Wework will not be a case study? Excessive capitalization leads to overheating of the whole investment system, flooding with bad enterprises and encouraging their squandering. Will sun Zhengyis counter eating end in 2020?
Himalayan air, Korean pop band, Tesla On the last day of 2019, Bloomberg opinion column made a 2020 purchase list for sun Zhengyi, chairman and CEO of Softbank group (hereinafter referred to as Softbank), and his vision Fund (hereinafter referred to as vision), full of ridicule and ridicule. It was on the same day that Yanai Zheng, founder of the parent company of UNIQLO, suns longtime ally, formally resigned as an independent director of Softbank for 18 years.
In fact, in the past year, sun Zhengyi has not received any good news. From Uber IPO broke in May, the failed valuation of weworkipo in September shrank by nearly 80%, to Softbanks second quarter of 2019 financial report with the first loss of $6.5 billion in 14 years, the major shareholders of the fund expressed dissatisfaction with the investment strategy of the helmsman It can be said that sun Zhengyi is experiencing a great crisis since his career.
Back in early 2017, with sun Zhengyis unlimited ambition and unprecedented vision, Softbank started to bet on the future winners of the technology industry. Since its establishment, the 100 billion fund has invested more than 85 billion US dollars, which has also set off a big wave in the venture capital circle.
Tian Xuan, deputy dean of Wudaokou School of finance, Tsinghua University, commented to the daily economic news that Softbanks investment style can be described as ferocious and somewhat unreasonable. The key to its strategy is to find the Qianlima, which in fact tests investors vision and talent, even luck. On the other hand, the success of this model is not stable and hard to replicate.
Sun Zhengyis 2019: Unicorn loses one after another, and the new fund raising is struggling
The difficulty of soft silver began to appear in Uber.
After LYFT, the second largest car Hailing network in the United States, landed on NASDAQ first, Uber, with a valuation of more than 80 billion US dollars, plans to issue 180 million shares, which will be listed on the New York Stock Exchange on May 10, 2019 at a price of 45 US dollars per share. This is also the largest IPO in the United States since Alibabas listing in 2014.
It is disappointing but not surprising that Ubers share price broke off on the day of listing, dropping 7.6%. In the following eight months, the overall trend of Ubers share price was disappointing, except for a brief rise to a high of $46.38 at the end of June, which started to fluctuate and fall all the way. It fell to the lowest price since the listing of $25.99 in mid November, and finally ended 2019 at $29.74, down 33.91% overall.
Obviously, the open market is not willing to pay for such a high price, and this once nearly 100 billion valuation is driven by sun Zhengyi and vision. According to CrunchBase data, in addition to Wework, Uber is the Silicon Valley start-up company with the second largest investment in vision; the fund has injected over $7 billion into Uber. Just recently, Uber founder and former CEO Travis kalanick finally sold the last part of his shares and will bid farewell to the company he built himself. Travis kalanick founded Uber in 2009 and was forced to resign as CEO in 2017 due to a series of scandals.
However, at the beginning of Ubers break, sun Zhengyi may not have thought of it, and greater challenges await him and his vision in the autumn of 2019.
In September, the IPO of unicorn Wework, which obtained a large amount of funds from Softbank, failed. Its valuation plummeted from $48 billion at the beginning of the year to $8 billion. The company fell into a crisis and the world saw a large number of layoffs. The main reasons for its IPO failure are its poor financial situation - Weworks operating cash flow has been bleeding seriously for a long time and it is difficult to improve in the future, as well as the poor performance of Uber and LYFT, which are also the unicorn of the sharing economy, after their IPO, which also seriously affected the secondary markets valuation of Wework.
After the IPO failure, Softbank, the largest external shareholder of Wework, had to play the role of fire-fighting captain, and immediately announced that it would provide about $9.5 billion of rescue funds to the troubled companies, including the acquisition of up to $3 billion worth of shares of the company (including up to $970 million of shares of Newman, the companys co-founder and former CEO), and $6.5 billion of debt Business and equity financing.
