SoftBank has become one of the most prominent tech investors in recent years under the leadership of Masayoshi Son. However, its investment strategies and accounting methods have raised many controversies. This article will analyze SoftBank’s investment in startups through its Vision Fund, the unusual ways it values its portfolio companies, and the accounting profits it books. There have been wild swings in startup valuations, highlighting risks in Son’s strategy. But SoftBank defends its valuation process and says it complies with all standards.
SoftBank’s massive investments in startups via Vision Fund
SoftBank has invested over $80 billion in around 90 startups since launching its $100 billion Vision Fund in 2017. The fund was supported by Saudi Arabia’s sovereign wealth fund and Abu Dhabi’s Mubadala Investment. Some of SoftBank’s largest investments went to WeWork, Uber, Flipkart and Didi Chuxing. These deals involved billions of dollars and helped push up valuations of startups.
Unusual ways SoftBank values its portfolio companies
SoftBank tends to mark up the valuation of its portfolio companies when making follow-on investments at higher valuations. By boosting a startup’s valuation from $1 billion to $2 billion, SoftBank books a $1 billion paper profit for itself. This allowed Son to claim high returns for the Vision Fund. But the profits only exist on paper. SoftBank defends its valuation process and notes others co-invest at the same valuations.
Accounting profits booked from investment gains
In FY18, over $3 billion in unrealized valuation gains accounted for nearly all the income reported for the Vision Fund. In FY19, unrealized gains totaled $10 billion while realized gains were under $3 billion. These paper profits flow through to SoftBank’s income statement. But analysts view such gains as meaningless since no cash is realized until exits like IPOs.
SoftBank’s controversial investment strategies and accounting methods have come under fire after disasters like WeWork. But SoftBank claims its valuations are robust, audited and in line with partners. Critics argue the current rules give too much leeway in reporting paper profits.