This article is from the WeChat public account: insight Silicon Valley (ID: guigudiyixian) , author: Frank Chen, the original title: “Softbank has fallen off the altar? Reviewing the financial data of the past 10 years and seeing the setbacks and dangers of Softbank “, the title picture comes from: Visual China
When talking about SoftBank and Son Masayoshi, people often think of the myth of investment made by this Japanese group in the technology industry, as well as Sun Zhengyi ’s ambitious vision. However, this Japanese company with seemingly unlimited resources is currently being hit hard: In the recently-concluded initial fundraising of the second-phase fund, SoftBank’s goal is to raise $ 108 billion, but it has only raised $ 2 billion. It has completed 1.85% of the fundraising target.
Softbank was founded by Sun Zhengyi in 1981. It has invested in more than 600 companies worldwide and holds majority shares in more than 300 technology companies, including Alibaba, Yahoo, Supercell and other well-known Internet companies.
This year, Affected by the failure of WeWork, Uber and other companies to list or plunge in market capitalization, SoftBank ’s Vision Fund lost nearly $ 9 billion, and Softbank ’s investment model has also been questioned. It seems that investors have begun to hesitate whether they should continue to issue large checks to support Sun Zhengyi’s gamble.
So what further frustrated SoftBank? Can the SoftBank model achieve sustainable development? The following small probe analyzes the development of Softbank for these years by analyzing the investment and financial data of the Vision Fund in the past 10 years.
Softbank’s territory accelerates expansion, AI gambling under the Vision Fund, and pledges
SoftBank was established in Tokyo in 1981. Softbank, founded as a telecommunications company, now has operations in many different areas, including e-commerce, finance, broadband, marketing, and more. In recent years, it has spent a lot of money, acquiring many companies and starting to invest in many others.
For example, in July 2016, Softbank acquired British chip maker ARM for £ 24 billion and laid out its direction in the Internet of Things. Just in June, SoftBank announced the acquisition of two other robotics companies, Boston Dynamics and Schaft, from Alphabet. In the past few years, SoftBank’s investment field has gradually shifted from telecommunications to more fields.
We can clearly see that SoftBank’s investment volume has steadily increased in the past ten years. Especially in 2017, SoftBank has transformed into investment through a series of expansions and mergers and acquisitions. After the company, the number of investments has roughly doubled.
(2010-2019 SoftBank Investment Growth, Silicon Valley Insights Ploted by Pitchbook Data)
In October 2016, SoftBank announced the establishment of a “Vision Fund” with a size of nearly $ 100 billion. According to Pitchbook data, the total transaction volume of the US venture capital industry in 2018 was only US $ 130.9 billion. There is no doubt that the SoftBank Vision Fund (SoftBankVision Fund) has become the largest private equity investment fund in history, and even the largest M & A fund.
In the beginning, the Vision Fund summarized its “vision” with several keywords: 1). Magnificent ambitions (Amplified Ambition) 2) Global resources and local wisdom (Global Reach, Local Insight) 3). Ecosystem effects ( Ecosystem Effects) 4). Capital liberalization (Freedom-level Capital) < / span>. At that time, Sun Zhengyi himself also stated in an interview with CNBC that he was no longer a company’s operator, but more like an investor: thinking about investment 97% of the time and thinking about the company’s operation 3% of the time.
(Plan for SoftBank 2.0, picture from SoftBank Financial Report)
With the Vision Fund, SoftBank can mobilize large-scale funds and resources to support the development of global science and technology innovation. Some critics believe that it has the ability to subvert the entire technology industry.
According to Softbank’s 2019 financial report, the first-generation Vision Fund has invested in 82 companies and has formed an extensive layout in various cutting-edge technology fields. There are many companies we know well on this list, including Uber, WeWork, DoorDash and other sharing economy companies in the United States, Cruise and other autonomous driving companies, China’s Didi Chuxing, today’s headlines, and Southeast Asian shared mobility company Grab and many more.
(Softbank Vision Fund Investment Company Portfolio, picture from SoftBank Financial Report)
In continuous investment, SoftBank has also established AI as the core and formed industry synergies by investing in AI and other industry cross-sector leaders. (Synergy Effects) strategy. SoftBank Group hopes that it can serve as the core brain to lead and promote change in the global AI field through capital.
In recent years, the Vision Fund has indeed made great efforts in the field of AI. Flexport, led by Softbank with a US $ 1 billion investment, is committed to creating intelligent systems and has now become the world’s highest-valued unicorn company. Another star Unicorn DoorDash uses various artificial intelligence (AI) and machine learning technology models decision space and chooses the optimal solution in seconds.
(Softbank’s AI strategy, picture from SoftBank’s financial report)
The valuations of the companies invested have fallen, and SoftBank’s “vision” has been frustrated
Despite SoftBank’s commitment to the “300 Years Vision” and the companies it invests in as much as possiblePropose a higher valuation, but most investors pay more attention to short-term returns.
This pie chart is a good illustration of the current situation of SoftBank’s companies in the past ten years: Except for 2% of corporate restructuring or bankruptcy, only 10% of the companies have truly made a profit and 15% Of companies are losing money. And the vast majority of companies are in the state of having revenue but haven’t really realized profit or are just getting started (74%) . A related view is that it is difficult to verify the actual value of the invested company because most companies are not profitable or listed, and the stock prices of listed companies are unsatisfactory.
