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SoftBank’s single-quarter deals hit record low as startup financing tightens

SoftBank’s latest venture capital investments hit a record low last quarter as market valuations continued to decline, adding to the startup winter, according to reports.

SoftBank, the world’s largest technology investor, had invested in more than 90 startups in a single quarter, participating in $30 billion worth of financing (currently about RMB 203.4 billion). But in the three months to December, the firm made only eight investments, corresponding to a total of $2.1 billion (currently about RMB 14.238 billion) in financing, according to the data. This is the first time since SoftBank launched its Vision Fund that the number of investments in a single quarter has dropped to single digits.

Softbank

In the quarter just ended, the Vision Fund actually invested less than $350 million (currently about RMB 2.373 billion) in startups, people familiar with the matter said. In the past 5.5 years, Vision has invested more than $144 billion (currently about RMB 976.32 billion), averaging more than $6 billion (currently about RMB 40.68 billion) per quarter.

Not coincidentally, big-name venture capital firms such as Tiger Global Fund, Sequoia Capital and Coto Capital have all tightened their pockets after suffering sharp pullbacks in 2022. As tech companies’ plummeting valuations led to fewer lucrative exit opportunities, investors with deep pockets pulled out, causing the multibillion-dollar financing that was commonplace in recent years to become a rare species.

“As all the players slow down, we’ll see fewer and fewer unicorns in the news. But I think this will be a healthy recovery period after the binge of the last 3 years.” said James Riney, CEO of Coral Capital. Global venture capital investment fell 37 percent last year to $527 billion (currently about RMB 3.57 trillion), according to Preqin.

The SoftBank Vision Fund has transformed the entire venture capital ecosystem. They have provided billions of dollars in funding to hundreds of startups, forcing other investors to follow in their footsteps. By bringing large amounts of low-interest money into the private market, SoftBank and its competitors have helped startups bypass the drawbacks of the public market while seeking to grow. Early-stage investors can wait for other investors to pick up the slack at a later stage for lucrative exit opportunities, driving up valuations in this opaque investment space.

But these big bets on startups have faded, dashing hopes of an overnight bonanza with a massive IPO. In fact, SoftBank’s performance has been lagging behind other venture capital firms recently, with one of its vision funds even insolvent.

Even after a year of shrinking valuations, investors are still worried about future shrinkage, and the uncertainty is hurting startups’ ability to raise new capital, forcing startups of all sizes to cut costs significantly. A recent survey of 450 early-stage startup founders in the U.S. and Europe shows that about 80 percent of them don’t have enough money to last another year, and late-stage startups are being forced to significantly reduce their valuations.

That means there could be a lot of startup M&A deals this year, as exit-pressured investors pressure entrepreneurs to sell their companies or stock to established players, as exemplified by Adobe’s $20 billion (currently about RMB 135.6 billion) acquisition of Figma.

SoftBank, which invested in the world’s most high-profile startup, also suffered a huge asset impairment that led to a big loss last year. The Vision Fund unit lost $7.2 billion in the September quarter and posted a record loss of $17 billion (currently about RMB 115.26 billion) in the June quarter.

SoftBank founder Masayoshi Son has pledged to take defensive measures if the market continues to weaken. But the company is unlikely to turn things around anytime soon. The company’s results are under further pressure due to the weakening dollar. Redex Research analyst Kirk Boodry said the Vision Fund unit could again post a loss as the weaker dollar offsets local currency gains.

Rather than continue to ramp up trading, SoftBank invested 532 billion yen ($4 billion) in share buybacks, pushing its shares up 15 percent in the quarter that ended Dec. 31. It was also the stock’s best-performing quarter in the past nearly 2 years.

While Vision Capital is unlikely to resume investing significantly in the near term, it could stockpile ammunition for the company’s investments later this year if it can push chip designer Arm to an IPO or complete an asset sale, Boudreau said. SoftBank spent about $32 billion (currently about RMB 216.96 billion) to acquire Arm.

But Masayoshi Sun is facing a still-weak IPO market. With little chance of a quick recovery, SoftBank executives said they are prepared to keep their investment efforts tightened for a few months if necessary.

“We have a pessimistic view of the market environment.” SoftBank CFO Yoshimitsu Goto (Yoshimitsu Goto) said in an earnings call last November, “but we are capable of surviving in such an environment for a long time. We will also be patient and wait for the right time.”

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