SoftBank’s Venture Capital Riches Swamp the Market
The firm had too much money chasing too few deals.
Bloomberg, September 23, 2019
It is late cycle in the era of unicorn madness. All that capital sloshing around looking for a home has made it easier for promising start-ups to get funded, but also made it too easy for many that never should have gotten off the ground. The process has driven valuations to unholy heights.
It’s not just the quantity of money that’s the issue, it’s the concentration of all that capital. Nowhere is that more evident than at the $100 billion Japan-based Softbank Vision Fund (SoftBank is raising a second, even bigger fund, Vision Fund 2).
Rather than make lots of small bets, spreading risk across many early stage companies, the Vision Fund makes relatively fewer, larger bets, often on more established companies. Uber Technologies Inc. and WeWork parent We Co. are the poster children for this approach.1FOOTNOTE Uber has been a disappointment since it went public – its shares are down almost 30% since its May initial offering; We has postponed its planned IPO amid doubts about its valuation.
The Softbank approach looks like part of the problem: It has invested more than $80 billion during the past two years. Can any firm properly perform the due diligence needed when investing so much capital so fast?