After suffering a $22.7 billion setback, SoftBank has successfully created its path which has distinguished it from the common boom-to-bust cycle of unicorn investment dotting the ecosystem. We are referring to an investor’s mea culpa affirming that valuations and FOMOs were premature and mostly misconceived.
Masayoshi Son, the CEO of SoftBank recently admitted this after the Japanese investment giant posted the worst quarterly result since 1981 when the company was founded.
In the words of Son; “when we were turning out big profits, I became somewhat delirious, and looking back at myself now, I am quite embarrassed and remorseful”.
The company has declared a pledge to henceforth cut down its operational cost while exercising better discipline on future investments. It is clear that the company’s recent record has inspired sober reflections. After some of its holdings like DoorDash, WeWork, and Uber went through serious quarter to quarter downtown on public markets, SoftBank Vision Fund 1 recorded $22.7 billion net loss.
Similarly SoftBank’s latest Vision Fund 2
took a major hit showing that the decline in stock valuations has affected the fair value of lots of privately invested companies. This may be observed from Klarna, a company SoftBank is well invested in which saw its valuation cut by an alarming 85%.
Companies hardly admit their major errors.
It is not strange at all to find startups counting their losses after investing huge capital in business ventures. By now we all agree that a lot of well funded companies fail especially at their first attempt. Whether these are new investors or the more experienced investors, there are always good times and bad times.
However most of these companies hardly reveal the circumstances surrounding these losses or even talk about it. Why is it hard to admit errors in the venture capital ecosystem? Investors do their best not to criticize portfolio companies, and this is mostly an unspoken rule.
Speaking ill of portfolio companies is highly discouraged especially for those who hold considerable stake in such companies. The office of an investor involves advising management, positioning the company for success, taking board roles etc., anything to promote the company but not to criticize it. Since startup investments are designed with long term goals, investors may find themselves performing their company promotion duties for a long time.
The public markets unlike portfolio companies do not command such loyalties. When an investor is dissatisfied with management, selling off their shares is as easy as ABC. The flagrant disregard for loyalty is observable from short selling, an investment category for those who thrive from criticizing the performance of companies.
Immediately portfolio companies and their closely related competitors go public, there is a shift. Investors are no longer bound by the unspoken code to protect and launder the image of the company. At this stage, the final outcome is accessible for all to see.
A perfect example here is WeWork which is one of the iconic holdings of Vision Fund 1. While WeWork was a private company it secured $10 billion equity funding in venture support and almost $19 billion in debt financing. In its latest valuation it saw a $6 billion downward spiral of its investor’s inputs, settling at $3.8 billion.
One can look back retrospectively now at how ridiculous it will seem after considering those who invested when the company was valued at $47 billion.
As originally reported in (https://news.crunchbase.com/venture/softbanks-startup-investor-uber-we/)