December 16, 2021

SoftBank’s Vision Fund will very likely end up becoming a cautionary tale. All investors can take valuable lessons from their mistakes.

For those who aren’t familiar, Vision Fund is a $100 billion investment fund based in Japan. They’ve made a name for themselves by placing huge bets on tech companies, who they hope will dominate new industries or disrupt existing industries.

No fund has ever raised anything close to $100 billion before. This huge sum comes from a handful of large investors, including Saudi Arabia’s sovereign wealth fund, along with significant debt financing and complex financial engineering.

Recently, the Vision Fund  announced that it had losses of nearly $18 billion. A big piece of this can be pinned on WeWork’s failed IPO, but that alone doesn’t account for the massive losses.

Even if Vision Fund picked a healthy share of winners, debt financing puts them on the hook for very regular payments. And as a wise man once said, markets can stay irrational longer than you can stay solvent.

Vision Fund’s problems may be only just beginning. Other portfolio companies, like Uber and hotel chain Oyo, could be heavily impacted by reductions in travel due to the pandemic. In the worst case scenario, investors could start pulling out, and Vision Fund could be forced to sell assets at fire sale prices.

The final chapter has yet to be written on Softbank and it will be interesting to see what happens. For now, we should all remember that fundamentals matter, and placing big bets as SoftBank has is a high risk, high reward strategy that still has the potential to be brilliant but appears more likely to fail spectacularly.

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