The Generalist - Softbank: Twilight of an Empire

Friends,

The business world has no greater opera than Softbank.

Played out across the world, from New York to Tokyo, San Francisco to São Paulo, it is a drama with rich, vivid characters. The relentless, hyperbolic founder. The charismatic, thwarted successor. The Machiavellian aide, angling for the top spot.

Softbank’s story contains all of this, muddled with more than $100 billion in venture capital, splashed on companies like WeWork, Uber, FTX, Wag, Oyo, Flipkart, Coupang, DoorDash, Chime, and many, many others.

Over the past few months, we have seen the latest act in Softbank’s saga begin to play out. In August, founder Masayoshi Son announced record quarterly losses totaling $23 billion. Last week, news leaked that the headcount of its venture team might get slashed by 30%. Though Son’s investing strategy has always looked high-risk, it’s never been under quite so much pressure.

But betting against “Masa” is a risky game. The sixty-five-year-old CEO is a specialist in stunning reversals, having once been the richest man in the world before going nearly bankrupt – then making tens of billions again. He may have another epic turnaround in him.

To hear the story of how Masa made his billions, the world’s “best ever investment,” the Vision Fund’s political culture, and what Softbank should do next, jump in.

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Softbank: Twilight of an Empire

Actionable insights

If you only have a few minutes to spare, here's what investors, operators, and founders should know about Softbank:

• New terrain. Softbank has never been here before. While the Japanese conglomerate has weathered more than its fair share of ups and downs, its latest drop is of a different magnitude. Last quarter, Softbank announced a record decline of $23 billion. As one former employee remarked, “this is a proper crisis.”
• A failed experiment. Much of the company’s decline can be traced back to the Vision Fund. Launched in 2017 to much fanfare, the largest venture vehicle of all time has struggled badly, performing in the bottom 10-15% of the asset class. Its second fund may fare even worse.
• Organizational concerns. Founder Masayoshi Son has spoken of his desire for Softbank to thrive for 300 years. At the moment, it’s hard to imagine who might take the reins in the next five. At sixty-five years old, “Masa” cannot continue indefinitely, yet a managerial exodus has left his business short of leaders.
• Cash in the bank. Despite its brutal 2022, Softbank has $35 billion in cash, with the ability to generate significantly more. Son expects semiconductor firm Arm to go public within a year, an event that should send billions back to Softbank. Though the Vision Fund's performance suggests the firm is not a very talented investor at the moment, it does have the money to keep playing.
• A history of comebacks. Masayoshi Son is not someone to bet against. After nearly going bankrupt during the dotcom crash, Son invested $20 million in Alibaba – a stake worth $50 billion at IPO. The Softbank Experience™ is never smooth, but few can recover from a loss like the company’s CEO.

***

Did the Romans of 460 AD smell rust in the air? Could the Ottomans, starting in the 1600s, feel a chill beginning to bristle? In other words, does a civilization notice its decline?

Perhaps it does. Those born in a dying era may develop a sense for decay.

If such a perception does exist, Masayoshi Son may be feeling it now. Five years ago, Son stunned the financial world by announcing his $100 billion Vision Fund. Bankrolled by sovereign wealth funds from Saudi Arabia and the UAE, “SVF 1” was not only the largest venture capital fund of all time, it was thirty times the size of its closest contemporary. In its arrogance and imagination, it bore the signs of an august empire stepping into its power; Look on my Works, ye Mighty, and despair!

The half-decade since has revealed both the audacity and naivete of Son’s strategy. Debacles with WeWork, Uber, Oyo, Zume, and many others have left Softbank and its investors bloodied. In August of this year, Softbank announced a quarterly loss of $23 billion, the steepest drop in its history. That followed on the tail of a $17 billion decline the quarter before; in six months, $40 billion in value had evaporated. This week, news leaked that Softbank intended to cut 30% of its Vision Fund team.

History suggests that losses of this magnitude are often fatal. And yet, in Masayoshi Son, Softbank has someone with a rare gift for raging against the dying of the light. Time and again, he has shown an ability to recover from seemingly irredeemable circumstances. Though few would be foolish enough to bet against Son, saving his company’s venture practice looks like a bridge too far.

How Softbank found itself in such dire circumstances is a story that traces the arc of every great empire. It is a tale of grand ambition and outrageous wealth, kingdoms and kingmakers, conniving aides and flattering courtiers, dazzling conquests and humiliating retreats. We’ll discuss:

• The rise of Masa. By the time he graduated college, Masayoshi Son was already a multimillionaire. Instead of resting on his laurels, he risked it all to build one of the world’s largest and most complicated conglomerates.
• The revolution and evolution of the Vision Fund. The audacity of the Vision Fund shocked the business world and made Masayoshi Son a household name across the globe. However, deploying more than $100 billion in capital has been a challenge financially, organizationally, and culturally.
• The fall of an empire (and how to save it). The Vision Fund has badly underperformed, dragging down Softbank’s finances. It has also contributed to an unproductive, short-termist culture. Masayoshi Son will need to make fundamental changes if he wants his empire to thrive after he has stepped down.

As a note, this piece draws on interviews with founders, investors, and academics. Unless explicitly noted, all contributed on the condition of anonymity.

In a meme

​​​​For the pictorially inclined, here's the whole piece — all 10,000 words of it — in a single meme.

Puzzler

​​​All guesses are welcome and clues are given to anyone that would like one. Just respond to this email for a hint.

The Age of Greg K continues, with another gold medal secured for our serial winner. He was joined by Kate T, Storm D, Krishna N, Lindsay G, Tord N, Divesh A, Austin V, Neil P, Thomas K, K Smith, SM, Lovish S, Jithamithra T, Derrick W, Vijay J, Xavier L, and Sunil S. All found the right response to this riddle:

The answer? He was walking, of course. Tricky! Well played to all.

Wishing you a lovely rest of your day, wherever you are in the world.
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Until next time,

Mario