It is worth mentioning that before sun Zhengyi decided to invest in Wework, there were many objections within Softbank, including nikesh Arora and Alok SAMA, former executives of Softbank, and Yanai Zheng, founder of UNIQLO, sun Zhengyis longtime ally. Liu Jing has been an independent director of Softbank since 2001. He is also regarded as one of the few people who can compete with sun Zhengyi, put forward different views and even argue. He once said that his duty is to be loyal to sun Zhengyi and not to listen to him. With his resignation, perhaps Softbank will lose its most outspoken voice.
If Uber is just the tip of the iceberg of the difficulty of soft silver, then the Wework crisis has opened Pandoras box, and the unprecedented crisis of investment empire may emerge one after another.
Tao Qizhi, a professor at the school of finance at Southwestern University of Finance and Economics, told the daily economic news reporter that the failure of WeWork is an industry landmark event that symbolizes the investment bubble and the consequences of the technology. The myth of Softbank chief Sun Zhengyis investment is also coming to an end. This event also made the global venture capital industry rethink its future investment strategy, and even affected the business development mode of technology companies.
According to the financial report released by Softbank in November 2019, the operating loss of the company in the second quarter was about US $6.5 billion, mainly due to the impairment of large-scale investments such as Uber and Wework, which was the first quarterly operating loss in 14 years. Goyal, an analyst with Jeffrey, a Wall Street investment bank, said publicly that investors are worried that Wework is not an exception or a common phenomenon.
Subsequently, it was pointed out that the two LPS of vision fund phase I, the Saudi public investment fund (PIF) and the Abu Dhabi Mubadala, showed dissatisfaction and concern about the fund manager, Softbank group. Such dissatisfaction mainly stems from: on the one hand, the investment price sun Zhengyi gave to science and technology innovation company was too high; on the other hand, he questioned the inappropriate vision management style.
In the system culture of Softbank, sun Zhengyi has the final decision-making power for all investments, which is not in line with the traditional venture capital culture. In the latter culture, investment decisions are usually made by committees.
From the perspective of the capital structure of vision phase I, PIF and Mubadala are its largest external investors, with a total of US $60 billion provided to them; the remaining LPS also include apple, sharp, Qualcomm and Foxconn; Softbank contributed US $28 billion.
The dissatisfaction and worry of the two LPS are confirmed in the financing dilemma of Vision II. According to Fox Business, despite months of discussions with Softbank executives, the two sovereign funds, PIF and Mubadala, have yet to commit to funding the second fund, whose support is crucial for Vision II. As of the beginning of December 2019, the fund, which was launched in July of that year, only received $2 billion in initial fundraising, achieving 1.85% of the target. You know, sun Zhengyis goal is to copy the first phase of the fund-raising myth. At the same time, Japanese bankers, who have decades of friendship with sun Zhengyi, have begun to look at the client carefully, and have become cautious about supporting its funds.
Tian Xuan said to every reporter that soft silvers ferocious playing method has a strong uncertainty, which enlarges the profits as well as the risks. In this way, the strategy of investing heavily in technology companies has brought success to them, but it will backfire on them.
Obviously, todays soft silver is suffering from such a backfire.
Crisis of reopening: is it urgent to endow venture capital with bubbles?
The ferocious investment style has made sun Zhengyi successful, and also made him fall into the current predicament.
Tian pointed out that Softbank likes to invest in the early high impact companies (with a market value of more than US $1 billion + the top 10 in the industry), and once the investors are determined, it will make a heavy bet. For early companies, Softbank usually holds a large proportion of shares; for growing companies, it invests a lot of money.
A long-term domestic investor who has paid close attention to the technology track commented that the strategy of vision is to find the head company of tuyere track in various regions. Subsequently, the overestimated value, huge capital admission, and rapid expansion and growth of enterprises, Sun Zhengyi wants to be the king of every track..
