64-year-old Masayoshi Son faced a serious face -
"We are responsible for the decision to buy a startup company at the high point of the market." Yesterday (August 8), SoftBank Group released its second quarter financial report this year, and founder Masayoshi Son made a sad promise. According to the financial report, SoftBank Group has lost more than US$23 billion (approximately RMB 155 billion) in the past three months. There is no doubt that this is a record loss, which once again has become the biggest hole in venture capital history.
Among them, the loss of up to RMB 110 billion comes from SoftBank's Vision Fund. In the past few years, SoftBank Vision Fund's playing style in the primary market has been impressive - it is willing to give a high valuation , dare to give valuation high, and does not care about valuation, and no one can defeat it. For a long time, this style of play has won the world's super unicorns that are almost famous for. However, nowadays, no one has paid for the madness of - the investment is expensive .
This lesson is also worthy of reflection by all VCs in China - the more generous you were in the initial investment, the ugly ones may be to settle the accounts later.
epic hole: 150 billion lost in three months
Comprehensively reduce investment
"This is the biggest loss since the company was established." Son admitted at the financial report press conference. He even stressed that the situation may be worse now than in June.
Specifically, the main reason for SoftBank’s huge losses is still the two phases of SoftBank’s Vision Fund. The financial report shows that the total loss of 2.3 trillion yen (approximately RMB 115.2 billion) in these two periods, higher than the record 2.2 trillion yen loss in the previous quarter. Among them, SoftBank Vision Fund held a total of 80 investments in the first phase, including 23 listed companies. As the price of these technology stocks 's stock price has declined this year, the unrealized valuation losses of listed portfolio companies totaled US$6.8 billion.
The most shocking case is Korean e-commerce giant Coupang. SoftBank's floating losses in this company have reached US$2.37 billion. What is surprising is that just a year ago, Coupang was another classic investment from Masayoshi Son after Alibaba .
Coupang is called the Korean version of Alibaba. In March last year, Coupang successfully listed on on on , and its stock price rose 40% on the first day. As Coupang's largest shareholder, SoftBank achieved a book return of US$24.5 billion. However, Coupang's stock price has been falling since its listing, with a staggering 40% drop in the first quarter of this year, with a latest market value of only about US$34 billion. The tragic scene of
was also staged in the second phase of Vision Fund. Although the second phase fund is small in size, it still holds 269 investments, which seems more radical in terms of quantity. According to the financial report, in addition to selling Chinese unicorn Shell shares to cash out $3 billion in cash, the unrealized valuation losses recorded by the second phase of the fund were US$9.8 billion, and the valuation losses of listed companies held totaled US$3.839 billion, mainly due to the decline in the share prices of Norwegian warehousing robot companies AutoStore and WeWork.
As the saying goes, "The people are dispersed, and the team is not easy to lead." , the generals under Son Masayoshi are quietly leaving.
According to Bloomberg, as the head of Vision Fund Phase II, Rajeev Misra has recently left SoftBank and founded his own investment fund ; at the same time, two partners of Vision Fund, Yanni Pipilis and Munish VARMa, have also resigned. To this end, Masayoshi Son could only personally take over as CEO of SoftBank Vision Fund Phase II. Earlier this year, Chief Operating Officer Marcelo Claure also announced his resignation. According to rough calculations, more than ten executives have left SoftBank in the past two years, which is undoubtedly a worse injury for Masayoshi Son.
In fact, Son and his team have already smelled the danger. In March this year, a managing partner of SoftBank Vision Fund took the lead in communicating SoftBank’s attitude to the public: plans to reduce investment.Immediately afterwards, Masayoshi Son announced a rare official slowdown in investment at the 2021 fiscal year annual report meeting: SoftBank will adopt a conservative investment pace. He also gave a specific number: compared to last year, the investment will be cut by half or a quarter this year.
