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SoftBank's Vision Fund Struggles With Financial Woes Layoffs Imminent

SoftBank's Vision Fund Struggles With Financial Woes Layoffs Imminent

  Masayoshi Son has invested millions into promising startups with the hopes that one may grow big enough to deliver investors an impressive return. But so far his two large startup funds have proven net losers. As valuations of Klarna and TikTok owner ByteDance decline, valuations at these investments have also seen their valuations decrease; as a result, Vision Fund units is beginning to cut jobs to stem losses. Why SoftBank’s Vision Fund is Struggling Masayoshi Son is one of the best-known figures in tech, known for his boundless optimism and risk appetite - qualities which translate to an entrepreneurial life and business story fit for Hollywood cinematic adaptation. However, things don't always run smoothly for this visionary billionaire. The Vision Fund, SoftBank's $100 billion tech investment vehicle spearheaded by its founder, has recently experienced financial turmoil that has resulted in heavy losses and layoffs at its investment arm. These setbacks have raised questions regarding its structure and strategy. Notable about the Vision Fund investments is their diversification across sectors ranging from ride hailing and car sharing services, consumer Internet start-ups and infrastructure start-ups - many of these companies may experience headwinds that threaten its overall portfolio performance. Furthermore, the Vision Fund has deployed approximately 80% of its capital within just two and a half years, which is significantly faster than many private equity and venture capital funds and could present challenges in supporting its 88 portfolio companies going forward. Furthermore, Son has highlighted that WeWork was an exception and will likely not bailout other struggling start-ups like WeWork in similar fashion. Wag and Katerra, two companies supported by SoftBank's Vision Fund and recently laid off employees, are two examples of troubled firms within it that are having difficulty. Meanwhile, Oyo Hotel chain owned by SoftBank continues to experience losses and may run out of money by 2021. On the other hand, some new investments are already showing positive returns. Plume, a mesh Wi-Fi software company which operates one of the world's largest Software-Defined Networks and recently closed a $300 million funding round led by Vision Fund is one such investment already showing success. SoftBank remains optimistic it can weather its investment unit's difficulties and turn things around. The Japanese conglomerate will likely assess its operations and business model to identify any necessary modifications; SoftBank is known for thinking in 30-, 100- and 300-year increments when investing. Investment Losses Vision Fund's recent troubles stem from investment losses -- and these losses are expected to worsen. Masa Son's massive fund lost an astounding 4.3 trillion yen during its most recent fiscal year despite tech stocks' recent recovery. Over the January-March quarter, the fair value of Vision Fund's private portfolio declined by 6.6% - reaching $138 billion as opposed to $142.5 billion during last year. This decrease can be explained by decreased investments in artificial intelligence firms such as China SenseTime as well as reduced valuations of companies such as Coupang and WeWork office-share startups. To offset their losses, the company has been cutting costs at its Vision Fund unit, which will undergo another round of layoffs within weeks according to two people familiar with the matter. One person familiar with the matter said this round may hit around 30-35% of staff globally in total at Vision Fund. SoftBank's Vision Fund unit had 349 employees as of March, and SoftBank has been taking steps to streamline its management structure in order to focus on taking Arm, the U.K. chip design firm it acquired in 2016, public over the next few years. Layoffs at the Vision Fund unit will likely include some senior executives hired to launch and guide its first few years of activity. But due to its difficulty in generating returns, as its role shifted from being an aggressive growth investor in promising startups towards being more defensive - closing only 25 deals in 12 months since 2021, when its peak was closer to 40. Now focused on leading or co-leading later and often large financing rounds for its portfolio companies instead - making it less active than some of its competitors who can deploy capital rapidly. Job Cuts Vision Fund, which has experienced massive investment losses amid a global downturn in tech stocks, announced new layoffs on Thursday at its Tokyo-based flagship tech investment unit, SoftBank. Sources reported these cuts could affect up to 30 percent of staffers at this unit and include some working in the US as reported by one source. According to its earnings report, The Vision Fund saw its unlisted investments lose almost $2 billion over three months through March, a major setback for CEO Masayoshi Son's ambitious effort at changing venture capital with bold bets on startups such as Uber and Didi Chuxing. Over the past year, startup valuations in its portfolio have fallen drastically as interest rate hikes and rising U.S.-China tensions drove their value further into decline - wiping out all the Vision Fund's cumulative investment gains since investing in companies began investing. As part of its efforts to weather this downturn, the fund has scaled back its investment activity and concentrated on cutting costs. Spending on venture capital decreased to $600 million during its first quarter compared with $20.6 billion last year, and its second fund will likely open its doors later in 2016. SoftBank Group Corp's executive team is currently reviewing their fund's strategy. Recently, they announced plans to reduce investment budget by approximately 20% next year and scale back its ambitions for the future. In light of today's challenging market environment, CEO of their holding company warned of "difficult market conditions" but indicated the company would be prepared for any eventual recovery if that occurred. Fund is still an impressively large operation by most measures, employing nearly 500 staff combined from its London and other offices worldwide. They pay their 179 UK employees an estimated total annual compensation of roughly $122.6m or an average of $683k each year. The Future Masayoshi Son launched The Vision Fund as an investment vehicle in 2017 and since then, over $100 billion of commitments from both public and private investors has been pledged, making it the world's largest tech investor. Mr. Son's dream was to combine tech investing with financial engineering, in order to increase returns with leveraged investments and complex structures that go beyond what's usual for venture capitalists. Additionally, he wanted to create an overarching technology "ecosystem," with SoftBank acting as its hub; investing in numerous companies with often just partial ownership; co-ordinating them so they work as one cohesive group - evocative of Japanese conglomerates such as Mitsubishi with tentacles in finance, carmaking and more all working together simultaneously. But the investment unit has struggled to turn a profit, posting losses for each quarter since last March's fiscal year ending March. These losses stem from decreased technology company valuations and rising interest rates. As for Unlisted Portfolio Companies (UPCs), including India's Oyo Hotels and Sweden's Klarna Bank AB, Unlisted Portfolio Companies has experienced markdowns due to unfavorable markdowns incurred through markdowns or mark-downs from unlisted investments like India's Oyo Hotels or Klarna Bank AB; nor have their investments in Didi Global Inc and healthcare firm Aculys Pharma LLC seen gains yet - where an approval for marketing narcolepsy/sleepnea pills will soon follow Aculys Pharma LLC when approved to market them both. Additionally, the Vision Fund's issues have raised serious governance questions. Some experts have wondered where its activities end and Mr Son's own interests begin - this issue becomes especially acute with Northstar, an investment vehicle managed by the Vision Fund which holds around one third of Mr Son's assets; therefore allowing him to benefit from an outsized share of profits generated by it. No one knows if or when Vision Fund can turn its fortunes around; people familiar with the matter state that the company will have to reevaluate its strategy and change how it deals with distressed investments, as well as lay off employees - expected to begin this week, according to them.

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