(Bloomberg) — The founder of SoftBank Group Corp. Masayoshi Son is used to praise and encouragement from shareholders. But the company’s $34 billion loss in market value over the past year is a test for even its staunchest admirers when they gather for Friday’s annual shareholders’ meeting.
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Investors stuck with Son when SoftBank announced a holding company strategy in 2015 to divest its sedate but profitable domestic telecoms business to become the world’s largest investor in volatile tech startups. When the Vision Fund lost $18 billion in 2020 on investments such as WeWork and Uber Technologies Inc., they pointed to Son’s ability to make thousands of times returns on Alibaba Group Holding Ltd. a March peak last year, they listened and persevered.
But five years of commitment of $142 billion has now resulted in a record loss of 2.1 trillion yen ($15.4 billion) for the company in the quarter ended March. Much of that can be attributed to the recent global tech sell-off and a crackdown on China’s largest tech companies, but much can also be attributed to SoftBank’s pressure on companies to make big, aggressive bets.
With SoftBank’s own financial health at stake, shareholder confidence is near a breaking point, said Mio Kato of LightStream Research. Son needs to show how SoftBank adds value as an investor and map steps — such as further share buybacks funded by the sale of Alibaba stock — to help the stock price recover, he said.
“Investors remain loyal as long as they believe in your dream, but once they realize things aren’t working, trust crumbles in an instant,” Kato said.
Shareholders looking for signs of recovery are instead seeing a portfolio awash in red. SoftBank put more than $12 billion on the Chinese company Didi Global Inc., but Didi delisted from the New York stock exchange less than a year after its IPO, and that stake is now worth less than $3 billion. Shares of South Korean e-commerce company Coupang Inc. are down nearly 70% from a year earlier, and other publicly traded companies — representing only a fraction of its portfolio companies — have fallen in value in a similar fashion.
The fear remains that large write-offs are still ahead. A number of portfolio companies were forced to restructure or raise funds at lower valuations. SoftBank-backed companies that recently announced staff cuts include Swedish payments company Klarna Bank AB and privacy management company OneTrust, while Bloomberg News has reported staff cuts at chip unit Arm Ltd.
Questions also linger as to whether anyone on SoftBank’s board is capable of proper oversight. SoftBank’s board has lost its most independent votes in recent years, including outgoing external director Lip-Bu Tan who warned Son “needs people to take precautions, advise him and make him even more successful” in an open statement. letter with departure. “Bad choices made too soon can have negative consequences for the company.”
A key item on Friday’s agenda is the appointment of David Chao by SoftBank to replace Tan as external director. Chao — a co-founder and general partner at venture capital firm DCM — had previously invested in companies such as vertical farming startup Plenty Inc. and personal finance startup SoFi Technologies Inc., in which the Vision Fund also invested. SoFi was involved in a 2017 sexual harassment investigation that led to the CEO’s impeachment.
“This feels like a continuation of the downgrade of the board of directors,” Kato said of Chao. “Given some of the scandals at SoFi in which he had invested, this is not a clear confirmation of his ability to contribute to better governance at SoftBank.”
SoftBank will be doing fewer and smaller deals this year, Son said. This year, the average size of SoftBank’s Vision Fund 2 investments was about $100 million to $200 million in more than 50 funding rounds, compared to about $900 million for Vision Fund 1. In January-March, the Vision Fund returned $2.5 from. billion, or less than a quarter of the $10.4 billion it spent in the previous quarter.
SoftBank’s emphasis on breakneck speed, however, remains the same. Within two months of a 30-minute Zoom meeting in February between founder Tomohiro Tada and Son, a decision was made to invest in Japan’s AI Medical Service Inc. After Tada’s presentation of the company — which uses artificial intelligence to help clinicians identify potential cancers of the stomach and intestines — Son spent 15 to 20 minutes asking for numbers to support the accuracy of AIM’s technology, Tada said.
Minutes into the conversation, Son suggested that Tada seek a whopping $74 million, double the amount Tada had suggested. The two also brainstormed about possible business models for when AIM would scale, Tada said. After an intense two weeks of some 150 email exchanges, SoftBank led a $59 million funding round to AIM in April.
Due to Covid-related precautions, only 150 shareholders will attend Friday’s meeting at SoftBank’s Tokyo headquarters, which will be broadcast via a web portal. Son will answer questions selected from the questions submitted online, SoftBank said.
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