SoftBank chair and CEO Masayoshi Son speaks during a media conference in Tokyo, Japan, on November 6 2019. Picture: TOMOHIRO OHSUMI/GETTY IMAGES.
SoftBank chair and CEO Masayoshi Son speaks during a media conference in Tokyo, Japan, on November 6 2019. Picture: TOMOHIRO OHSUMI/GETTY IMAGES.

Tokyo  — Masayoshi Son struck a defiant tone after his SoftBank Group reported an enormous loss from investments in money-losing start-ups WeWork and Uber Technologies.

The Japanese billionaire paced a stage in Tokyo on Wednesday showing off dozens of slides that he argued demonstrate the promise of his deal-making. He began by flashing a slide of newspaper headlines and mocking reports that SoftBank or WeWork or both would end up going bankrupt.

“There was a problem with my own judgment, that’s something I have to reflect on,” he said, looking more sombre than usual in grey suit, white shirt and pink tie. “But let me explain the facts.”

SoftBank recorded an operating loss of ¥704.4bn (R95.9bn/$6.5bn) after writedowns in WeWork and other investments, the Japanese company’s first such loss in 14 years. The $100bn Vision Fund, the unprecedented investment fund that had been producing big profits, lost ¥970.3bn. “Today’s earnings are a mess,” Son said. “It’s red all over.”

SoftBank’s American depositary receipts fell 4.2% before midday  in New York Wednesday.

The company’s founder quickly shifted to defend his approach, highlighting the potential of his technology investments and boasting about his returns compared with traditional venture capitalists. He made it crystal clear that he has no plans to back off a strategy that has rattled Silicon Valley and raised concerns of a bubble in startup valuations. Indeed, he said that fundraising for a second Vision Fund is on track and the fund will debut soon.

“There is no change in our journey, no change in our vision,” Son said.

SoftBank’s strategy has been to put enormous sums — its smallest deals are $100m or so and the biggest are in the billions — into the most successful tech start-ups in a given category. Son sometimes refuses to take no for an answer, pressing founders to take more money than they requested or threatening to take it to a rival. SoftBank is operating at a scale never before attempted in Silicon Valley, driving up valuations and making it difficult for traditional venture capital firms to get in on the hottest deals, according to some partners.

Son’s certitude may spook investors given the WeWork fiasco. SoftBank and the Vision Fund had invested more than $10bn in the co-working giant ahead of its planned initial public offering in September, pushing its valuation as high as $47bn. But investors balked at buying shares in the money-losing startup and WeWork pulled its IPO. That left the company desperate for cash, prompting SoftBank to extend a $9.5bn rescue package and take an 80% stake in the company.

WeWork’s valuation sank to less than $8bn in the bailout. SoftBank shares are down 28% from their peak in 2019.

“The explanation for the massive rescue for WeWork was unsatisfying,” said Mitsushige Akino, an executive officer at Ichiyoshi Asset Management in Tokyo. “If SoftBank is to go on as an investment company, it needs to do a better job explaining its own governance to investors.”

Son said he had learnt several lessons from the episode — that he had put too much faith in WeWork founder Adam Neumann and that start-ups needed to have solid governance and a path to profits. Son vowed that there would be no more bailouts of start-ups in SoftBank’s portfolio.

He expressed confidence that SoftBank will be able to salvage the troubled business. As SoftBank’s Marcelo Claure takes over as chair of WeWork, the startup will get rid of unprofitable businesses, cut expenses in half and halt new building developments. WeWork’s Japan business is already profitable, a model of what is possible. “Absolutely no problem,” Son said, eliciting laughs from sceptical investors.

WeWork’s product — sleek office space that companies and entrepreneurs can rent short term — was sound, he said.

“We don’t need to do anything tricky or invent anything,” he said. “Time will take care of things. Let it ripen and we will reap a profit.”

Son showed no sign of lost confidence. He said that his returns are about twice the average for venture capital.

SoftBank has backed ByteDance, the most valuable startup in the world at $75bn, and the second-most valuable, China ride-hailing giant Didi Chuxing. But several start-ups have had trouble living up to their private market valuations, including WeWork and Uber. The US ride-hailing company has tumbled more than 35% from its IPO in May.

Son plans to keep making his investments. The second Vision Fund is on track to close soon, he said. It was originally planned to be larger than the first fund, but it’s likely to be about the same size now because investors are more careful about the market. He also said he still plans a third fund.

“I learnt a harsh lesson and I should have known better,” Son said. “But I don’t regret it too much. I won’t be too nervous about future investments. I am staying confident.”

Bloomberg