SoftBank To Layoff 10% Of Its Workforce After Massive Losses

Following a $17.7 billion loss amid crumbling valuations of portfolio startups, Softbank Group Corp.’s Vision Fund is planning deep cuts in staffing. The company has decided to lay off 10 per cent, roughly 500 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 and his $100 billion Vision Fund changed the tech industry by handing out enormous checks to relatively unproven startups. The company 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 bring in increased profits via bets in new-age companies, it eventually became the company’s biggest drag on earnings. It lost 1.9 trillion yen ($17.7 billion) last financial year after writing down the worth of investments, including WeWork and Uber Technologies Inc. 

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. 

Son originally said he hoped to boost a replacement Vision Fund every two to three years, but he has conceded he can’t attract money now due to the poor performance. The fund, led by Rajeev Misra, operates as a SoftBank affiliate with most of the cash coming from limited partners, led by Saudi Arabia’s Public Investment Fund and Abu Dhabi’s Mubadala Investment Co.

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.

“It makes sense that SoftBank is cutting positions at the Vision Fund as they are in an extremely difficult situation, and they may start targeting highly paid workers to cut costs,” said Koji Hirai, head of M&A advisory firm Kachitas Corp. in Tokyo.

Owing to the global health crisis, the fund’s investments have continued to struggle. While Uber has experienced a considerable 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 has 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.

The stock rose just quite 1% in Tokyo trading. SoftBank shares, after plummeting in March, have recovered and have a bit changed for the year.

One emerging question is how Alibaba -- SoftBank’s most precious holding will be suffering from the clash between the US and China. A bill just approved by the U.S. Senate could force Chinese companies like Alibaba to prevent trading their shares on US exchanges.

“The big picture is SoftBank is caught up with US-China conflict right now, and SoftBank may need to conduct a drastic restructuring if Alibaba was delisted from ny ,” said Hirai. “Its main banks and the capital markets are anxiously awaiting an outcome for the situation,” he added.