Masayoshi Son, the founder and, CEO of Softbank, is an impatient man when it comes to growth. We all know how he encouraged Alan Neumann, the founder of WeWork, with his plan to turn around the short-term office of the rental market.
He also encouraged young Ritesh Agarwal to dream bigger, when he started OYO for providing quality accommodation in India.
Initially, Softbank’s Vision Fund put around $250 million into OYO and then later, again provided funding of 1 billion. With this addition, OYO’s valuation was raised to $5 billion.
But Son did not stop at this, with OYO he went one step further. He further gave a loan of $2 billion to Agarwal to buy back shares in OYO, increasing the valuation to twice its previous value.
What Son wanted to be was that the stakes remain with Ritesh rather than in the hands of a rival investor.
These huge bets have now started unraveling the aftermath. On Monday, SoftBank said that it expects to record an investment loss of 1.8 trillion yen at the Vision Fund for the just-concluded fiscal year.
That is nearly $16.6 billion and constitutes a considerable portion of the $100 billion funds. The company is set to take further losses of 8000 billion yen on external investments which included writedown on WeWork and OneWeb.
OYO is just one of the victims of this overambitious project, which was triggered by the onset of the coronavirus pandemic.
The startup has granted leave to its staff to save cash but yet again the founder’s shares could be at risk if he faces margin calls.
Son’s insistence to give excessive money to startups has brought a heavy burden on the investors in the Vision Fund as well as Softbank.
With cash being easily available, some of the startups have developed business models involving huge expenditures.
For a long time, it was believed to be a good strategy to have more money than competitors enabling Softbank-backed companies to win market shares.
This has led to Softbank today holding huge stakes in sector leader companies like Uber, WeWork, Grab Holdings Inc., and OYO.
But this alone doesn’t make the scheme profitable.
Son tried to be the Godfather of venture capitalists by starting the $100 billion Vision Fund. But what he forgot is that to be a good VC, apart from being vehement about one’s portfolios one should also not let success get to their head.
Astute VCs know when to pivot, when to kill products and when to sell out to a rival.
For over a decade Son has been dining off the fortune that he made from Alibaba Group Holding Ltd., ignorant of the huge pile of debt he has built along the way.
But that just maybe the way Son his, the very thing that makes him successful, his bold and fearless vision.
And as far as the investors are concerned, the faster they realize this the better for them.
