SoftBank Turning Off Money Spigot For Vision Fund Companies
SoftBank Group could be pivoting away from its notorious strategy of lavish spending and a growth-at-all-costs mindset, leaving its portfolio companies in the lurch.
The Japanese investment bank led by Masayoshi Son has implemented newly strict investment criteria, leading it to begin walking away from loss-taking companies in its portfolio, Bloomberg reports. The first startup identified as feeling the effects is smart camera manufacturer Light, which is 30% owned by SoftBank Vision Fund 1 after a $120M investment round in 2018.
After SoftBank's investment, Son pushed Light to pivot away from its ongoing projects to invest in technology for self-driving vehicles, leading to massive expenditures without any short-term returns, Bloomberg reports. The long lead times and disappointing results of autonomous vehicle technology so far have led Son to cool on the concept after years of encouraging Vision Fund portfolio companies to work with each other in pushing the product type forward.
With SoftBank declining to lead a new round of private investing, Light is consulting with financial advisers on its next steps, which could include winding down the company's operations, Bloomberg reports. If Light goes out of business due to dependence on a SoftBank capital stream that dries up, it would not be the first company to do so. Modular construction firm Katerra followed a similar path to liquidation ending last year.
SoftBank may be the most extreme example due to its sheer size and recent aggression, but the equities and venture capital markets are in the early stages of a valuation crisis. Private equity has been so freely available and eager to be spent in the past year-plus that many investments began to lose touch with their prospects for generating returns, multiple experts told Bisnow in late April.
If even SoftBank is pulling back on injecting new capital into its investments, then the newly hawkish Federal Reserve's anticipated interest rate hikes will make raising new funds much more expensive than it has been in recent years. For companies that have come to depend on investment rather than revenue to sustain their operations, that could be a death knell.