Based in Tokyo, Japan, SoftBank is a massive business conglomerate that spans across several industries, from software and telecommunication to media and finance. Masa Son, founder of SoftBank, is a Japanese-born, moved to the US at the age of 16 to pursue higher education. Upon graduating in 1981, Masa returned home and established SoftBank with the goal of becoming the leading distributor of US software in Japan. After achieving $350M in revenues in 1992, Masa decided to venture into other sectors including telcos and publishing, in addition to landing joint ventures with giants like Cisco and Microsoft. In the late 1990s, SoftBank began exploring the startup investment scene and acquiring stakes in companies such as Yahoo and Alibaba. The continuous success from these ventures made Masa Son one of the most influential and richest people in the world. His success caught the attention of world leaders who rallied behind Masa son’s vision and sought to build partnerships with SoftBank.

In recent years, Sofbank’s reputation began to take hits, and headlines like “SoftBank Founder Calls His Judgment ‘Really Bad”- Wall Street Journal, started to spread internationally. The reason behind this was the launch of Vision Fund. Vision Fund is the world’s largest technology-focused venture capital fund, with over $100 billion in capital. It was created in partnership with Saudi Arabia’s Crown Prince, Mohamad Bin Salman, who was intrigued by Masa’s global influence and business savvy.

SoftBank’s journey with negative publicity began when it started pouring billions of dollars into tech giants such as Didi, Uber, and WeWork at inflated valuations, followed by news about mismanagement and internal conflicts rising amongst C-level executives. Several major reasons spread out about why Vision Fund is sinking.

Recently considered as a popular industry practice, venture capital funds take pride in their team diversity and promote it to startups. However, this was not the case with Vision Fund. Their core team is dominated by former bankers and stock traders with almost zero experience in venture capital investing. This raised many questions around the fund’s leadership and its talent acquisition practices. With an average yearly management fee of around $27M per partner, how was the fund unable to acquire top talent from hotspots like Silicon Valley? Furthermore, the lack of diversity meant that the fund’s management lacked the necessary industry expertise to identify and assess potentially lucrative startups. This had a massive effect on the fund’s due diligence practices; Vision Fund was a tech fund with no tech expertise.

In addition to that, the lack of experience in dealing with startups and early ventures soured the relationship between the Vision Fund team and the entrepreneurs they sought to work with. When some startups started walking away from the fund, SoftBank threatened to funnel the money to their direct competitors instead. Uber CEO Dara Khosrowshahi stated in reference to securing billions in funding from SoftBank in 2018, “rather than having their capital cannon facing me, I’d rather have their capital cannon behind me, all right?”

Vision Fund had a major flaw in its mandate. It is four times the size of the next largest fund, Blackstone Capital Partners Fund VIII, $26B, and ten times the size of the next largest venture capital fund, Insight Venture Partners XI, $9.5 Bn.The Vision Fund was struggling to funnel its whopping $100B into a tech sector already over-saturated with funds, arguably pushing it to invest at inflated valuations. Another flaw in the fund’s mandate was that it was expected to have deployed all of its funds within five years of its inception, an unprecedented feat to undertake. For comparison, Insight Ventures had deployed only $30B of funding in 25 years.

This is not an exhaustive list of the reasons that led to the downfall of SoftBank’s Vision Fund. Multiple other factors were at play as well. But since then, Vision Fund has begun restructuring its management and offered buyback options to some of its limited partners. No one knows what the future holds for Masa Son, but what is certain is that he will face the pressure to save his legacy and that of SoftBank.

Author: Nourdine Khalifeh