Softbank reported the FY2022 results yesterday and the losses from the vision funds were staggering. More than $35B+ of losses are recorded for SVF1 and SVF2. The Softbank Vision Fund(SVF1), raised in 2017, only produced 12.7% of unrealized returns after 6 years. The Softbank Vision Fund 2(SVF2), raised in 2019, is deeply underwater with a -36.4% return. As an early stage investor, I feel slightly relieved after seeing Vision Funds’ results. I am positive my portfolio performs better than that.
As many of you know, venture capital returns have been hit hard after the pandemic years of irrational exuberance. Investors simply put too much money into tech startups too fast with too high valuations from late 2020 to early 2022. Vision funds actually started this over-investment and over-valuation trend with the $100B Vision Fund in 2017. I was very skeptical of the Vision Fund because the math simply wouldn’t work unless they are able to help create at least one trillion dollar company from an early stage. Is it possible? Yeah sure. Is it likely? I don’t think so. But that didn’t stop Masayoshi Son from trying. Masa Son was a legendary investor with big hits like Yahoo! and Alibaba under his belt. But past performance is no guarantee of future results. The Softbank Vision Funds were not set up to succeed as anything less than a trillion dollar hit would be considered a non-success. They simply set the bar too high and there’s no surprise why Vision Funds struggle to deliver adequate performance.
Many tech people have been hit hard by the tech crash since last year. The carnage is far beyond the crash of growth stocks and cryptos. AFAIK, many investors are stuck with illiquid startup investments which are extremely hard to unwind. Their stories and, to some extent, my stories are pretty similar to Softbank’s balance sheet. I am sure Softbank can get through this tough period. I am confident I can handle it. But like the dotcom bust, a non-trivial number of tech folks won’t be able to recover financially from this. The bust cycle of private investments is just getting started and it’s going to last a while as we are going through the liquidity crunch post ZIRP/QE. We are going to see more high-profile flameouts and more articles like this. But there will always be another boom after the bust. We must go through the pains to have future gains.