What is interesting is that the first page of the PPT used by SoftBank at the financial report meeting puts a painting of Japanese historical figure Tokugawa Ieyasu , which describes the Battle of the Three Kingdoms of Japan in 1573. At that time, Takeda Shingen was preparing to march into Kyoto and fight with Tokugawa Ieyasu. Due to the huge gap in strength between the two sides, Tokugawa Ieyasu's army was defeated, and lost more than 1,600 people in the battle. According to legend, Tokugawa wanted to septile because of this defeat, and was even scared to death.
Afterwards, Tokugawa Ieyasu asked the painter to draw a portrait of himself with a frown, which was called "Feng Si" to remind himself not to have more embarrassing situations in the future.
Obviously, Son is borrowing paintings to warn himself.
This year, it cashed out 150 billion yuan from Alibaba
Son Masayoshi sold his life to survive
cashed out to survive, becoming the most urgent task for Son Masayoshi at the moment.
If everything went well, Masayoshi Son would receive a huge sum of $66 billion from Nvidia, but the final acquisition transaction around ARM was declared a failure in February this year. Time is endless. SoftBank quickly started preparations for ARM's independent IPO, saying it may launch ARM on Nasdaq by March 2023. This option then added London Exchange to the lobbying of the British government.
but the plan cannot keep up with the changes. According to the Financial Times , in order to make ARM listed in London, or at least partially listed in London, then-British Prime Minister Johnson personally lobbied Masayoshi Son; Investment Minister Gerry Greenstone and Digital Minister Chris Phelp also played a leading role in negotiations with SoftBank. As the above three people resigned one after another, SoftBank stopped the discussion on ARM's listing in the UK next year. Masayoshi Son said earlier that ARM's listing in London was partly due to pressure from the British government.
Recalling in 2016, Masayoshi Son spent US$32 billion (approximately RMB 216.2 billion) to acquire ARM, creating the most sensational acquisition case of that year. At that time, he said that ARM will be the future of SoftBank Group. Unexpectedly, ARM has now become the hottest potato in Masayoshi Son's hands. At yesterday's financial report meeting, Masayoshi Son even refused to comment on ARM's problems, saying that ARM's affairs were going smoothly, "This is the only thing I can say today."
Masayoshi Son also revealed that in the second quarter, SoftBank used Alibaba's stock's prepaid forward contract to raise US$10.5 billion (about RMB 71.085 billion) of funds, and on July 1, raising US$6.8 billion in funds through the same method, providing the group with a "good cash situation." This means that SoftBank has sold more than half of Alibaba shares held by , raising a total of US$22 billion (about 150 billion yuan).
When asked if there is room for further financing using Alibaba stock, Son said he was "considering this matter" based on the stock price and SoftBank's own financial situation, but did not further explain.
At the same time, SoftBank has started new negotiations to sell the asset management company Fengbao Investment Group, which it acquired in 2017. "We are ready to listen to the opinions of potential buyers with an open attitude." Obviously, Masayoshi Son is going to cut his losses again.
Earlier this year, SoftBank quietly withdrew from Automatic driving unicorn Cruise. General Motors announced on March 19 that it would acquire stake in , its subsidiary Cruise, for $2.1 billion, to expand GM's stake in Cruise to 80%. GM also said it would add $1.35 billion in Cruise to replace the promise made by SoftBank Vision Fund in 2018.
In this transaction, SoftShanghai made a little money.According to data, SoftBank previously invested about US$1.2 billion in Cruise, and selling US$2.1 billion is equivalent to making US$900 million (approximately RMB 5.7 billion). As a trader who raised Cruise's valuation to $30 billion, Son has no choice but to give up the autonomous driving company second only to Google Waymo.
Then in mid-April, U.S. Securities and Exchange Commission documents show that SoftBank Vision Fund sold 50 million Coupang's shares, with a total value of $1 billion. This is the second time in at least a few months that SoftBank has sold shares of the Korean e-commerce giant . The price of the shares sold was only US$20.87 per share, which was nearly 30% lower than the issue price of Coupang in September last year, which was a big sale.
Despite this, Masayoshi Son still believes that the next Alibaba may be born in the existing investment. “These portfolios have impressed me and I continue to believe in them.”