In order to capture these top companies, Softbank is also willing to pay high prices. If you dont let me invest, I will invest in your competitors has also become sun Zhengyis famous threat to startups.
According to CrunchBase data, as of December 20, 2019, vision has made 94 outbound investments. Among them, the amount of single round financing of the invested projects is up to 25, accounting for 27% of the total investment since its establishment.
$1 billion, which is the total size of a small and medium-sized fund. Similarly, according to CrunchBase, Sequoia Capital, which has more cooperation with Softbank, has participated in the largest investment in the past year, leading it to invest 600 million US dollars in the G round of American take out start-up doordash.
Softbanks investment approach is sometimes seen as a power investment. It may also make the relationship between founders and other early investors tense, Tao said
Source: Softbank official website
The high valuation and large-scale capital injection also make Softbank the main or even the only investor in every investment. Take vision as an example. According to CrunchBase data, 81 of its 94 investments in the past three years have been led investments, with a leading investment rate of 86%.
In other words, once the vision is released, it may become a unicorn.
Although the vision is a growth fund, in fact, in the middle and late stages, it seems to be doing VC in the way of PE. It is said that sun Zhengyi wants to find those projects that are almost finished with money, but this may not be the case. Said the investor, who focuses on the technology track.
Softbank and the companies it invests in are also referred to by some wall street people as the embodiment of over capitalization, which also causes the whole investment system to overheat and be full of bad enterprises.
Tian Xuan further pointed out to reporters that Softbanks investment weakened the financial discipline of the invested enterprises. Softbank likes to invest in early stage companies, which are basically unprofitable when they are invested. When Softbank invests a lot of money in these companies, it encourages the squandering of these early companies.
For the overvalued value given by sun Zhengyi to science and technology innovation company, Tao Qizhi said, the premise for the company to maintain the overvalued value is to be able to maintain a very high growth while achieving a far higher than average profit margin.. In fact, most of the typical projects of sun Zhengyi and vision are in a loss state and do not have profitability.
It is worth noting that in addition to Wework and Uber, grap, Oyo, cheduoduo, Pingan yizhangtong and other companies have also received a lot of financial support from the vision in the past three years.
According to CNN, vision has invested $31.4 billion in global transportation and logistics startups. At the end of the third quarter of 2019, the fair value of these companies was $31.1 billion. This means that the investment of the fund has lost about 1%; in addition, according to the documents released by the U.S. Securities and Exchange Commission on December 3, 2019, fintech one account is expected to sell 36 million ADSS (American Depository stocks) at a price of US $12-14 per share. This price range corresponds to a valuation of $4.4 billion to $5.2 billion, which is far lower than the $7.4 billion it raised from vision earlier. Finally, on December 13, 2019, one account financial listed on the NYSE at a price of $10 per share and issued 31.2 million ADSS.
To be fair, many companies have suffered setbacks in their IPO plans due to slower economic growth and uncertainties in Global trade, Tao said. Softbanks investment participation was once a sign of a promising technology company, but now it is seen as a dangerous signal that a companys value may be overestimated.
At the same time, Didi, grab and Ole, the sharing travel giants invested heavily by sun Zhengyi in China and Southeast Asia, have also become one of the hardest hit areas for investors to worry about - they are worried about the same situation as Uber.
Tian Xuan said that the success of Softbanks investment model can be said to cover the remaining losses through one or two successful investments. Then the key is to be able to find the Qianlima. What this actually tests is investors vision and talent, even luck. On the other hand, the success of this model is not stable and hard to replicate.
In other words, in such a mode, once investors lose sight several times, the whole Softbank will pay a painful price. The companys cultural system relies on Sun Zhengyis judgment. If the success of investing in Alibaba and Yahoo is a combination of vision and luck, it seems that sun Zhengyi and Softbank recently lost the favor of lucky god.
