SoftBank’s huge WeWork losses forced Masayoshi Son to admit that his judgment was “terribly bad” when it came to backing the office-sharing company, but Wework’s failure was just the beginning of his bad luck. Now that the tide has faded, his opponent is the whole market. In such a war, no one can win. Will S&P be the last straw that crushes SoftBank?
Original title: “SoftBank vs. S&P War: Does Losing Billions of Dollars Matter?”
Text｜William Pesek
S&P Global Ratings just took on Masayoshi Son in epic fashion, making life even harder for the SoftBank tycoon’s business empire.
The travails of Masayoshi Son and his $100 billion Vision fund, the world’s most powerful VC juggernaut, have somewhat faded into obscurity. WeWork’s huge losses in 2019 forced Son to admit that his judgment of backing the office-space-sharing company as the next big thing was “very bad.”
Of course, the reality is worse than that. Just as Elizabeth Holmes, who claims to be able to “test cancer with a drop of blood”, is discredited, WeWork founder Adam Neumann will “pretend for a long time and become real” (Fake it until you make it) This strategy is used more skillfully. In this “grabbing chairs” game, as the number of “chairs” is getting smaller and smaller, for Neumann, no one can make the game “continue to play music and dance” better than Masayoshi Son.
Son’s Vision Fund has been on a tight squeeze since the 2022 Apple TV+ series “WeCrashed” brought Neumann’s ups and downs to life.
To stem losses, SoftBank Group this year sold about $7.2 billion worth of shares in Chinese e-commerce giant Alibaba Group Holding Ltd. Son’s team is also assessing investor enthusiasm for the IPO of British chip designer Arm Ltd. Reports suggest the company could raise as much as $10 billion.
That’s when S&P popped up, alerting the investment community that the fund’s rebuild phase wasn’t going to go as smoothly as expected. This week, Standard & Poor’s downgraded SoftBank’s long-term credit rating further to junk status — from “BB+” to “BB” — although that drew a sharp rebuttal from SoftBank. Son’s team called the move “severely illogical.”
This month, several funds in SoftBank’s heavyweight technology sector have just announced that their annual investment losses have reached a record 39 billion U.S. dollars. The implicit message, which cannot be ignored, is the risks inherent in Son’s strategy of pouring billions of dollars into cash-burning startups everywhere. The mess created by WeWork and other startups that have failed to deliver on their promises has stymied Son’s desire to raise a massive second fund.
What is the rationale for Standard & Poor’s downgrade? In response, S&P said: “Volatility in its portfolio and rising asset risk have driven headwinds for the group.” The firm is also concerned that the “ongoing sell-off in Alibaba shares” has eroded its investment The proportion of listed assets in the portfolio, and Alibaba “used to be the company’s main asset”. In addition, the company’s heavy holdings of technology stocks have also been in a long-term downturn. “
In 2000, Masayoshi Son made a bold bet on the then little-known English teacher Jack Ma, and by the time Alibaba went public in 2014, the bet was worth $58 billion. Image source: VISUAL CHINA GROUP VIA GETTY IMAGES
Most importantly, S&P said, “asset risk in SoftBank Group’s portfolio has risen more than we had anticipated; its liquidity and creditworthiness will likely continue to be significantly weakened over the next year or so.”
SoftBank countered: “Over the past year, our disciplined defensive financial management has resulted in an unprecedented strengthening of our financial position. It is very regrettable that our financial soundness has not been properly assessed and we will continue to Talk to S&P.”
But in fact, it’s not so much a dialogue as a war of words between the two. But rather than lash out at the whistleblower, Son’s inner circle might consider looking in the mirror.
Arguably, this week’s spat between SoftBank and S&P underscores a problem that has been 24 years in the making. The author is referring to Masayoshi Son’s bold bet on an unknown English teacher in Hangzhou, China in 2000: the $20 million he invested in Jack Ma back then was worth $58 billion by the time Alibaba went public in 2014.
The Vision Fund founded by Masayoshi Son in 2017 is to reproduce the magic of turning stones into gold. Since then, his team has spent years scouring the globe in search of the next tech “unicorn” on the rise — the next Alibaba.
However, just as lightning seldom strikes the same place twice, good fruit like Alibaba is rarely, if ever, picked up in the same place. Here, the place is tech unicorn territory. In his attempt to harness unicorns, Son’s penchant for overpaying untested startups ended up changing the breed of tech founders. The quest for Son’s money has become almost Silicon Valley’s version of reality TV.
It’s arguably a pretty good story—how Masayoshi Son’s Vision Fund twisted the VC game. For entrepreneurs from Silicon Valley to Bengaluru to Seoul, a meeting with Son’s team could put a would-be industry disruptor on the path to fortune or ruin him or her.
Overall, though, the ending isn’t a foregone conclusion. Despite Son’s efforts, he has not been able to undo the fallout from WeWork’s bankruptcy. And SoftBank’s sharp reaction to what S&P said was already known to the VC community suggests that Son’s inner circle is still missing the point of the whole thing.
This is not the first time SoftBank has had a dispute with a credit rating company. Son’s team has been at loggerheads with Moody’s Investors Service for years. But one day, Son’s staff may want to put a bigger mirror in his office. In that case, Masayoshi Son may see that SoftBank’s vision is still too vague to be reassuring. ■
The author of this article is a senior contributor to Forbes, and the content of the article only represents the author’s own views.
This article is translated from
https://www.forbes.com/sites/williampesek/2023/05/25/softbanks-war-with-sp-misses-point-as-billions-vanish/?sh=2a6bec0f143c
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