January 8, 2019 / 12:33 PM / 4 months ago

Breakingviews - SoftBank-WeWork mess exposes cracks in Vision Fund

Japan's SoftBank Group Corp Chief Executive Masayoshi Son attends a news conference in Tokyo, Japan, November 5, 2018. REUTERS/Kim Kyung-Hoon.

LONDON (Reuters Breakingviews) - Cracks are showing in the $97 billion Vision Fund. That undermines the idea of SoftBank boss Masayoshi Son as a tech sage, and makes life harder for his dealmakers.

SoftBank was last year mulling a $16 billion investment in WeWork, which was supposed to include cash from the Vision Fund. That has now shrunk to a solo $2 billion investment by the Japanese parent, Reuters reported on Jan. 7. Vision Fund backers including sovereign wealth funds from Saudi Arabia and Abu Dhabi balked at pouring so much cash into the loss-making provider of office space, according to reports by the Financial Times and Wall Street Journal.

The hiccup is mostly a function of the Vision Fund’s unusual structure. Typical venture-capital investors secure a “blind” commitment from their backers, who are known as limited partners or LPs; those putting up the cash only find out where it’s gone after the fact. Masa’s Saudi and Emirati LPs, however, are involved in the deal review process, according to a person familiar with the matter. At least one LP employee has even been seconded to the fund.

That’s fair enough, since together the Saudi and Emirati backers are providing more than half the Vision Fund’s firepower – a far greater proportion that most venture or private-equity LPs. But the apparent power to veto decisions undermines the whole premise of the fund: that Son is a tech visionary capable of spotting the next Alibaba. If that’s true, why doubt him on one of the fund’s biggest investment proposals?

The divisions also augur poorly for the fund’s future. First, it makes life harder for Son’s dealmakers working under Rajeev Misra, head of the London-based company managing the Vision Fund. Startup founders could reasonably ask whether the dealmaker they’re negotiating with has the authority to close the deal given the power of Misra and Son’s LPs. Second, Son’s long-term plan for a second Vision Fund looks more remote. It was already tricky given the Saudi government’s alleged involvement in the murder of journalist Jamal Khashoggi. Add to that an apparent squabble over tech investment ideas, and for Son siding with the Saudis again might look less appealing.

Breakingviews

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