Japan's Softbank's vision fund swaps splashy bets for 'timid' investing

By Mark Bergen and Aggi Cantrill

In January, the Spanish startup TravelPerk closed a funding round suited to today’s austere times. It raised less than it did two years prior, landing on only a slightly higher valuation of $1.4 billion.
 

The surprising part was that TravelPerk’s lead backer was SoftBank, a Japanese investor whose Vision Fund was famous for giving startups outrageous price tags until it racked up immense losses in an investing spree under founder Masayoshi Son. Then, SoftBank went quiet. A year later, the Vision Fund is back writing checks, but it’s steering clear of the high-flying startups it was once known for championing, like WeWork and failed pizza delivery enterprise Zume. 

As other tech investors have heaped money into new artificial intelligence firms, Vision Fund has stayed out of the fray. Instead, it’s offering more measured support for companies like TravelPerk, which sells software for corporate travel and hopes to incorporate AI tools rather than invent new ones. The fund is “looking very carefully” at generative AI firms, said Alex Clavel, its co-chief executive officer, but stipulated that it will place its bets wisely. 

“Are we going to be a little cautious and sensitive about valuations?” Sumer Juneja, SoftBank’s chief for EMEA and India, said in an interview at the firm’s London office. “For sure.”

SoftBank’s chastened approach comes in the aftermath of a market downturn, exacerbated by higher interest rates and an IPO market that has all but dried up, as well as the company’s own financial struggles. Vision Fund I, an enormous vehicle backed by Saudi and Emirati sovereign wealth funds, has largely stopped looking for new startups — even as it reaps massive returns from stakes in companies such as DoorDash Inc. and TikTok parent ByteDance Ltd.

Vision Fund II, which was launched in 2019, relies entirely on SoftBank money, a pool of capital that’s expanded tremendously in the past week thanks to the company’s majority ownership of Arm Holdings Ltd. Still, the second fund was down $19 billion as of the most recent quarter. 

Meanwhile, Son has ramped up dealmaking elsewhere, investing directly through SoftBank in autonomous trucks, warehousing and other AI ventures that the company deems “strategic.” In a recent quarter, SoftBank invested nearly three times more money through its own balance sheet than through the Vision Fund.

Clavel disputed the idea that SoftBank and Vision Fund were competing in any way. “It’s not Vision Fund people running this way, and Masa running that way,” he said, referring to Son by his nickname. “It’s an integrated team approach.”

With Europe’s tech sector lagging behind the US and Asia, the region may be emerging as a testing grounds of sorts for the Vision Fund’s new strategy. Juneja, who joined SoftBank in 2018, has instructed his team to skip deals that value startups well above $1 billion, and not to lead rounds alone. They were also told not to buy up more than a fifth of a startup’s equity, and to aim for exits of $4 billion or less. 

SoftBank would invest “timidly,” as the company’s chief financial officer put it last summer, “with fear in our hearts.”

This is a remarkable departure from the firm’s early bombast. Launched in London in 2017 with a $100 billion pot and a sprawling team, Vision Fund I made a “shock-and-awe” entrance into venture capital, recalled British investor Keith Wallington. Vision Fund II was smaller and had no outside investors, but it also took big swings, single-handedly creating unicorns in markets like India. 

By the time Juneja arrived at Vision Fund’s London hub in September 2022, however, the tech market had cooled and the fund was rife with warring factions and compliance issues. The year before, SoftBank suffered one of its worst blows in Europe after betting heavily on failed lender Greensill Capital. It also injected enormous sums into startups like Klarna and Revolut, which are now worth well below their peak valuations.

SoftBank is currently focused on managing its existing portfolio and hemming in losses. While Vision Fund II invested more than $40 billion in startups during the 2021 fiscal year, it invested $3.8 billion in  2023 – and only $90 million in the most recent quarter. 

The end of rapid-fire dealmaking has cost the London office several high-profile partners: Rajeev Misra left his investing role at the firm, although he maintains oversight of Vision Fund I, and investors Yanni Pipilis and Munish Varma followed him to his new company. Last year, Vision Fund trimmed about 13% of staff across both funds. A spokesperson said there are no plans for further cuts this year.