Leave a profound lesson to Chinese VCs:
Pay for the high valuation
Why did the former "investment madman" come to this point?
At yesterday's financial report meeting, Masayoshi Son publicly reflected on Vision Fund's "search for unicorns" investment strategy. He admitted that is responsible for the decision to buy startups at market highs, while promising to cut spending to get back on track. "If we unilaterally pursue our vision, we are at risk of defeat. Now we must avoid this situation at all costs." In summary, Masayoshi Son admitted that the investment was expensive at that time, and the consequences of high valuations were emerging little by little.
However, earlier last year, Masayoshi Son seemed to have not realized the high valuation bubble. He even accused the team employees at the meeting: "The valuation of startups is still soaring, and you are not aggressive enough!" Not long after the words fell, the previously effective high valuation strategy quietly dragged SoftBank to the abyss step by step.
The tragic situation in the secondary market in the past six months is vivid in my mind. Qiming Venture Capital partner Yu Jia sorted out at the 16th China Fund Partners Summit, "From , the index of the top 100 technology companies in the U.S. Nasdaq has fallen by one-third since it reached its peak in early November last year. The market value of companies in the index has evaporated by a total of US$2.8 trillion. The valuations of some technology companies in the U.S. stocks have fallen to 20% of the original highest point, or more than ten percent." This is a very exaggerated number, and has caused many investors in the primary market to suffer heavy losses.
Masayoshi Son is paying for the past high valuation, and a similar scene is also being staged in China.
In the past few years, the inflated valuation of China's primary market has been obvious to all. First, there was a feast of consumer investment, and celebrity projects rose one by one. Whether it was new tea, coffee, ramen, beauty, snacks, or hot pot, the valuation refresh was often jaw-dropping; then there was semiconductor financing, which was overwhelmed with angel rounds of financing over 100 million yuan, and valuation surged has become commonplace.
"After so many years of investment, suddenly found that the valuation account would not be counted . There are many 'star companies' that dare to value hundreds of millions and tens of billions in the angel stage, but the reality cannot stand the scrutiny at all." A partner of a local venture capital institution in Shenzhen once lamented to the investment community.
Yesterday's carnival is turning into tears of today. Since the beginning of this year, the primary market is facing severe fundraising and exit difficulties. Whether it is A shares or Hong Kong stock , the issue breaking is emerging one after another, making it difficult for a group of VCs/PEs behind it to hide their losses - the first and second-level valuations are inverted, and investors have even lost to the B round.
"According to the current market value of the secondary market, the valuation of the primary market must be reduced again, otherwise the more generous you are now, the ugly it will be to settle the accounts later." When VC/PE experiences valuation anxiety, investment also begins to slow down.
"Wait for the valuation to drop" , this is a true portrayal of the current primary market. In fact, most VC/PE still have surplus food, but now they cherish bullets more, hold their pockets tightly and wait silently for the project valuation to come to a reasonable position.
We see that the valuation of new consumer unicorns is collectively falling, and projects that were unable to invest in last year began to let go. semiconductor has also begun, and more founders of "I am willing to accept flat wheel" have begun to increase. There are also innovative drugs and SAAS fields, and valuations have begun to be lowered and returned to rationality. Recently, Reuters reported that Hema Fresh is seeking financing at a valuation of about $6 billion, which is much lower than the valuation of $10 billion at the beginning of this year. In other words, in order to raise funds, Hema took the initiative to cut off its valuation of US$4 billion and received a 60% discount.
For startups, lowering their valuations has become the most urgent thing. "Projects below the waist are basically unable to raise funds." This is a sigh by Chen Wenhui, Vice Chairman of the National Social Security Fund Council, in his recent speech. If companies do not pay attention to the financing rhythm, they may be out of energy and food.
"A VC institution I contacted said that they would not invest before October this year." A partner of a mother fund shared the reason for waiting and waiting for the valuation to drop. High valuation has become an unbearable burden for the primary market, and everyone is watching.
