SoftBank’s Vision Fund has put itself in a tight spot

Created by Japanese conglomerate SoftBank, the Vision Fund has had a strong reputation for investing in a variety of enterprises. It counts a bunch of well-known investments in its portfolio, including organizations such as Flipkart, Tokopedia, and WeWork.

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The Vision Fund has been especially influential in bringing international awareness to many Asian-based startups. However, despite its best efforts, it’s ultimately on a declining trajectory, primarily due to three factors: a poor holistic track record, a lack of diversity in holdings, as well as a certain eccentricity in investing logic.

A glimmer of brilliance

The Vision Fund’s efforts have netted several successes, putting immense amounts of money behind early-, mid-, and late-stage startups. In fact, many of its parent company’s wins in the past several years have come directly from Vision Fund investments.

For example, in 2018, SoftBank experienced an operating profit of 49% in the first quarter due to the sale of its stake in the Indian ecommerce giant Flipkart. This shows how some of the Vision Fund’s decisions have proved profitable for SoftBank as a whole.

A poor track record

However, a quick examination of other Vision Fund holdings paints a far different picture.

Few of the fund’s many investments have actually proved profitable. Uber’s initial public offering in May 2019 started at US$45 per share, falling 8% on its first day. The ride-hailing company is currently trending around US$37 per share.

Slack Technologies’ June 2019 IPO listing price sat at US$38.50 a share, with its first earnings report as a public company showcasing mixed results. Slack has since experienced a 40% decrease in stock price.

Similarly, WeWork’s own IPO has been delayed since its announcement in April 2019, with potential investors voicing significant concerns about profitability and the firm’s co-founder, Adam Neumann. That same year, SoftBank took direct control of WeWork, and the co-working startup laid off some 2,400 employees.

Early 2020 has so far seen the resignation of three WeWork board members, with sources saying a fourth board member’s departure is imminent.

To add to this, Brandless, another Vision Fund portfolio company that had raised over US$290 million, shut down in February this year.

Lack of diversity in holdings

The Vision Fund’s high-profile investments represent just a small portion of its total deals. According to a Bloomberg report, “Fifty percent of the Vision Fund’s holdings are in transportation logistics and real estate.”

The emphasis on these two sectors can be seen in its US$1 billion funding round for logistics provider Flexport, in addition to a combined US$60 billion investment into more than 40 transportation logistics companies. And that’s not to mention its now infamous US$7.5 billion investment in WeWork.

While it’s no question that the transportation logistics and real estate industries are experiencing growth, investing heavily in these spaces means there’s a lack of diversification, which is simply bad practice in reducing market risk.

Controversial investing logic