The scaled-back investment strategy has meant more engagement with companies already working with Vision Fund. Juan Urdiales, co-CEO of Spanish firm Jobandtalent, said SoftBank partners actively helped him hire as his startup expanded to the US. Wallington, the UK investor, shares board and observer seats with SoftBank at Peak AI, a British software firm. He described the SoftBank directors as present and helpful, albeit muted, in meetings. “They were pretty understated,” he said. “They probably wanted to make sure that they were not viewed as a swaggering big checkbook.”

Vision Fund II still has roughly $6.4 billion left to spend, although SoftBank, as the sole investor, could conceivably top it off. Still, the fund’s caution has concerned analysts, who worry it will miss out on the money train of generative AI. “Investor sentiment remains very strong for AI names globally, but not for SoftBank,” analysts at CLSA wrote in a note last week. 

Clavel pushed back on the idea that Vision Fund has bailed on the market. “We’re not in an investment environment where it makes sense to be pouring fuel on the flame,” he said. “But we’re very active and engaged.” 

Mate Rimac, the chief executive of Rimac Automobili, a Vision Fund-backed electric sports car manufacturer in Croatia, encountered the new strategy early last year. At the time, he wanted to expand his startup into multiple lines of battery production. Juneja, who sits on his board, opposed the move. 

They compromised: Rimac could branch out, but he had to hit certain milestones in order to receive more SoftBank money. “Rather than science fiction-driven,” Juneja said, the arrangement was based on return-on-equity. “There is a time in the cycle when you have to be very prudent with the capital you have.”  

Coming from an investor famous for indulging the impulses of its chosen CEOs, this was striking.

“Now, the theme is ‘more conservative,’” said Rimac. “They’re even risk-averse.”

Privately, Vision Fund’s new team has tried to shake off its reputation for pushing startups too close to the sun. One founder in London recalled a recent meeting with SoftBank representatives who began by asking the entrepreneur to disregard what they had previously heard about the fund. (The founder asked not to be identified discussing private meetings.)

Juneja characterized this as part of the process. “It’s about breaking the ice,” he said. “There’s a lot of, ‘Look, man, whatever your reservations are, let’s get that out of the way.’” 

On AI, the Vison Fund has taken a different approach from many VCs. The fund pulled back from investing just as generative AI exploded, and has refrained from backing startups building large-language models. Instead, the Vision Fund is targeting companies with established sales channels and proprietary data that are interested in incorporating the latest AI rather than building it themselves. Juneja cited several of Softbank’s recent European investments, including Jobandtalent, a recruiting marketplace; ContractPodAi, a software management provider; and TravelPerk, as companies with the “data, distribution and customer access” to take advantage of the latest AI advances.  

But given Son’s long obsession with AI, it’s easy to wonder how long this will last. 

Founders raising from Vision Fund still follow the tradition of meeting with Son before any checks are written. After his conversation, Rimac noted Son’s fixation on AI, although he said Son’s investors were more interested in the carmaker’s existing sales traction than its AI potential. “In our case, there’s a solid business already,” Rimac said. 

While Clavel said that Son has continued to work closely with his division, it’s not clear if the tycoon’s boldest new bet on AI — a tentative venture between OpenAI chief Sam Altman and Jony Ive — will be connected with the Vision Fund or not. SoftBank didn’t make Son available for comment but said the fund’s new strategy was “consistent” with his investing objectives.

As SoftBank pursues its new tack, one of its primary objectives will be to harvest returns from its huge portfolio rather than priming unprofitable startups for growth. In a recent poll of its startups, Vision Fund discovered that most were optimistic about IPO opportunities returning in late 2024. “Bankers are pitching us,” Clavel confirmed. “But it’s not a frenzy.” 

It’s not likely SoftBank will return to its former high-octane approach to investing, either. Asked if the Vision Fund will make more deals this year than last, Clavel was cautious. “I think we will. I hope we will,” he said. “We’re an optimistic company.”