- These days, everyone's
talking about WeWork.
This fall, WeWork scrapped a planned IPO
and ran dangerously short of cash.
The office space startup
turned to SoftBank
for a rescue deal that saw its valuation,
once as high as $47 billion,
fall to under $8 billion.
Now attention has turned
to the venture capital fund
that helped pump up WeWork's valuation
and fund its super-fast growth.
The Vision Fund, started in 2017
by the Japanese telecom
conglomerate SoftBank,
has raised a lot of money
to pump up high-profile
startups like WeWork.
How much money?
$100 billion.
The Vision Fund has rewritten the rules
of venture investing
and driven up the
valuation of tech startups,
but that strategy of showering money
on promising young
companies failed with WeWork
and it's starting to show cracks
in other investments as well.
(playful music)
The Vision Fund is unique
among venture capital funds
for a few reasons.
Venture funds typically look for startups
with strong growth potential.
But because these investments
are high-risk/high-reward,
funds tend to be conservative.
They raise small amounts of money
and they write small
checks to entrepreneurs.
That's not the case with the Vision Fund.
In 2018, all U.S. venture
capital firms combined
raised about $55 billion.
The Vision Fund's $100 billion war chest
is nearly twice as large.
It has spent it quickly,
investing about $1 billion
a week in its first year.
Here's a breakdown of where
all this money came from.
SoftBank chipped in $25 billion itself.
Another $60 billion came from
the sovereign wealth funds
of Saudi Arabia and Abu Dhabi.
The rest came from corporate partners,
like Apple and electronics
manufacturer FoxConn.
About $40 billion of the fund was raised
in the form of a loan, with
an annual interest rate of 7%.
Borrowing is an unusual way
for a venture capital fund to raise money
because they're investing
in unproven companies.
That put pressure on the Vision Fund
to start making money quickly.
Vision Fund currently has
investments in 88 companies
according to a spokesman.
WeWork is among the fund's largest.
Many of its other
investments are burning cash
and haven't laid out clear
paths to turning a profit.
Three of them are ride-hailing services,
which are locked in brutal price wars.
The fund's investment strategy
centers on giving startups
a lot of cash to grow quickly.
The goal is to help a
company corner its market
and then go public,
allowing the Vision Fund to
cash out with a sizeable return.
The fund has invested at a furious pace.
The $100 billion was
meant to last four years
but is nearly gone after just two.
But it hasn't yet cashed out
of most of its investments
and of the companies
that have gone public,
some have underperformed.
The Vision Fund's stake
in publicly-traded Uber
is now worth less than what
the fund paid to invest
and its profits on Slack
have been declining
since the messaging app
company went public.
For the still-private
companies in its portfolio,
the Vision Fund has at
times saddled these startups
with more cash than they asked for.
Dog-walking startup Wag was
seeking $75 million in funding
before the Vision Fund persuaded
it to take $300 million.
The investment was to help
the startup defeat its rival,
Rover, but Wag's growth stalled,
while Rover's sales continued to increase.
Now Wag is trying to sell itself,
likely at a price below
the $650 million valuation
of the Vision Fund's investment.
In late 2018, the Vision
Fund made a big bet on Fair,
a startup that leases cars to consumers,
as well as to ride-hail drivers.
But former employees
said the company expanded
and offered promotions that
made car leases unprofitable.
Their CEO resigned in October,
after the company laid
off 40% of its workforce.
Fair's board temporarily
installed a Vision Fund partner
in his place.
SoftBank also installed
one of its executives,
Marcelo Claure, as Executive
Chairman of WeWork,
after the startup's CEO,
Adam Neumann, was pushed out.
SoftBank also sank another $6.5 billion
into WeWork to stabilize the company.
SoftBank CEO, Masayoshi
Son, took the blame
for the WeWork debacle when
he announced in November
that the fund had an operating
loss of nearly $9 billion
for its most recent quarter.
Despite the fund's short track record,
SoftBank is trying to
raise a second Vision Fund.
The Vision Fund's arrival
caused a tectonic shift
in the speed and scale
of startup investing,
but it remains to be seen
whether they can consistently find winners
in Silicon Valley.
