SoftBank Group has learned harsh lessons from its troubled WeWork investment, according to chief executive Masayoshi Son.
In a Q2 earnings presentation on 6 November, Son said via a translator that the Japanese conglomerate, which manages the $98.6 billion Vision Fund, had misjudged both the value and governance of the co-working space business.
SoftBank posted a ¥704 billion ($6.5 billion; €5.8 billion) operating loss for the quarter. This came after the Vision Fund posted a loss of ¥970 billion. The poor results were driven in part by a ¥374.7 billion writedown in the valuation of its WeWork investment during the period.
“My judgement in investment was not right in many ways.” Son said. “We overestimated the value.”
SoftBank agreed last month to provide $5 billion in new financing and up to $3 billion in a tender offer for existing shareholders, while accelerating an existing $1.5 billion financing commitment. It came after WeWork pulled its proposed initial public offering due to mounting losses and scepticism around its $47 billion valuation.
As of 30 September, SoftBank had invested $10.3 billion in WeWork, through both a subsidiary and the Vision Fund, including the unexecuted $1.5 billion. The fair value of its equity had decreased to $7.8 billion.
Son acknowledged that Neumann had been given too much say in the running of the company and the composition of its board after SoftBank’s initial investment. He noted that the bank’s latest finance package gives it the right to name five directors, compared with one initially.
Neumann resigned as chief executive and collected a $185 million consulting fee, while thousands of WeWork staff are understood to be facing lay-offs.
“This type of exception will not happen again,” Son said, adding that Vision Fund will increase its focus on governance and clear standards for portfolio companies.
Vision Fund had invested $70.7 billion into 88 investments as of 30 September, according to the results. Those investments are now valued at $77.6 billion, excluding exits. The fund’s investment period ended on 12 September with around 15 percent of committed capital earmarked for follow-on investments.
SoftBank already has memoranda of understanding from institutions such as Apple, Microsoft and Dai-ichi Life Insurance Company for a $108 billion successor to the Vision Fund, according to a July statement. Bloomberg reported in June that the bank intends to commit $38 billion to the fund, which will be raised by Goldman Sachs.