TOKYO (BLOOMBERG) - Mr Masayoshi Son has sharply accelerated the pace of his start-up investments this year, quintupling the number of companies in his Vision Fund 2 portfolio in less than nine months.
The founder of SoftBank Group has cut 115 deals this year, according to Bloomberg calculations based on data released by the company. That is more than the combined number of deals the first Vision Fund made since its start in 2017, showing that Mr Son remains confident in his investing capability despite blunders with office-sharing service WeWork and financier Greensill.
The faster pace of deal-making is sure to raise questions about whether Mr Son is risking similar missteps, especially as a string of high-profile departures depletes top talent at the Vision Fund.
Seven managing partners have left since March last year, and last week, Mr Deep Nishar, the sole senior managing partner and leading authority on artificial intelligence (AI), said he would depart by the end of the year.
"Vision Fund's track record was not great to begin with and now, they are doing more with fewer people," said Asymmetric Advisors senior strategist Amir Anvarzadeh, who recommends shorting SoftBank's stock.
"Potential failure rates are bound to be higher, but you can imagine Son just throwing caution to the wind and playing the percentages."
The total headcount at SoftBank Investment Advisers, which oversees both Vision funds, has shrunk from about 500 people early last year to about 400 now, according to a person familiar with the matter.
Several senior people who departed grew frustrated with Mr Son's overriding influence, which left them with little real authority, people familiar with the matter said.
The Vision Fund's compensation structure also caused tension, with executives limited in their ability to profit from successful start-ups they introduced to Mr Son, the people said.
A spokesman for the Vision Fund declined to comment on the story. SoftBank's shares, which are down about 40 per cent from their March peak, fell as much as 3.3 per cent in Tokyo on Monday (Oct 4).
The personnel cuts last year focused on reducing Vision Fund's support and back-office staff, according to a different person familiar with the matter. The organisation has also hired three managing partners since last March and has added 40 other investors since the start of April for a total of 145, the person said, asking not to be identified because the details are private.
SoftBank is stepping up investments just as venture capital activity is reaching a fever pitch. Funding for start-ups reached a global record of US$156 billion (S$211.7 billion) in the second quarter, according to CB Insights.
Mr Son, meanwhile, increased the amount of money allocated to Vision Fund 2 from US$10 billion at the start of the year to US$40 billion in June. The billionaire also plans invest up to US$2.6 billion of his own money in the fund.
"One concern is that there is a lot of competition from other investors and valuations already feel inflated, which means smaller returns for SoftBank down the road," said Redex Research analyst Kirk Boodry.
"Another worry is about their decision-making process. When you invest in 30 or 40 companies in such a narrow timeframe, due diligence is bound to suffer."
SoftBank is speeding up in part because of the growing competition from venture capital firms, one of the people said. The company used to take as long as a month to make investment decisions, hiring big consulting firms like McKinsey & Co, Bain & Co and Boston Consulting Group to help with due diligence, the person said.
Now, SoftBank has two weeks at most and typically does less due diligence, reflecting the smaller size of the deals. On multiple occasions, founders have demanded an answer the following day, prompting SoftBank to call an emergency gathering of its investment committee, the person said.
Mr Son is making much smaller bets on any particular company. The Vision Fund 2's average funding round is about US$330 million or roughly half the average size of the first Vision Fund's investments, according to Bloomberg calculations based on data from Crunchbase.
The first fund's deals often ran into the billions - more than US$10 billion in Didi Chuxing, US$7.7 billion in Uber Technologies and US$4.4 billion in WeWork. Vision Fund 2 has made only three investments over US$1 billion, including a US$1.3 billion bet on China's KE Holdings, which runs the Beike online property service.
In addition to the two Vision funds, SoftBank set up a US$5 billion Latin America Fund that has invested in 48 companies since its creation in March 2019. Mr Son earlier this month boosted the capital dedicated to the region by another US$3 billion.
At the latest earnings briefing in August, Mr Son said that SoftBank's portfolio totalled more than 300 companies across the three different funds. The investment strategy remains the same, he said, backing start-ups that rely on AI to disrupt traditional businesses.
"I sincerely believe that AI will revolutionise all industries," Mr Son said at an earnings briefing in August. "As an investor in this revolutionary space in the past four years, we are taking a full swing."
SoftBank started building up its Vision Fund staff when Mr Son planned to raise a new mammoth fund every few years. He originally aimed to raise US$108 billion for Vision Fund 2 from outside investors that included Apple and Microsoft. Those plans collapsed after the meltdown at WeWork in late 2019.
Vision Fund 2 is still by far the world's biggest venture capital actively investing. The fund has already spent US$19.5 billion as at the end of June, about half of its allotted capital. That is more than the US$19.2 billion Sequoia Capital raised over 30 different funds and $18.2 billion among Andreessen Horowitz's 20 funds, according to Crunchbase data. Tiger Global Management, the closest rival, raised a total of US$23.4 billion over eight funds.
While the first fund was heavily weighted towards the ride-hailing and office-sharing sectors, Vision Fund 2 has backed a broader spectrum of companies. In its private company portfolio, consumer start-ups accounted for 22 per cent of its investments as at the end of June, with enterprise and logistics segments receiving about 20 per cent each. Fintech, which got little attention from the first Vision Fund, had a 16 per cent share.
"It's hard to imagine that (Son's) methodology has changed that much. And his affinity for entrepreneurs is something that has always worried investors," said Mr Boodry. "The hope is that the Vision Fund is more seasoned now and that they can gate themselves from that."