The second Vision Fund has been involved in $21.9bn of deals this year
Credit: KAZUHIRO NOGI/AFP
Phil Libin wasn’t looking for investors. His video app, "mmhmm", had raised $31m (£23m) just a few months earlier, enough for the Silicon Valley company to operate for the next two years. But when SoftBank discovered that venture capital funds had started to offer the year-old company more cash, it refused to be left out.
Within two days, Libin was remotely demonstrating his software to Masayoshi Son in Tokyo, and soon after, he was handed a term sheet. Earlier this month, SoftBank’s Vision Fund led a $100m funding round for mmhmm, more than three times what it had received in October.
“We have enough money now to not have to raise money for a long time. Maybe ever,” says Libin. “I love how ambitious they [SoftBank] are.”
The deal was not a one-off for Son and SoftBank. The world’s biggest technology investor set up its $99bn Vision Fund in 2016, promising to turbocharge investment in start-ups and frontier technologies.
The fund, headquartered in Mayfair despite SoftBank’s Japanese base, attracted huge sums from Saudi Arabia and Abu Dhabi alongside its own cash, and it poured vast amounts into the likes of Uber, Didi and British gaming company Improbable.
But a string of questionable investments led to fears it had fostered a new tech bubble among private companies. The Vision Fund’s most notable failure was WeWork, the office sharing company that Son had put billions in before a planned $47bn flotation fell apart. Others included the dog-walking app Wag, which it put $300m into, and a $375m bet on Zume, a pizza making robot that cut 80pc of its staff a year later. More than $1bn was put into Greensill Capital, the British supply chain finance firm that collapsed this year.
WeWork’s eye-watering net losses
The WeWork debacle led the Vision Fund to retrench. After investing in deals worth $36bn in 2018, this fell to $21bn and $12bn the year after. In one quarter last year, the fund recorded an $18bn loss.
“My own investment judgement was really bad,” Son told shareholders.“I regret it in many ways.
Outside investors declined to back a second Vision Fund, leaving the Japanese conglomerate to fund the scaled-down vehicle alone. It promised to make smaller investments in areas such as biotech and educational software.
But in recent months, SoftBank has stepped up its spending. In 2021 so far, the second Vision Fund has made 64 investments, according to data from PitchBook, more than the record 42 the first fund made at its peak in 2018. The fund has been involved in $21.9bn of deals, putting it on course to surpass the $33.4bn of investments the first fund participated in during 2018.
Masayoshi Son has launched an ambitious second round of his Vision Fund
Credit: Kiyoshi Ota/Bloomberg
“They learned a lot from the first one, and they’ve taken a concerted effort to not become so condensed into a specific industry or a specific company,” says Kyle Stanford, an analyst at PitchBook.
Insiders at SoftBank appear redeemed after a string of earlier investments paid off. The likes of US food delivery company DoorDash, Indonesian ride-hailing app Grab and South Korean online retail business Coupang have gone public in the last year. SoftBank recorded a $37bn profit from the Vision Fund in the first quarter of 2021.
Rolf Bulk, an analyst at New Street Research, says the combination of more cash from successful investments and increased confidence as the WeWork debacle fades explains SoftBank’s newfound exuberance.
“That appetite for investments is again picking up and I think that’s partly driven by those stellar results of Vision Fund One,” Bulk says. “That really vindicated Masa’s approach when it comes to investing.”
Son is said to be more hands-on at the fund. SoftBank has sold much of its investments in US and Japanese telecoms networks and is in the process of selling British microchip company Arm to Nvidia, making the Vision Fund’s performance much more central to the Japanese giant.
Arm/Nvidia timeline (new)
But the company’s boss is known for his penchant for big bets, and the Vision Fund has made a handful of larger deals that suggest it has not lost all its vigour.
Earlier this month, the Vision Fund led a $580m investment in loss-making British fintech app Revolut. The round valued Revolut at $33bn, six times what it was valued at 18 months ago, and more than NatWest.
Martin Gilbert, Revolut’s chairman, said the company did not need the money, but that it would use it to fund growth – an echo of the big-spending strategy Son had encouraged with successes such as Alibaba and failures such as WeWork.
Martin Mignot, of venture capital firm Index Ventures and a former Revolut board member, says the company’s valuation is justified on the basis that it can become a “super app”, a single app combining finance, foreign exchange and new services, rather than just a bank.
SoftBank has made other substantial bets. In June, the Swedish buy-now-pay-later service Klarna was valued at $46bn in a $639m funding round led by the second Vision Fund, and earlier this month it put $1.7bn into Yanolja, a South Korean hotel booking site.
“The model is that some of their investments will fail, and some will be okay,” says Bulk. “But some will be blowout successes.”
If any of Son’s next wagers turn out to be another WeWork, that model may face more questions. But for now, SoftBank looks set to keep spending.