Following a $17.7 billion loss amid crumbling valuations of portfolio startups, Softbank Vision Fund has decided to lay off 10% of its workforce. The job cuts will reportedly occur across various levels of staff in its offices across London, California and Tokyo.
Softbank founder Mayoshi Son had announced record losses earlier this month and had admitted that the results of the fund were “not something to be proud of”. While the fund was set up to be bring in increased profits via bets in new-age companies, it eventually became the company’s biggest drag on earnings.
The $100 billion dollar fund is characterised by rapid investments in start-ups and unusual compensation set-ups which includes a $5 billion loan for its employees. The system swaps debt for equity in the fund generating profits when deals make money and losses when they don’t.
Son’s extremely ambitious investments are an entirely different story. So far, the fund has created a portfolio of 80 companies that are nearly worth a combined $70 billion. The beginning of the fund’s struggle was marked by WeWork’s failure to go public, which prompted Softbank to offer $9.5 Billion package to the company. In 2019, Son’s fund lost close to $10 billion due to Uber and WeWork alone as both companies failed miserably on the public markets.
Owing to the global health crisis, the fund’s investments have continued to struggle. While Uber has experienced a dramatic drop in demand causing it to lay off about 6700 employees, Oyo observed a 60% drop in occupancy rates and revenue. In its latest earnings call, Son declared that 15 out of 80 companies in his portfolio are soon expected to go bankrupt.
The fund has had to unwind some investments including selling about 50% of its stake holdings. Recently the company announced plans to sell off its stakes in T-mobile as well as the Alibaba group.
While Son’s initial plans were to set up Vision funds in regular intervals, the poor performance have rendered these plans a failure. In an attempt to raise money for Vision Fund 2, the Japanese Conglomerate secured only $2 billion in its initial close last year, with almost all of the money coming in through Softbank’s own coffers.