A month or so ago I wrote about the difficulties that Softbank may face in raising its Vision Fund 2.0. In particular, I wrote that the Saudi Arabian Public Investment Fund (PIP), which provided the lion’s share of the original Vision Fund’s capital, had decided to not contribute significantly to the sequel. Now while most public investment funds are still not game, the deficit was quickly covered by the likes of Apple (AAPL), Microsoft (MSFT) and a number of other corporations. Masayoshi Son’s ultimate target is to raise $108 billion in capital. That may be harder than anticipated.
Leaning on employees for cash
As was recently reported by the Wall Street Journal, Softbank is providing loans to its employees to finance investments in Vision Fund 2.0. The bank is planning to provide at least $20 billion in credit to this end, and will require very little in the form of downpayment. This comes on top of the $38 billion that Softbank has already committed to the fund. If that $20 billion is fully utilised, then almost 54% of Vision Fund 2.0 will be financed by Softbank. By comparison, Softbank financed just 30% of the original fund.
This is somewhat odd. One would think that if the original fund was such a roaring success, then investors would be lining up, and Softbank would not need to resort to this degree of self-financing. Perhaps investors are forecasting a slump in the tech boom, using the poor performance of the recent Uber (UBER, Financial) and Lyft (LYFT, Financial) IPOs as a guidepost?
That said, not having to depend on large investors with controlling stakes could give Son more freedom to dictate the direction of the fund. Back in January the Saudis vetoed a proposed $16 billion in WeWork that Son reportedly wanted to go ahead with. Additionally, Son may be grateful to not have the bad PR of being backed by Crown Prince Mohammed Bin Salman hanging over his head.
This unconventional fundraising comes on top of already existing concerns about Vision Fund 2.0 capital base. According to another report, some of the commitments that Softbank is relying upon are still in the early stages of negotiation, and should not be counted on. Other commitments are apparently being made using "debt-like securities," which is somewhat unusual for fund contributions.
What if it works out?
Yet, Son has proven in the past that he is a gifted fundraiser. Even if the fund misses its target, we can still be fairly certain that it will emerge as a new center of gravity in the tech world. Vision Fund 1 created the bloated valuations for companies like Uber, Lyft and WeWork. Only time will tell what new financial oddities will be created by its successor.
Disclosure: The author owns no stocks mentioned.
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