(Status of SoftBank companies invested since 2010, Silicon Valley Insights based on Pitchbook data mapping)
Incomplete statistics. Among the companies that completed the IPO, the market value of Uber has fallen from the originally planned 90 billion to 120 billion U.S. dollars to 75 billion U.S. dollars at the time of listing, and has fallen 7% on the first day of listing. By the beginning of December 2019, the market value had remained at around 50 billion U.S. dollars.
Lyft’s current share price has dropped from the issue price of 72 dollars to the current 48.94 dollars. As of the beginning of December 2019, it was 14.57 billion dollars. Although it has changed from the previous low, it still cannot return to its IPO $ 24.3 billion. Work communication platform Slack has received Softbank’s $ 335 million investment between 2017 and 2018. The company’s share price has been on a roller coaster since its listing and is currently barely below the issue price.
Zhong’an Insurance obtained an investment from SoftBank’s vision in 2018, but its market value has dropped from hundreds of billions of yuan before listing to 38.5 billion yuan today. SoftBank Vision Fund invested USD 400 million in Ping An Good Doctor in December 2017, accounting for 7.41% of the shares, but the current share price of Ping An Good Doctor is lower than the offer price of HK $ 54.80 per share.
Of the companies supported by the currently listed Vision Fund, only Guardant Health (a healthcare company) and 10x Genomics (a genetic company) , the transaction price is higher than its IPO price.
According to Softbank’s financial report, the two companies that have withdrawn from trading in 2019 are Flipkart (sold to Walmart for $ 16 billion last year) span> and Nvidia, after the Vision Fund sold off all its shares in February after the stock price fell. Through these transactions, SoftBank generated revenues of 146.7 billion yen and 138.3 billion yen, respectively. Including derivatives revenue, the total is about 306.8 billion yen, or about 2.8 billion US dollars.
(Schematic of Flipkart, picture from the Internet, copyright belongs to the original author)
However, Softbank ’s considerable earnings are still largely dependent on the “unrealized returns” of the investment. For example, OYO is an Indian hotel chain company. SoftBank attributes the valuation fund’s nearly $ 4 billion in valuation income to its investment in OYO, which increased from $ 5 billion to $ 10 billion. Some time. In other words, as these companies raise more capital and raise their valuations, how much their shares increase in value.
(OYO schematic, picture from the Internet, copyright belongs to the original author)
Despite SoftBank’s claim, most investments have not yet exited to obtain cash at this time. The fact that these assets have increased in value indicates that these returns will be considerable over time. However, OYO’s actual operation and profitability are far less beautiful than the figures on the books.
The Indian company stated that as of March 2019, its net loss was $ 332 million. As a rough estimate, in the second half of this year, China may account for about 40% of Oyo’s company-wide losses. In 2017, after OYO entered the Chinese market, it faced a two-way blockade by tourism e-commerce (OTA) and chain hotel groups. The OTA market and hotel chains are very mature. OYO China needs to pay high costs to OTAs to get traffic. The business model of OYO China is not exactly the same as that of OYO India. The original simple copy business model did not work.
Apart from the above, The biggest challenge for SoftBank is that WeWork was forced to withdraw its IPO plan. In just a few months, WeWork went from a gratifying IPO of more than $ 6 billion to bankruptcy. The Vision Fund had to rescue WeWork by offering to acquire WeWork’s stock for $ 3 billion and write down its investment.
(WeWork, pictures from the Internet, copyright belongs to the original author)
In addition to the poor performance of the investing companies, there are also major problems with the internal capital structure of the Vision Fund. This is one of the reasons that directly caused the poor fundraising of the second phase of the Vision Fund.
From the perspective of the capital structure of the Vision Fund, external investors have committed funds to the fund in the form of 62% debt and 38% equity. SoftBank only invested about US $ 33 billion in equity, accounting for 50% of the fund’s total equity. The fund’s total capital structure is 40% debt and 60% equity. Bonds in the form of preferred stocks contribute about $ 40 billion, with a coupon rate of 7% over the 12-year period of the fund. Although attractive coupon payments may help to raise large amounts of funds quickly, they may also significantly increase the fund’s operational risks.
(Capital structure of SoftBank Vision Fund, data from Wall Street Journal)
The 7% coupon on the $ 40 billion senior debt is a huge expenditure of $ 2.8 billion per year. And companies in the portfolio have always needed additional funding. Mandatory priority coupon payments to external investors and the continued demand for funds from losing companies’ portfolios may seriously affect the cash flow of the Vision Fund.
So far, coupon payments have been paid by withdrawing committed funds from external investors; they can sell Flipkart and Nvidia shares; and they can borrow funds secured by Uber and Guardant shares held by VisionFund. If nearly $ 80 billion in committed funds and ongoing payment obligations have been deployed, the $ 100 billion Vision Fund may no longer be available for investment.
To date, SoftBank’s debt exceeds $ 160 billion. It also provided about $ 8 billion in loans to Vision Fund employees to invest in the fund. SoftBank