Abandoned by the times? Its hard to adapt to the cyclical upheaval
After Softbanks first quarterly loss in 14 years, sun Zhengyi said publicly that his investment judgment is poor in many aspects, and he is now in deep reflection.
In an interview with Nikkei business week at the end of 2019, sun Zhengyi said that because the investment result of the vision is far from the expectation, it makes me feel ashamed and urgent, it is doubtful whether it is still the sun Zhengyi that appears in the publics view on a regular basis.
So, what kind of person is sun Zhengyi?
In the investment circle, the three words Sun Zhengyi have been sealed for many years, almost no one knows it exists, and it is also the goal of many investors.
The story of his 2900 times return on his investment in Alibaba has been repeated in the industry for many years. This 62 year old man has always been with the momentum of who is the best in the world, as early as 19 years old, he wrote down his 50 year plan; at 24 years old, he set up his own business; in his 30s, he earned the first $1 billion; then, he consolidated and selected successors for 20 years; at 43 years old, he expanded the business by 10-20 times in 10 years; in 2016, he set up the first vision of up to $93 billion Fund, also one of the largest science and technology funds in the world, was equivalent to 15 Sequoia Capital at that time, setting off a big wave in the investment circle.
In the Book Faith: the biography of sun Zhengyi written by Japanese biographer Inoue Dufu, there is a description of sun Zhengyi as follows: if you have ambition, no matter what others say, you will endure. If you constantly hone your personality in patience, you will become the envy of everyone.
Wang Juntao, who prefaced the book and is known as the father of Chinas e-commerce, said that he had made in-depth exchanges with sun Zhengyi face to face. What impresses him is that when talking about a career that is very interesting to each other, sun will stare at him with Eagle like eyes and ask, can you do this first? The influence sun Zhengyi and Softbank have brought to him runs through Wang Juntaos entire entrepreneurial career.
This is just one side of sun Zhengyis strong personal style, or personal charm. As a world-famous venture capitalist, his patience is as famous as his boldness. Suns many successful investment cases have a common feature, that is, dare to invest when others dont realize the value, and then stick to success together with entrepreneurs. For him, only in this way can everything is in control.
But its just one side of the coin. Human nature is complex, and sun Zhengyi, the king of investment, is no exception. In the public information, sun Zhengyi will talk with entrepreneurs in an aggressive manner, without any room for rejection. When these companies try to reject Softbanks investment, sun often threatens to invest the money in its competitors. In didi and Uber, he has been exposed to use this trick.
Tao Qizhi told reporters that the core of sun Zhengyis strategy is: first, cognitive arbitrage, which is often called time machine theory by sun Zhengyi, making full use of the unbalanced development of different countries and industries, first developing business in developed markets such as the United States, and then entering Japan, China and India when the time is right; second, taking advantage of asymmetric capital advantages to obtain The head companies of each region and track, and then obtain the monopoly position of the track.
In recent years, Softbank under the leadership of sun Zhengyi has almost taken over the worlds well-known Internet Unicorn companies. Softbanks strategy is to substantially improve the valuation of start-ups through rapid, large-scale, multi round and high-value investment. In 2019, however, sun Zhengyi failed. Some people think that this is the gradual loss of Internet dividend, which makes the high-powered capital game unsustainable; others think that the investment amount of Softbank has reached the point that the market, including the secondary market, cannot digest. In fact, sun Zhengyis investment method hasnt changed in decades, and this kind of unchanging playing method also makes him unable to adapt to the dramatic changes of the times and cycles.
Along the way, sun Zhengyis investment seems to have always been highly purposeful and aggressive; and what finally got him into trouble is his own madness.
Bloomberg opinion columns 2020 purchase list may just be joking, but Sun Zhengyis investment and fundraising are continuing while reflecting.
