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How a $100 Billion Fund Is Changing Investing | WSJ

How a $100 Billion Fund Is Changing Investing | WSJ

– These days, everyone’s
talking about WeWork. This fall, WeWork scrapped a planned IPO and ran dangerously short of cash. The office space startup
turned to SoftBank for a rescue deal that saw its valuation, once as high as $47 billion,
fall to under $8 billion. Now attention has turned
to the venture capital fund that helped pump up WeWork’s valuation and fund its super-fast growth. The Vision Fund, started in 2017 by the Japanese telecom
conglomerate SoftBank, has raised a lot of money to pump up high-profile
startups like WeWork. How much money? $100 billion. The Vision Fund has rewritten the rules of venture investing and driven up the
valuation of tech startups, but that strategy of showering money on promising young
companies failed with WeWork and it’s starting to show cracks in other investments as well. (playful music) The Vision Fund is unique
among venture capital funds for a few reasons. Venture funds typically look for startups with strong growth potential. But because these investments
are high-risk/high-reward, funds tend to be conservative. They raise small amounts of money and they write small
checks to entrepreneurs. That’s not the case with the Vision Fund. In 2018, all U.S. venture
capital firms combined raised about $55 billion. The Vision Fund’s $100 billion war chest is nearly twice as large. It has spent it quickly, investing about $1 billion
a week in its first year. Here’s a breakdown of where
all this money came from. SoftBank chipped in $25 billion itself. Another $60 billion came from
the sovereign wealth funds of Saudi Arabia and Abu Dhabi. The rest came from corporate partners, like Apple and electronics
manufacturer FoxConn. About $40 billion of the fund was raised in the form of a loan, with
an annual interest rate of 7%. Borrowing is an unusual way for a venture capital fund to raise money because they’re investing
in unproven companies. That put pressure on the Vision Fund to start making money quickly. Vision Fund currently has
investments in 88 companies according to a spokesman. WeWork is among the fund’s largest. Many of its other
investments are burning cash and haven’t laid out clear
paths to turning a profit. Three of them are ride-hailing services, which are locked in brutal price wars. The fund’s investment strategy
centers on giving startups a lot of cash to grow quickly. The goal is to help a
company corner its market and then go public, allowing the Vision Fund to
cash out with a sizeable return. The fund has invested at a furious pace. The $100 billion was
meant to last four years but is nearly gone after just two. But it hasn’t yet cashed out
of most of its investments and of the companies
that have gone public, some have underperformed. The Vision Fund’s stake
in publicly-traded Uber is now worth less than what
the fund paid to invest and its profits on Slack
have been declining since the messaging app
company went public. For the still-private
companies in its portfolio, the Vision Fund has at
times saddled these startups with more cash than they asked for. Dog-walking startup Wag was
seeking $75 million in funding before the Vision Fund persuaded
it to take $300 million. The investment was to help
the startup defeat its rival, Rover, but Wag’s growth stalled, while Rover’s sales continued to increase. Now Wag is trying to sell itself, likely at a price below
the $650 million valuation of the Vision Fund’s investment. In late 2018, the Vision
Fund made a big bet on Fair, a startup that leases cars to consumers, as well as to ride-hail drivers. But former employees
said the company expanded and offered promotions that
made car leases unprofitable. Their CEO resigned in October, after the company laid
off 40% of its workforce. Fair’s board temporarily
installed a Vision Fund partner in his place. SoftBank also installed
one of its executives, Marcelo Claure, as Executive
Chairman of WeWork, after the startup’s CEO,
Adam Neumann, was pushed out. SoftBank also sank another $6.5 billion into WeWork to stabilize the company. SoftBank CEO, Masayoshi
Son, took the blame for the WeWork debacle when
he announced in November that the fund had an operating
loss of nearly $9 billion for its most recent quarter. Despite the fund’s short track record, SoftBank is trying to
raise a second Vision Fund. The Vision Fund’s arrival
caused a tectonic shift in the speed and scale
of startup investing, but it remains to be seen whether they can consistently find winners in Silicon Valley.

37 comments on “How a $100 Billion Fund Is Changing Investing | WSJ

  1. BERNIE … the ONLY HONEST MAN who is YOUR Representative if YOU CARE

    about YOUR CHILDREN a dirty little song about our dirty president

    about your DEMOCRACY

    and FAIRNESS that everyone has the SAME CHANCE to DO GOOD in LIFE!

  2. This video truly shows how much behind and out of touch Wall Street Journal is when it comes modern investment instrument like VC.

  3. I think this fund should be investigated, I'm sensing pump and dump. My investment adviser always spots out the pump and dump funds. I made $453,700 in profit in the last quarter because I took my investment advisers' recommendations.

  4. Listen. _Tick…tick…tick…tick… That's the bomb that is WeWork ticking down towards blowing up the real estate markets in Chicago, and several other cities.

    Especially Chicago. Coupled with an extremely corrupt city, country and state government, a violent and grifting police force, pension funds barely funded, and taxes so high they must be handled by air traffic control, WeWork's inevitable implosion is gonna hurt. But maybe Chicago will be fine, if they can launch enough new towing and traffic camera scams?!

  5. $40 billion borrowed at 7% would require a full $100 billion investment gross return of 2.8% just to break even before other expenses. And if that 2.8 percent takes too much time to attain… Safer to start a restaurant.

  6. Thumbs up if you enjoy that Arab and Chinese money is being destroyed by stupid SoftBank. The most impotent investment fund in the world.

  7. this is just a complicated and future tense version of pump and dump. most ipo investors dont even understand what they are buying , only investing to skim off the hype and sell off when hype dumbs down

  8. Probably the biggest philanthropic initiative in the world? Shouldn't it counts as world's biggest wealth distribution scheme? 😂

  9. Symptoms that humans as a species have outgrown the concept of a monetary system, and is gaming it more than anything else.

  10. All you genius investors with nothing to your name…did you ever ask how SoftBank got it’s billons? Check very early investments well before anyone gave it a chance. For your reference, in one case, it turned 20 million into over 60BILLON in one (back then) no-name company ran by a failed school teacher…Alibaba for those who don’t know…last I checked Mr. Son is still a billionaire…food for thought

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