Vision Fund itself impact its numbers in the six months concluding in September 2020?

  • Vision Fund 1 reported realized gains of ¥141.4 billion by selling “a portion of its shares in four portfolio companies.”
  • Vision Fund 1 reported unrealized gains of ¥804.8 billion, thanks to “¥374.5 billion gain on investments in listed portfolio companies due to a recovery in the public equity markets, and ¥430.3 billion on investments in unlisted portfolio companies,” a topic that we’ll return to.
  • Vision Fund 2 reported unrealized gains of ¥537.2 billion, nearly all of which came from strong post-IPO gains in the value of KE Holdings.

That the first Vision Fund made some money selling shares in some of its companies was not a huge surprise. And that the second Vision Fund did well on an investment that went public and appreciated, while neat, is not the core of what we want to understand.

Instead, we need to know what changed inside the Vision Fund 1 portfolio between March and September, that so altered the trajectory — and therefore value — of the companies included inside of it.

SoftBank offers the following, from its discussion of Vision Fund 1’s unrealized gains, which it wrote were “driven by the fair value uplift of portfolio companies where exits have been decided or have new funding rounds, or have benefited from the accelerated adoption of digital services following the COVID-19 pandemic.”

This is both interesting and boring. It’s interesting in that the same tailwinds that provided such lift to startups broadly — the accelerating digital transformation in the face of a global WFH realignment, an e-commerce boom thanks to the pandemic and so forth — also managed to put wind in the Vision Fund’s sails. And it’s boring in that it’s not an exotic answer of a massive derivative ploy or something that would constitute a surprise; from the Vision Fund we’ve come to expect the unexpected, not the enjoyment of broad secular tailwinds.

Per SoftBank, Vision Fund 1 wrapped the first half of its fiscal 2020 with 83 investments that cost it the same $75 billion as before, but now worth $76.4 billion, a sharp increase from the preceding report that showed SoftBank underwater when comparing the then-current value of its investments against their cost.

Where did the gains come from? Here’s a table showing all of the investments in Vision Fund 1, their cost and current fair value, in billions of dollars:

Image Credits: SoftBank

Of the $7.6 billion gained in the first two quarters of its fiscal 2020, SoftBank saw $4.1 billion in gains from its yet-private investments and $3.5 billion from its public investments, with Uber generating a little more than half of that tally. Amongst the private companies in the Vision Fund 1 portfolio, transportation and logistics companies did the best — unsurprising given the e-commerce boom — with investments demarcated “health tech” coming in second and “consumer” managing third.

Notably the only sector of private investments from the Vision Fund 1 portfolio to lose value were its aggregated fintech investments. I wonder what percent of venture-style investors lost money on fintech deals in 2020? I bet it’s a slim list.

Regardless, after taking repeated boots to the butt during calendar 2019 and the first quarter or two of calendar 2020, SoftBank Group is back to profits, partially stemming from gains in its Vision Fund 1 portfolio. Which is good, as the company is currently investing out of the second using its own checkbook.

Ah, I promised jokes. Let’s not forget that!

Image Credits: SoftBank

I present to you, from the SoftBank Group deck, all of human history in a single slide:

That AI reference is no accident. Here’s SoftBank’s view on which companies are going to do well in the coming years:

Image Credits: SoftBank

And who is currently ahead in that race? You guessed it:

Image Credits: SoftBank

Ah yes.

Anyhoo, let’s peek at what that future might look like! Here’s SoftBank’s investing history thus far in terms of its private and public investments:

Image Credits: SoftBank

And here’s the same chart, but cut up by theme:

Image Credits: SoftBank

Falling telecom investments, big internet investments and a rising chunk of AI deals. Recall that the AI thing is supposed to be the future. This chart is therefore unsurprising, aside from its color choices.

But from that foundation, where will SoftBank investing go next? That’s what the company wanted to know:

Image Credits: SoftBank

Well, here’s its own guess:

Image Credits: SoftBank

Apparently AI investing is going to help SoftBank Group put Berkshire Hathaway to shame. Perhaps that will come to pass if Uber’s stock keeps rising.

Regardless, you’re now caught up on Vision Fund 1 and its turnaround. Back to work with you!