SoftBank’s $100 billion Vision Fund had a no good, very bad year in 2019, but was still in the black overall. Here’s why experts are still struggling to make sense of it.


Masayoshi Son, chairman and chief executive officer of SoftBank Group Corp., reacts during a news conference in Tokyo, Japan, on Wednesday, Aug. 7, 2019.

SoftBank’s Vision Fund had a terrible year last year, thanks in large part to the collapse of WeWork.
To a large degree, though, its overall performance since it was established in 2017 is in the eye of the beholder.
Despite last year, the fund was in the black overall at the end of last year, and its performance has improved since then.
But its returns to date have been subpar for the venture industry, and the struggles of WeWork and many of its other investments are a worrying sign, venture experts said.
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SoftBank’s $100 billion Vision Fund is the biggest venture capital vehicle ever created. Whether it’s succeeding in its mission, though, is open to interpretation.

The past six months have undoubtedly been awful. WeWork, at one time its crown jewel, nearly went bankrupt after failing to go public and is now worth about a sixth of what it was a year ago. WeWork and numerous other Vision Fund-backed companies have cut staff to try to staunch ongoing losses. Brandless shut down, Zume is a husk of its former self, and the fund sold back the shares it owned in Wag, reportedly at a loss.

But despite all that, the fund is still up overall and its performance has actually improved in recent months, as the Japanese conglomerate revealed this week.

“One thing we do know is [2019] was a bad year [for the fund]. It was absolutely a bad year,” said Rob Siegel, a lecturer in management at Stanford Graduate School of Business.

“But,” he continued, “that doesn’t mean it won’t be long-term successful.”

The Vision Fund is in the black, but underperforming

SoftBank gave an update on the Vision Fund this week when it released its quarterly report. By the end of last year, the fund had invested $80.5 billion since its inception in 2017 and had seen a return of $9.5 billion in the form of both realized and unrealized gains. By contrast, one year earlier, at the end of 2018, the fund had invested $46.7 billion and had seen a $12.9 billion gain.

In other words, the fund lost about 10% of the $34 billion it invested last year. While the firm remains in the black, its gain over the last two years amounts to about a 5.7% annual return. Over that same time period, the S&P 500 posted a 9.8% annual return. Meanwhile, the best venture capital firms post annual gains north of 20%.

“A 5% return on a venture fund would be considered mediocre at best,” Siegel said.

And there are reasons to worry that the fund isn’t going to become a big winner in the future.

It’s not unusual for the returns of venture funds to fluctuate over time and even to be negative in the early years, Siegel and other venture experts said. By its, nature venture investing involves a lot of risk; startups often fail.

But the Vision Fund isn’t like other venture funds, either in size or in strategy. A big part of …read more

Source:: Businessinsider – Finance

      

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