SoftBank Group, the driving force behind the U.S. and China initial public offering boom, faces $100 billion in debt as the technology investment bubble bursts, according to a Wolf Street report.
Japan’s SoftBank claimed as the lead venture capital investor that its WeWork tech shared workspace initial public offering (IPO) could be worth $100 billion. But over a four week period, the valuation for its WeWork IPO plunged from $47 billion to $10 billion. Controversial founder Adam Neumann stepped down as CEO on Sept. 24, but WeWork canceled its IPO on Sept. 30 on rumors of accounting and securities fraud.
After SoftBank grew Yahoo Japan into a multinational conglomerate company headquartered in Tokyo, the company funded a China consumer-to-consumer (C2C) online retail start-up named Alibaba Group in 1999. Due to Alibaba’s unprecedented domestic and international growth, SoftBank’s venture capital stake made a 5,000 percent profit and have been worth over $100 billion by mid-2019.
Alibaba’s success allowed SoftBank to create Vision Fund in 2017, which has become the world’s largest technology-focused venture capital fund worth over $100 billion. Softbank also partnered with Saudi Arabia’s Public Investment Fund to create Vision Fund. The Saudis contributed $45 billion, SoftBank kicked in $28 billion, Abu Dhabi’s Mubadala Investment chipped in $15 billion; while Apple, Qualcomm, Foxconn, Sharp, and others tech corporations invested smaller amounts.
Vision Fund is the lead investor in legendary technology start-ups including Boston Dynamics, Brightstar, Uber, Didi Chuxing, Ola, Renren, InMobi, Hike, Snapdeal, Fanatics, Improbable Worlds, Paytm, OYO, Slack Technologies and WeWork. SoftBank’s business model attracted the most prestigious venture capital firms as co-investors.
The credibility of SoftBank and quality of its co-investor participation ballooned private market valuations and allowed immature companies to pocket tens of billions of dollars in IPO funding, despite the firms’ lack of profits or demonstration that their technology business models were sustainable. Once public, small investors drove SoftBank sponsored company stocks to extremely high prices between 2011 and mid-2019.
Based on SoftBank’s reputation, the WeWork IPO securities attorneys were Skadden Arps; the investment banks were JPMorgan Chase and Goldman Sachs; and the prospectus was written by the highly respected Simpson Thacher & Bartlett law firm.
The WeWork IPO scandal has caused investors to flee other SoftBank tech deals. Uber’s stock has lost over $30 billion in value since its July IPO. SoftBank founder and CEO Masayoshi Son has said he is “embarrassed” by his investment record.
A new crisis emerged on Oct. 11 with WeWork facing a cash crunch and the potential for a bankruptcy, according to the Financial Times. Not only did the company lose access to $3 to $4 billion in IPO cash funding, but its investment banks had also promised a $6 billion loan package after the completion of the public offering.
Mitsubishi UFJ Morgan Stanley Securities Co. published a research piece estimating that SoftBank Group will suffer about a $3.4 billion operating loss for the quarter that ended in September due to Uber and WeWork, not counting its private portfolio losses.
SoftBank Group also has nearly $100 billion in consolidated debt associated with a slew of aggressive acquisition by the parent company. The deals included Sprint Nextel, British chip designer ARM, Fortress Investment Group, and about a fifth of India’s largest e-commerce company Flipkar.
Vision Fund has invested in over 80 companies over the last two years, but its biggest checks were written to WeWork, Uber, and Slack.
Chriss Street is an expert in macroeconomics, technology, and national security. He has served as CEO of several companies and is an active writer with more than 1,500 publications. He also regularly provides strategy lectures to graduate students at top Southern California universities.