Blasting 10,000 Jobs Into Oblivion
By: Andy Chan
Tags: Startup, Work, Business, Venture Capital, Finance

“You need to stop losing money now—or else.”

That is along the lines of what Softbank CEO Masayoshi Son said to the founders of the businesses he tossed billions in. In a meeting at Langham resort, Son gathered business leaders from Softbank’s portfolio companies to give a clear message: no gimmicks. If not, you’re going to wind up like Adam Neumann.

Ousted—but still, a billionaire—and infamous, Neumann transformed into a public lesson for the portfolio companies. Billions of dollars went up in flames along with Neumann’s entrepreneurial career. Softbank, after an over-investment of $10.6 billion to save the sinking co-working giant ship, has declared that there will be no more lifelines like that after WeWork. In the same year, Son made good on his word and dropped pet care service Wag, cutting their leash on the burgeoning losses.

Unfortunately, burgeoning losses have become a feature of Softbank portfolio companies and WeWork’s implosion showed that public investors aren’t that easy to please. While the winter season is ending, Softbank’s Vision Fund is deep in its own financial sheet winter, and the second Vision Fund isn’t performing well either.

Despite four investment opportunities, Softbank only chose one to dump $250 million in, despite submitting term sheets to the other startups. Although Son is clearly exercising more prudency with future investments (focusing on those that actually know how they can profit), most analysts and investors are pessimistic about Vision Fund I’s portfolio performance. Bloomberg columnist Shuli Ren described the Vision Fund as the “pied piper of unicorns”: most of them will eventually be flops.

Despite the lackluster—and some being calamitous—performance of these companies, one cannot discount their economic impact. Collectively, Softbank portfolio companies have created at least 241,000 jobs, according to Human+Business Digest. Ride-hailing companies like Uber, Didi, and Ola have triggered a wave of regulatory shifts where they operate. Oyo, the budget hotel room chain, became the world’s third-largest hotel brand.

Those are no small feats, but today, the focus is on the possible and existing downfalls.

As one founder puts it: “it’s stone-cold crazy”.

Softbank portfolio companies have collectively put at least 10,700 employees out of job, according to Scott Galloway, and this number will continue to rise as companies engage in financial sheet balancing tactics. Dumping bleeding auxiliary businesses, selling off loss-making business units, and laying off hordes of employees are all classic tactics to make paper profits.

Paper profits are also a feature of Softbank’s investing style.

Without real-world value and a path to profitability, Softbank portfolio companies are now having an ocean to cross just to splatter some green ink on their financials. This is without more Softbank cash and the best hopes for these companies is to either raise money from previous investors in a newer round or have an IPO.

Son is in favor of the latter and he has made it clear: IPO by 2022 or 2023. For the portfolio companies, they have to start profiting before then.

What can be the next move for Son? The message has been sent and startups need to work on it 24/7 without excuses. In the past decade, a booming economy facilitated WeWork’s meteoric rise. Today, these portfolio companies aren’t going to enjoy the same economy, which raises the bar on what is considered a genius business move.

Son has admitted to being embarrassed about his investments, but there might more to be embarrassed about as the Vision Fund creates more flustercucks around the globe. A good example: Paytm’s performance has now stalled. A great example: Uber’s and Slack’s public market performance didn’t whet the appetite of public investors.

An exemplary example: Uber, Didi Chuxing, and Rappi are deep in a food-delivery price war in Latin America, all of them being funded by Softbank’s money.

Calamitous? Perhaps, but Softbank is setting billions on fire and part of those billions come from credit lines and loans. Vision Fund II has comprised almost entirely of its own money and the Middle East is more than willing to reject it. No matter how much data Softbank has, it’s clear that their situation today looks more like a tragedy than venture capital comedy.