In a dramatic turn of events, WeWork Inc.’s bankruptcy filing serves as the final chapter in a years-long saga that unveils significant flaws in the investment style of Japanese billionaire Masayoshi Son. Son, the charismatic founder of SoftBank Group Corp. and the mastermind behind the Vision Fund, overrode objections from his advisors and bet billions on WeWork, raising the co-working office space company’s valuation to an astonishing $47 billion in early 2019. However, just months later, WeWork’s deep losses and conflicts of interest, as revealed in its IPO filings, sent investors running. The aftermath has cost SoftBank over $11.5 billion in equity losses and an additional $2.2 billion in debt. This debacle has not only taken a financial toll but has also severely damaged Son’s professional reputation.
A Costly Bet on WeWork
Masayoshi Son’s decision to back WeWork’s flamboyant founder, Adam Neumann, against the advice of his team turned into a financial disaster. Son’s infatuation with the co-working company led to WeWork’s valuation skyrocketing, only to come crashing down soon after. The consequences of this risky bet are more than just financial; they have a significant impact on Son’s reputation as a shrewd investor.
The Perception Problem
Aswath Damodaran, a professor at New York University’s Stern School of Business, points out the glaring issue of perception. The WeWork fiasco and the Vision Fund’s record loss of $32 billion in the previous year have dented Son’s image as a visionary investor who had previously scored big with an early bet on Alibaba Group Holding Ltd. Damodaran remarks, “You can recover from mistakes, but how do you recover from the perception that you don’t know what you’re doing? His actions say, ‘I am arrogant.'”
Success Breeds Overconfidence
Damodaran suggests that Son’s success before WeWork may have led to overconfidence. SoftBank had been regarded as an astute, visionary organization under Son’s leadership. However, that success might have made Son and his team too self-assured, blinding them to potential red flags and opposition from advisors.
Trusting Gut Instinct
Son’s investment decisions were often guided by his intuition, which he likened to the Force in Star Wars. This trust in his instincts may have made him reluctant to heed warnings from various quarters. Even WeWork’s founder, Adam Neumann, had raised concerns about the aggressive approach encouraged by Son.
SoftBank’s Rescue Efforts
Even after WeWork had to abandon its planned IPO in 2019, SoftBank came to the company’s rescue with a $9.5 billion package. Son presented a “hypothetical” path to profitability for WeWork, defending his decision to invest further. However, these efforts failed to salvage the situation.
Magnified Impact
The consequences of Son’s obsession with WeWork and other startups were amplified by the initial $60 billion commitment from the Saudi and Abu Dhabi wealth funds to the first Vision Fund. Son’s push for rapid scaling and inflated valuations forced startups to match his big checks, resulting in a bubble that eventually burst. Kirk Boodry, an analyst at Astris Advisory, highlights the significance of the massive cash infusion in creating a high-valuation bubble that led to the eventual crash.
SoftBank’s Struggles
Despite a potential profit in the September quarter for SoftBank’s Vision Fund segment, the fund’s overall performance remains lacklustre. SoftBank has suffered significant losses on investments in companies like Didi Global Inc., Katerra Inc., OneWeb Ltd., and Zume Pizza Inc., some of which have filed for bankruptcy or ceased operations.
Reassessing Investment Strategy
The mounting losses have forced Son to adopt a more cautious approach. He significantly reduced investment activity, cut Vision Fund jobs, and implemented stricter due diligence. Son has also stepped back from leading earnings calls, signalling a more cautious approach.
Future Investment Prospects
The bankruptcy filing for WeWork marks a turning point for Vision Fund 1 and Vision Fund 2, as interest shifts to what Masayoshi Son will invest in next. The bankruptcy is seen as a necessary step to cap the downside, and Son now has the financial resources to explore new opportunities.
Unlikely Change in Son’s Investment Style
Despite the lessons learned from the WeWork debacle, experts like Damodaran wonder if Son’s investing style will undergo significant changes. Son, who owns roughly 30% of SoftBank, remains the ultimate decision-maker in the organization. His venture capitalist-like approach to late-stage investing has been described as “SoftBank on steroids” and is unlikely to change.