Sun Zhengyi said that from the perspective of helping Wework, he is now paying close attention to artificial intelligence. Wework was interested in AI, but failed in the end. Softbank, he said, has invested in a number of AI owned companies that can use their know-how to apply it to Weworks business in the coming months.
After the dotcom bubble burst in 2000, Softbank suffered a lot of investment in Internet Co. But over the past 20 years, Internet companies have accounted for seven of the top 10 companies with the highest market value in the world. From a broader operational perspective, sun Zhengyi believes that the strategic development of Softbank has not changed.
Some analysts pointed out that in the past three years, sun Zhengyi also has a lot of layout in the fields of automatic driving, medical technology and cutting-edge technology. His projects also include star companies such as nuro, braincorp and roivant, which are also regarded by people in the field of venture capital as the track that has not really erupted yet. If Softbank projects in these fields perform well in 2020, it will also be a firm bet on future science and technology Technology winner Sun Zhengyi and Softbank inject a shot of heart.
After the disastrous defeat of Wework, sun Zhengyi said that although some supporters became more cautious about investing in the second fund, Softbank will continue to push forward the follow-up plan. Although only $2 billion had been raised as of early December 2019, he insisted that the size of the second fund was at least equal to that of the first, and that investors in vision 1.0 also expressed interest in the fund. According to Fox Business, a spokesman for Softbank said in mid December 2019 that the fundraising is proceeding as scheduled under the evaluation and commitment of potential investors. In addition, according to the Indian economic times, Softbank may announce an initial fundraising of $30 billion for Vision II in the first quarter of 2020.
What is more impressive is sun Zhengyis soft attitude of constantly reflecting and admitting mistakes. Its self correction of the past strong investment style may be a more important signal in the future. In a recent event, he said that many growth indicators are difficult to prove to be the right valuation method, there is no so-called multiple of Gmv, revenue or number of users .
In his evaluation system, the capital health of enterprises has finally become a more important indicator. Ultimately, its a multiple of cash flow, and theres no other measure. Dont hype. Ive learned a lot from recent events. What is the companys valuation? Its the multiple of cash flow in a stable state.
In December 2019, Xiong Xiaoge, founder chairman of IDG capital, publicly commented, I think sun Zhengyis grasp of technology is very good, so I cant say that its too early for us to talk about heroes only by the failure of each companys listing..
Wang Mingyao, general manager and managing partner of Lenovo star, recently mentioned in a public speech that sun Zhengyis achievements are not necessarily the heights that many investors can reach in their lifetime. Of course, vision fund also faces great challenges. The projects it invests in are gradually quite different from the original goals. Why did he make such a simple mistake when he was such a visionary and experienced investor? What prompted him to make such judgments? The main reason behind this is that he wants to achieve a big goal: this goal is to invest 100 billion dollars in a very short period of time, and all of them should be invested in high growth projects. Its a very difficult goal to achieve at the moment, because there are so many really valuable projects. However, no matter how the industry and media evaluate it, the setbacks in 2019 did not make sun Zhengyi lose confidence. When it comes to the future, he said, we dont see storms, or rough waters All I hear is someone laughing. You may say that sun Zhengyi always talks big. But from my point of view, the journey has not changed, the vision will not change, and the strategy will not change. All we have to do is move on, move on. Source: editor in charge of daily economic news: Yang bin_nf4368
Wang Mingyao, general manager and managing partner of Lenovo star, recently mentioned in a public speech that sun Zhengyis achievements are not necessarily the heights that many investors can reach in their lifetime. Of course, vision fund also faces great challenges. The projects it invests in are gradually quite different from the original goals. Why did he make such a simple mistake when he was such a visionary and experienced investor? What prompted him to make such judgments? The main reason behind this is that he wants to achieve a big goal: this goal is to invest 100 billion dollars in a very short period of time, and all of them should be invested in high growth projects. Its a very difficult goal to achieve at the moment, because there are so many really valuable projects.