Every once in a while, an organization implodes so fantastically that it’s hard in retrospect to understand why another outcome once seemed possible. With every passing day, SoftBank — which shook up the investing world with the largest investment fund ever pooled, and then seemed to use its capital as a weapon — looks to become one such spectacular failure.
The very newest development centers on the departure of Michael Ronen, a former Goldman Sachs banker who joined SoftBank in 2017 and became the managing partner of U.S. investments at SoftBank’s $100 billion Vision Fund, where he led the firm’s transportation investments, including in Getaround, GM Cruise, Nuro, and Park Jockey.
Ronen tells the Financial Times that he has been “negotiating the terms of my anticipated departure” in recent weeks. Meanwhile, sources tell the FT that his departure is tied directly to the failure of SoftBank to raise any outside investment for the company’s second Vision Fund.
The FT further reports that other top lieutenants may also be on their way out, including SoftBank vice chairman Ron Fisher, who has been a part of SoftBank and a close advisor to SoftBank CEO Masayoshi Son since 1995.
SoftBank is denying that Fisher is “going anywhere.” We’ve meanwhile reached out to Ronen for further information, as well as to the Vision Fund’s press relations office.
It was in mid-summer last year that the first hints of trouble began to surface publicly. Son himself began raising questions when he announced in July that the Japanese conglomerate’s second Vision Fund had reached $108 billion in capital commitments based on a series of memoranda of understandings, as said Son.
It didn’t take long for industry observers to start wondering whether the money was real. When we asked SoftBank why it was counting unrealized gains as profits in its first fund, for example, or whether investors in its first fund would accept SoftBank’s plans to use proceeds from its first fund to invest capital in a second vehicle (mixing money from different funds is not kosher in the world of VC), two spokespersons declined to answer our specific questions. Instead, we were pointed to an online presentation by Son on SoftBank’s investor relations page that answered none of our queries.
Soon after, the WSJ reported that SoftBank planned to loan employees up to $20 billion so that they could buy stakes in its second fund. Again, the news raised eyebrows. Yet it was only when the Financial Times reported that some executives were being encouraged to borrow more than 10 times their base salary — and that some employees worried that opting out might hurt their career — that the degree to which SoftBank was struggling became clearer.
Even still, few could have anticipated the speed with which the crown jewel of SoftBank’s first Vision Fund — WeWork — would fall apart as investment. Though the co-working giant was thought wildly overvalued by many in both the real estate and tech industries, it was difficult to imagine a scenario in which SoftBank — to rescue its more than $18 billion investment in WeWork — would pay so richly to get rid of its founding CEO, scuttle its IPO plans, then try to run the company itself.
As it happens, those who’ve worked with Son in the past seem least surprised by what’s happening now. Last fall, a former associate didn’t mince words when it came to Son, telling us, not for attribution, “If you are dumb enough to hand your wallet to him, he’s a genius at making money on his own terms for him and by extension, I guess, a small circle of shareholders and advisers. But if you [disagree with him in way], you are chum.”
Another source described the first Vision Fund, which relied heavily on debt and promised its providers an annual coupon of 7%, as “akin to a check-kiting scheme, where you hope someone isn’t cashing that check at the bank before you’ve spent the money and earned more and can put it back.” Son has “parasitized Japanese banks,” added this person. (In November, the Nikkei Asian Review reported that SoftBank was in talks to raise billions of dollars more from Japanese banks, but that having lent so much money to SoftBank already, they were nervous about taking on more risk.)
Meanwhile, the first Vision Fund’s biggest backers — Saudi Arabia and Abu Dhabi — which contributed $45 billion and $15 billion, respectively — have become concerned about the perception of pouring any more money into SoftBank funds following “flops from the first Vision Fund,” reports the FT.
It’s a very different picture than one drawn by Vision Fund investor Caroline Brochada, who we interviewed on stage in December, and who was asked whether WeWork and other challenges would change either the scope of the mandate of the Vision Fund in 2020. At the time, just two months ago, she suggested it would not.
“The mission of investing in great teams, in mission-driven companies that are changing the way people live, will not change . . . SoftBank and Masa himself are very long-term thinkers, and hopefully, the message that founders took away from WeWork and the way SoftBank behaved after the IPO didn’t go forward is that we really will work with founders for a long time, and we will hold stock in the public markets, because we believe that this is a 10-, 20-, 100-year vision.”
Brochado, who joined SoftBank a year ago from Atomico, added at the time: “[T]he Vision Fund is two years old. And people sometimes forget that. So I think there’s a lot of learnings. There is definitely going to be a way forward. And the mission will remain the same.”
If there is a second Vision Fund, of course.
In addition to WeWork, SoftBank hasn’t seen the return it was expecting from Uber, whose market cap is currently $65 billion. (It invested in the company when it was still privately held at a $49 billion valuation, buying up a little more than 16 percent of the company’s shares.) SoftBank parted ways in December with the dog-walking company Wag, into which it had poured $300 million just two years earlier. Oyo, a SoftBank-backed, India-based, is also part of a “bubble that will burst,” according to a former operations manager at the company who talked earlier this month with the New York Times.
Another blow for Son: his high-profile wager on Sprint, the nation’s fourth-largest wireless provider, which he needs desperately to merge with T-Mobile, but which is stuck in a kind of limbo, sued by 13 state attorneys general and the District of Columbia over concerns that the merger would hurt competition and raise prices for users’ cell service.
In the meantime, layoffs at companies that raised huge amounts from the Vision Fund have become routine, including at Oyo, Rappi, Getaround, Zume, and Fair, to name just a handful.
All have led to a growing number of questions over Son’s deal-making prowess, questions that look to grow louder with Ronen’s departure.
It would undoubtedly be far worse if not for SoftBank’s 25% stake in Alibaba, whose market cap has reached $600 billion. Instead, the legend of Son as a visionary investor starts with his $20 million bet in 2000 on the Chinese conglomerate.
For now, at least, that’s also where it appears to stop.