SoftBank Vision Fund Suffers $32 Billion Loss Due to Startup Valutions

SoftBank’s Vision Fund has experienced a massive loss of $32 billion for the fiscal year, which ended on March 31st, 2023. This marks a significant increase from the previous year’s Loss, which was $19 billion. The main reason behind this Loss is the valuation slash of several private and public tech companies in the Vision Fund’s portfolio.

Major Losses in Portfolio Companies

A few key companies in SoftBank’s Vision Fund contributed to the unprecedented Loss. Chinese artificial intelligence firm SenseTime and Indonesian ride-hailing e-commerce company GoTo accounted for a staggering $1.6 billion unrealized loss each, while food delivery giant DoorDash brought another $800 million lost valuation.

The overall fair value of SoftBank’s public and private investment portfolios was marked down by $2.3 billion to $138 billion by the end of this period.

A Shift to Defense Mode

In response to the news on market uncertainties, SoftBank tightened its stance on investment and entered a so-called “defense mode.” SoftBank’s Chief Finance Officer Yoshimitsu Goto revealed that the company is preparing for potential scenarios, including a recovery, either starting this year or by the end of 2023, or in the worst-case scenario stumbling into early 2024.

SoftBank has become increasingly cautious, making fewer deals and investing less capital into startup businesses. According to filings, the company completed 25 deals and invested roughly $400 million in the last quarter, which is a stark contrast from its previous investments that reached billions of dollars in 2018.

While the firm is attempting to appear stable, SoftBank estimates that 94% of the companies across its funds have a cash runway of more than 12 months. Thus, it seems that the focus has shifted to sustaining existing portfolio companies rather than aggressively pursuing new investments.

Global Economic Factors

The economic downturn, combined with rising interest rates and other geopolitical factors, has significantly impacted the valuation of tech firms. SoftBank’s Vision Fund was impacted significantly by the Fed’s decisions to increase interest rates and the armed conflict in Ukraine, leading to losses in key investments.

Some of SoftBank Vision Fund’s prominent Indian holdings, Swiggy and Ola, also witnessed valuation cuts from other investors. Invesco marked down Swiggy’s valuation to $5.5 billion from $10.7 billion, while Vanguard slashed ride-hailing giant Ola’s valuation below its 2019 level.

Future Prospects for SoftBank

Despite the substantial losses, SoftBank is still eyeing potential investment opportunities, particularly in artificial intelligence (AI) technology. CFO Goto mentioned that CEO Masayoshi Son is excited about new AI technologies such as ChatGPT, suggesting that the company is considering whether to maintain defense mode or strike a balance with offense.

In the meantime, SoftBank Group is offloading some of its valuable holdings to manage the Vision Fund’s losses, including selling its stake in Alibaba and preparing for an initial public offering (IPO) for its chip firm Arm. The IPO for Arm, if successful, could generate substantial returns for SoftBank.

At present, SoftBank Group has not provided any updates concerning its plans to raise money for Vision Fund 3 but mentioned that it would consider it once Vision Fund 2’s capital deployment is complete.

Overall, SoftBank’s Vision Fund has encountered a challenging financial year, accentuated by considerable losses in its technology investments. While the company seems to have entered into a more precautious mode, it will be crucial for SoftBank to maintain an adaptive stance given the ongoing uncertainties in the global economy.

Sources: FT, Businessinsider, TechCrunch, Crunchbase