Every once in a while, an organization implodes so fantastically that it's hard in retrospect to understand why another outcome once seemed possible. With every passing day, SoftBank -- which shook up the investing world with the largest investment fund ever pooled, then seemed to use its capital as a weapon -- looks to become one such operation.
The very newest development centers on the departure of Michael Ronen, a former Goldman Sachs banker who joined SoftBank in 2017 and became one of five U.S. managing partners at SoftBank's $100 billion Vision Fund, where he led the firm's transportation investments, including in Getaround, GM Cruise, Nuro and Park Jockey.
Ronen tells the Financial Times that he has been “negotiating the terms of my anticipated departure” in recent weeks, and the FT reported yesterday that his departure is tied directly to the failure of SoftBank to raise any outside investment for the company's second Vision Fund, though presumably at SoftBank's behest, that phrasing has since been altered slightly to read that Ronen's departure "comes as people close to the discussions said that SoftBank and Mr Son had failed to raise any outside investment for the company’s second Vision Fund."
The FT further reported that SoftBank is in discussions about SoftBank vice chairman Ron Fisher's future with the company. Fisher has been a part of SoftBank and a close advisor to SoftBank CEO Masayoshi Son since 1995.
SoftBank is denying that Fisher is "going anywhere." A source close to SoftBank further tells us Ronen is leaving to pursue other opportunities, though separate sources close to the situation confirm that SoftBank has not raised outside funding for its new Vision Fund. For more information, we've reached out to Ronen, who was once an Israeli air force intelligence analyst, as well as to the Vision Fund's press relations office.
Another of SoftBank's U.S. managing directors, David Thevenon, quietly resigned in October.
Michelle Horn, a former McKinsey partner who joined SoftBank as its chief people officer last year, has left the outfit, too, reports Business Insider.
It was in mid-summer last year that the first hints of trouble began to surface publicly. Son himself began seeding doubts when he announced in July that the Japanese conglomerate's second Vision Fund had reached $108 billion in capital commitments based on a series of memoranda of understandings.
It didn't take long for industry observers to start wondering whether the money was real. When we asked SoftBank why it was counting unrealized gains as profits in its first fund, for example, or whether investors in its first fund would accept SoftBank's plans to use proceeds from its first fund to invest capital in a second vehicle (mixing money from different funds is not kosher in the world of VC), two spokespersons declined to answer our specific questions. Instead, we were pointed to an online presentation by Son on SoftBank's investor relations page that answered none of our queries.
Soon after, the WSJ reported that SoftBank planned to loan employees up to $20 billion so they could buy stakes in its second fund. Again, the news raised eyebrows. Yet it was only when the Financial Times reported that some executives were being encouraged to borrow more than 10 times their base salary -- and that some employees worried that opting out might hurt their career -- that the degree to which SoftBank was struggling became clearer.
Even still, few could have anticipated the speed with which the crown jewel of SoftBank's first Vision Fund -- WeWork -- would fall apart as an investment. Though the co-working giant was thought wildly overvalued by many in both the real estate and tech industries, it was difficult to imagine a scenario in which SoftBank -- to rescue its more than $18 billion investment in WeWork -- would pay so richly to get rid of its founding CEO, scuttle its IPO plans, then try to run the company itself.
As it happens, those who've worked with Son in the past seem least surprised by what's happening now. Last fall, a former associate didn't mince words when it came to Son, telling us, not for attribution, "If you are dumb enough to hand your wallet to him, he's a genius at making money on his own terms for him and by extension, I guess, a small circle of shareholders and advisers. But if you [disagree with him in way], you are chum."
Another source described the first Vision Fund, which relied heavily on debt and promised its providers an annual coupon of 7%, as "akin to a check-kiting scheme, where you hope someone isn't cashing that check at the bank before you've spent the money and earned more and can put it back."
Son has "parasitized Japanese banks," added this person. Certainly, there's greater hesitation to continue supporting SoftBank's ambitions, according to the Nikkei Asian Review. It reported in November that while SoftBank was in talks to raise billions of dollars more from Japanese banks, they were nervous about taking on more risk having lent so much money to SoftBank already.
Meanwhile, the first Vision Fund's biggest backers -- Saudi Arabia and Abu Dhabi -- which represented $45 billion and $15 billion of its capital commitments, respectively -- have become concerned about the perception of pouring any more money into SoftBank funds following "flops from the first Vision Fund," reports the FT.
It's a very different picture than one drawn by Vision Fund investor Carolina Brochado, who we interviewed onstage in December, and who was asked whether WeWork and other challenges would change either the scope or the mandate of the Vision Fund in 2020.
At the time, just two months ago, she suggested it would not. "The mission of investing in great teams, in mission-driven companies that are changing the way people live, will not change . . . SoftBank and Masa himself are very long-term thinkers, and hopefully, the message that founders took away from WeWork and the way SoftBank behaved after the IPO didn’t go forward is that we really will work with founders for a long time, and we will hold stock in the public markets, because we believe that this is a 10-, 20-, 100-year vision."
Brochado, who joined SoftBank a year ago from Atomico, added at the time: "[T]he Vision Fund is two years old. And people sometimes forget that. So I think there’s a lot of learnings. There is definitely going to be a way forward. And the mission will remain the same."
And yet the mission may be too challenged in the short term to be a viable one. In addition to WeWork, SoftBank hasn't seen the return it was expecting from Uber, whose market cap is currently $65 billion. (It invested in the company when it was still privately held at a $49 billion valuation, buying up a little more than 16% of the company's shares.) SoftBank parted ways in December with the dog-walking company Wag, into which it had poured $300 million just two years earlier.
Oyo, a SoftBank-backed, India-based startup with ambitions to become the world's largest hotel chain, is also part of a "bubble that will burst," according to a former operations manager at the company who talked earlier this month with The New York Times.
Yet another problem for Son: his high-profile wager on Sprint, the nation’s fourth-largest wireless provider, which he needs desperately to merge with T-Mobile, but which is stuck in a kind of limbo, sued by 13 state attorneys general and the District of Columbia over concerns that the merger would hurt competition and raise prices for users’ cell service.
All have led to a growing number of questions over the deal-making prowess of Son, who is the ultimate arbiter of all deals that SoftBank funds.
As another U.S. managing director, Jeff Housenbold, explained to us at a 2018 event we'd hosted, "Masa meets every single entrepreneur who we invest in, which is phenomenal because he’s brilliant . . . he has amazing pattern recognition. But what’s really amazing is, he’s fearless. He’ll sit with an entrepreneur and go, ‘I really love that concept. Have you thought about what if we remove barriers?’ Or, ‘What if capital wasn’t a restriction?’ " Housenbold continued, "If Masa says, 'Yes, I’m intrigued, move forward,’ then we go to our formal investment committee to do confirmatory due diligence, then we close the deal."
Now those questions about his processes look to grow louder with Ronen's departure. In fact, they might become deafening if not for SoftBank's 25% stake in Alibaba, whose market cap has reached $600 billion. It was Son's discerning $20 million bet on the Chinese conglomerate that began earning him accolades as a visionary.
For now, at least, it's looking like an outlier in a sea of other decisions that have put his reputation to the test.
Update: The FT has altered its original report slightly to dampen the reported correlation beween Ronen's departure and the Vision Fund's efforts to raise outside funding for a second fund; this is reflected in the current version of our own story.