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.
TL;DW - adding an app and huge amounts of white collar “tech” salaries to low-margin physical products doesn’t net a company with SaaS margins.
People keep ripping on Softbank and the Vision Fund... not to conflate the two entities, but the amount of money it made from selling its stake in Alibaba paid for 2 WeWorks. Plus it just a successful IPO with Lemonade, its ARM (edit:) licensing business is now Apple's go-to cpu, Boston Dynamics is the most advanced robotics manufacturer in the world, it has the potential to sell Sprint for a mint, it still owns a huge chunk of Uber, and so much more.
The only thing its investment losses do is lower the amount of taxes Softbank owes.
(Edited my hastily skapped together comment to add a bit of clarity/correct a mistake)