WeWork, which this week cast considerable doubt on its future, is just the latest in a litany of miscalculations for its majority owner Softbank, which lost an eye-watering $48 billion (€43.7 billion) through its investment unit in the year to March, having had to write down many of its investments. The Japanese lender’s fingerprints are on more than one major corporate fiasco over the past number of years.
Last November, for example, the bank wrote down the value of its nearly $100 million investment in Sam Bankman-Fried’s FTX crypto exchange after the once-vaunted company collapsed amid arrests and fraud charges. Softbank has even been named along with other major players such as Sequoia Capital and Sino Global in a California class action lawsuit against FTX, alleging that it “aided and abetted the fraud”. Its initial €900 million investment in Wirecard also came under scrutiny after the Financial Times revealed the now-collapsed German payments company forged client data and lied about internal records to secure Softbank’s backing.
Like many players in the market in an era of cheap money, Softbank and its Vision venture capital funds turned risk-on. Barging its way into the start-up market in 2017, it pumped $144 billion into ‘disruptive – mostly loss-making – companies over the next five years. The Japanese institution was “paying insane prices”, as Lux Capital managing director Josh Wolfe told Bloomberg’s Odd Lots podcast in July. Yet at the time, the returns and the valuations achieved, particularly during the Covid crisis, seemed to back up that strategy.
In fact, the funds, backed in part by Saudi Arabia and Abu Dhabi, raked in profits of more than $31 billion in the year to the end of March 2021 and had assets of some $154 billion under management. Other notable failures include the now-bankrupt US construction tech company Katerra and embattled biotech company Zymergen, which was eventually sold for a fraction of its once-lofty value in 2022.
As Wolfe put it, FOMO (fear of missing out) gripped the market at the time with VCs willing to throw money at anything with even a slim prospect of success and Softbank was the poster child for that mindset. The trouble now with interest rates rising and the money tap drying up is that the Masayoshi Son-led bank has become an emblem of something else entirely. “All of that is gone,” said Wolfe, “so I think we went from what everybody called FOMO, to what I call SOBS, which is the shame of being suckered.”
Given his track record, Son’s latest pivot – to “rule the world” by mastering “the huge revolution” in artificial intelligence – could perhaps be taken more as a warning than an ambition.
