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Wait, is SoftBank's Vision Fund Really Running Out of Money?

By NexChange
Financial Services

Perhaps we now know the real reason why the biggest outside investors in SoftBank’s Vision Fund opposed taking a massive stake in co-working startup WeWork.

Two years after its started its behemoth $100-billion fund to invest big in the global tech sector, SoftBank has already burned through half of its money, the Wall Street Journal reports, citing company filings. The Vision Fund is spending roughly $7 billion per quarter, according to Journal, which means that if it maintains this “furious pace” the available capital “will last only another year and a half—likely less, when taking into account amounts set aside for paying fund employees as well as investments that may get transferred to the fund from SoftBank’s books.”

Okay, so maybe having another $50 billion on hand to spend isn’t exactly low on cash the way most people think of being low on cash – and the Journal notes that SoftBank’s Vision Fund is still double the world’s second-largest investment fund, Apollo Investment Corp.’s  $25-billion portfolio. However, SoftBank is playing at a high stakes table here and has indicated no desire to fold anytime soon, according to the Journal.

Raising tens of billions of dollars may not be easy for SoftBank these days, as markets turn volatile and big economies like China show signs of slowing. Also, the Vision Fund’s lead backer, Crown Prince Mohammed bin Salman of Saudi Arabia, has been accused of ordering the murder of Saudi journalist Jamal Khashoggi, making some tech companies reluctant to take Saudi-tied money. The crown prince denies involvement in the killing.

The Vision Fund’s creator, SoftBank Chief Executive Masayoshi Son, on Wednesday said he was considering when and how to raise more capital, though it wasn’t something that needed to be “rushed in the next few months.”

“We’re going to keep up this pace of investment,” he said in Tokyo. “We’re in prime shape.”

But the Journal points out that SoftBank actually has even less money on hand once previous commitments are taken into account.

Some of the remaining capital is already spoken for. The Vision Fund has agreed to pay SoftBank $6.8 billion to buy a big stake in Chinese ride-hailing company Didi Chuxing Technology Co., SoftBank filings show. And SoftBank still has around ¥991 billion ($9 billion) worth of securities investments on its books, including stakes in companies like General Motors Co.’s autonomous driving unit, which may be transferred to the Vision Fund later. An additional $5 billion is earmarked for an incentive plan for the Vision Fund’s employees.

Subtracting those amounts leaves the Vision Fund with only around $30 billion left to invest.

The Saudi Arabia Wealth Fund – which at $45 billion is the largest outside contributor to the Vision Fund – and the Abu Dhabi Wealth Fund (the second-largest outside investor) took the rare step of rejecting a desired investment by Masayoshi Son, both opposing a rumored $16-billion investment in WeWork. SoftBank settled on a much lower $2 billion investment in WeWork, which is in addition to the 20% it already owns in the startup.

SoftBank also recently launched an initial public offering on the Tokyo Stock Exchange of its Japanese mobile unit, raising 2.65 trillion yen (roughly $23.5 billion), making it the largest ever IPO in Japan and placing it second only to Alibaba Group’s $25-billion IPO on the New York Stock Exchange in 2014. However,  SoftBank’s shares quickly plunged 15% after its debut, wiping out $9 billion in market value and falling below its IPO price.

SoftBank is carrying a tremendous am0unt of debt that totals about 18 trillion yen ($160 billion), leading some analysts to see the IPO as a way of raising some cash to pay off some of that debt. It’s unclear whether this is actually the case – or whether the bank is going to funnel some of this money back into the Vision Fund.

Meanwhile, investor Keith Rabois recently criticized SoftBank’s approach to how it invests through its Vision Fund, which he sees as following the “mentality of throwing money at companies” in the hopes that they succeed.

Photo: Getty iStock

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