SoftBank’s longtime strategy of inundating startups with cash hoping for a big payoff has been a spectacular failure. Now the Japanese investment group’s Chairman and CEO, Masayoshi Son, has laid the blame squarely on his ‘judgment’.
“There was a problem with my own judgment, that’s something I have to reflect on.”
Specifically, Son revealed that he had ignored problems in how WeWork was governed.
SoftBank recently posted its first quarterly loss in 14 years, raising alarm among investors. The loss was to a large extent caused by WeWork as the write-down in the shared-office startup comprised more than half of the financial hit SoftBank suffered.
In the July to September quarter, SoftBank Group recorded an operating loss of $6.46 billion. In the same quarter a year ago, the conglomerate posted a profit of $6.48 billion. The loss was around 15 times what analysts had been forecasting. Per Refinitiv, a loss of $440 million was being projected for the quarter.
Specifically, SoftBank wrote down its WeWork investment by $3.4 billion, indicating that the shared-office startup’s contribution to the loss was slightly over 52%. To make matters worse, SoftBank expects the loss to grow by over 35% to reach $4.6 billion this fiscal year.
Besides the write-down in its WeWork investment, SoftBank was also forced to fork out over $10 billion in a bail-out of the shared-office firm. SoftBank also had to force a leadership change at WeWork and lay off some employees.
While WeWork is the most prominent of the investment stumbles that SoftBank has made in the recent past, it is far from the only one. SoftBank’s investment in dog-walking app Wag, for instance, already looks like a bad call.
In January 2018, Wag was seeking $75 million in funding but SoftBank’s Vision Fund gave the startup $300 million. At the time the firm was valued at $650 million. Now Wag’s growth has stalled and is looking to sell itself for well under its $650 million valuation, according to The Wall Street Journal.
Another bad investment has been Fair, a car lessor. Softbank led a $380 million investment round in the car lessor but now the startup is now struggling to stay afloat. As a sign of how deep-seeded its problems are, its founder and CEO recently resigned. SoftBank also offered an additional $25 million to Fair to assist in paying bills. Fair has also had to let go 40% of its workforce.
Last modified: September 23, 2020 1:15 PM