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For a man with a 100-year vision, Masayoshi Son sure seems impatient. We already know that the SoftBank Group Corp chairman wasn’t content letting Adam Neumann be slightly crazy in his plan to upend the short-term office rental market; indeed he encouraged the founder of The We Co to be even crazier.
And when a young Ritesh Agarwal was building out Oyo Hotels & Homes as a purveyor of standardised, quality accommodation in India, it was Son who told him to dream bigger: Challenge the world’s largest hoteliers, he urged.
SoftBank’s Vision Fund initially put around $250 million into Oyo, and later led a further $1 billion funding round that pushed its valuation to $5 billion, Bloomberg News reported.
With Agarwal, the SoftBank founder even went a step further. He backed a $2 billion loan to let the 25-year old buy back shares in Oyo, driving the value to $10 billion — with the added effect of boosting the Vision Fund’s paper profits. Son probably preferred that the stake, bought from earlier backers, land in the hands of the
Indian entrepreneur than a rival investor.
But now those huge bets are starting to unravel. SoftBank said it expects to record an investment loss of 1.8 trillion yen at the Vision Fund for the year ended on March 31. That translates to about $16.6 billion, and takes a sizable chunk out of the $100 billion fund. The company will take a further 800 billion yen loss on investments outside the fund, including writedowns on WeWork and WorldVu Satellites Ltd, better known as OneWeb.
Oyo is just one victim of this SoftBank-fuelled roller-coaster, which accelerated when the Covid-19 pandemic started to spread. The Indian startup has furloughed staff in a bid to save cash, and founder Agarwal’s shares could be in jeopardy if he faces margin calls.
Son’s insistence that startups grow faster than their founders planned, and strong-arm them into taking more money than they might have wanted, has turned into a burden. And that’s become a huge liability to investors in the Vision Fund and SoftBank, too. By throwing cash around, dozens of startups became addicted to spending instead of building fiscal discipline into their business models. For years, it seemed like a sound strategy. By having more money than rivals, SoftBank-backed companies could win market share by offering bigger incentives, taking out more ads and luring the best talent. Today, SoftBank has a major stake in sector leaders like Uber Technologies, WeWork, Grab Holdings and Oyo.
—Bloomberg
Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News