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Jeremy Fennema – Tech Innovation Alchemist
- The Wall Street Journal reported that the two biggest outside investors from SoftBank’s Vision Fund have complained about the high prices paid for tech companies.
- The investors have also raised concerns about Masayoshi Son’s control over investment and his ability to overrule executive decisions.
- SoftBank is WeWork’s largest backer, the recent concerns raised by PIF and Mubadala Investment Co. could push the We Company to more seriously consider an IPO.
The Wall Street Journal reported yesterday (paywall) that “high valuation of (SoftBank) Vision Fund investments–and the decision-making role of SoftBank chief Masayoshi Son–have led to concerns.”
According to Wall Street Journal sources, “The two biggest outside investors in the $100 billion Vision Fund are complaining about the high prices the fund’s manager, SoftBank Group Corp., has paid for tech companies and the control wielded by SoftBank Chief Executive Masayoshi Son over investment decisions.”
These investors are Saudi Arabia’s Public Investment Fund (PIF) and Abu Dhabi’s Mubadala Investment Co.; the same investors that questioned SoftBank’s intentions to take a majority stake in WeWork in December, 2018. Shortly after, SoftBank slashed its original investment offer from $16 billion to $2 billion.
PIF and Mubadala Investment Co. believe the Vision Fund has overpaid for stakes in certain tech companies. Both investors complained about the high valuations at which the Vision Fund has invested in some of its holdings, suggesting that said companies are overvalued.
Additionally, PIF and Mubadala Investment Co. also complained about Mr. Son’s role and leadership. According to sources, “Some investors have complained to the Saudis that Mr. Son can overrule fund executives on investment decisions and that the fund’s decision-making process is chaotic.” Moreover, investors are also concerned that SoftBank might be making a profit at their expense by investing in companies first and later transferring the stakes to the Vision Fund. The stakes often come at a higher price, sources reported.
“SoftBank has transferred, sold or is planning to sell to the Vision Fund at least $26.3 billion worth of stakes in companies that it originally purchased for around $24.9 billion during the past few years.”
In other words, SoftBank has contributed, in certain cases, to the rising valuations of the tech companies it has invested in.
Should PIF and Mubadala Investment Co. step back from the Vision Fund, it could potentially mean trouble for Mr. Son and the company’s the Vision Fund has invested in. It would be harder for Mr. Son to raise money or start a new fund.
For the companies, like WeWork, it could amplify losses and cause impediments to growth as it wouldn’t be able to raise funds as easily. Furthermore, its largest backer, which was reportedly pushing and inflating its valuation, would no longer be able to support them as key investors believe the company is overvalued.
The news could also push WeWork to give more serious consideration and change the timetable of an IPO. Still, an IPO presents a big challenge for the coworking giant; experts have long been skeptical about WeWork’s valuation and the recent concerns raised by investors of SoftBank’s Vision Fund confirm that it could very well be overvalued. WeWork, or the We Company, could therefore have a hard time justifying its $47 billion valuation.
