Is this uncommon? E.g. I don't have any inside information as to what went on with the Coinbase acquisition of Earn.com, but from an outsider perspective it certainly looks like:
1) A16Z invests tens of millions of dollars in Earn.com, which fails.
2) A16Z has their other portfolio company Coinbase buy Earn.com to shift some of their profits from Coinbase back into their earlier fund. (Which as far as I can tell is not only completely useless to Coinbase, but is also a huge legal liability.)
3) A16Z uses the "success" of their fund with Earn.com to raise more money.
4) A16Z then compensates Coinbase by investing in them at a higher paper valuation.
I could easily be 100% off base so I don't want to libel anyone, all I'm saying is that that's just what it looks like as someone who wasn't privy to the actual details.
> https://news.ycombinator.com/item?id=3684357
Altman went on to become YC President, and has publicly toyed with the idea of running for Governor. Graham has even insinuated that Altman should be PotUS
e.g. by investment round:
A: $1m for a $10m valuation
B: $5m for a $40m valuation
C: $12m for a $100m valuation
At any rate, the devil is very much in the details.
It used to be that you could make a pretty penny soaking the lower classes directly with things like MLMs. But as their wealth was hollowed out by globalization and the Great Recession, you have to shift your predation upward to things like their pension funds, sovereign wealth, etc. While the people managing these resources can sometimes be more savvy than your average sucker signing up to a pyramid scheme, it’s very easy to pull one over on them with stories about “technological innovation” (counter to logic or evidence of profitability) because this is the grand, wishful story of our era.
A variation on this theme, and this has basically been Matt Levine's take on SoftBank if I'm not mistaken: SoftBank, and Adam Neumann in turn, each spotted an opportunity for pyramid schemes at a higher tier of the food chain that hadn't previously been fully exploited. And they exploited it. Perhaps even unwittingly. They were incentivized by the market.
From Levine's 10/23 column:
Look, here I am speculating, and I don’t mean to speak for Neumann’s subjective experience of his WeWork career, but from the outside, in hindsight, objectively, one could describe it like this: He spotted a bubble in venture-subsidized fast-growing money-losing capital-intensive low-margin tech-adjacent companies, noticed in particular that SoftBank seemed to be on the long side of that bubble, and set himself up to profit on the other side—by raising money for his own ultra-unicorn, by setting up the governance of that unicorn in a maximally self-interested way, and by selling and margining a bunch of his personal shares. When investors like SoftBank were frenziedly buying unicorn stock, he was frenziedly selling it. He set himself up to profit from the collapse of the unicorn bubble, and accelerated that collapse. Lessons were learned, and he taught them. Now he’s rich.
I mean, if you're going all-in on the future where is the biotech, pharmacology and the robots? It's not just softbank that to me looks fishy, the entire industry looks like it has drunk its own kool-aid.
The Vision Fund has invested billions into robotics companies. Cruise is making self-driving cars. Nuro is making autonomous delivery bots. Zume is supposedly automating pizza (I say supposedly because they do have a robot for making pizza, but their valuation is almost entirely "justified" by a patent to cook food in a moving vehicle - yes really).
Granted, I think the way they invested in these companies still has all of the financial shenanigans of their investments and they really aren't long-term plays - but they are putting more money into robotics than just about anyone. That said, I don't think it's going to bear fruit.
Also known as a food truck.
- Softbank "now responsible for more than half of all corporate and financial debt issuance" in Japan [1]
- Softbank's own bond data [2]
- Seeking Alpha's review of SB's bond [3]
[1] https://www.ft.com/content/24c4a8a8-7885-11e9-bbad-7c18c0ea0...
[2] https://group.softbank/en/corp/irinfo/stock/bond/
[3] https://seekingalpha.com/article/4308627-forget-uber-wework-...
If Uber and WeWork both go to zero, how big a hit is that?
I think if both of those went under it looks extremely bad but SoftBank Group gets a dividend from the SoftBank Corp (telecom) that has enough dependable operating income that should be good for servicing debt. Additionally, SoftBank Group is still trading at a discount to its BABA stake + everything else.
There definitely is an increasing chance of a perfect storm where multiple bad things happen that could quickly evaporate this whole thing:
- China gets worse domestically with or without trade war ratcheting up and BABA is collateral damage
- S/TMUS merger fails from domestic regulatory pressure (just had TX and NV AGs settle but other states are not on board still)
- UBER, WEWORK, and others (Oyo?) get dragged and there are some feedback loops on other portfolio companies
- Funding pressures. There was an article on FT about domestic banks being skeptical on lending more to SOFTBK. Stuff like that becomes a self-fulfilling prophecy after a while and can quickly spiral out of control. That said, SOFTBK has something like 20bn cash on hand so that should only really become a problem if there's prolonged weakness.
- Vision Fund 2 more than likely not going to be able to raise its envisioned amount. Obviously no one wants to touch this right now. I think there's definitely been internal discussions on how some of this $ would be used to bail out VF1 portfolio companies through acquisitions. Additionally, if I had to make a forecast, there's not enough companies out there right now that could absorb $100bn of VC money and be able to profitably exit.
I think the biggest problem going on right now is that all of these companies were built upon endlessly flowing capital and business models were based on that. Now that everyone is focused on "profitability", I'm not sure if you can easily pivot some of these business models without completely imploding businesses. None of these companies have created anything that consumers cannot live without. VC-subsidized luxuries brought to the masses can have a very fleeting existence; people got around before UBER. If any of these companies ever try to raise prices in an attempt to display profitability, they could be in a rude awakening for ECON101 price elasticity/inelasticity lesson.
The Japanese economy sounds like a dystopian Capitalist hellhole to me. I'm hoping I'm just wrong about everything, and it's actually fine.
Softbank cannot borrow directly from the BoJ because it is not an actual bank. However, they recently issued bonds at a 1.38% rate: https://economictimes.indiatimes.com/markets/bonds/gone-in-1...
Welcome to NIRP.
Thankfully, Softbank's internal exposure to the Vision Fund is quite limited. Also, they have a sizeable liquid stake in Alibaba worth $100 billion they can unwind if they start needing cash. I don't think retail SoftBank investors are in imminent danger, but I do think the BoJ eating up so much liquidity in sovs is pretty crazy.
Are you sure? I just Googled 'The Master Trust Bank of Japan Ltd.' (the only listed shareholder with 9.78% ownership) and it seems to be owned by Mitsubishi Trust Bank and a bunch of other banks, and nothing to do with the BoJ...
So like a bunch of fingers in this pie. A good or a bad thing depending on your perspective.
https://www.mastertrust.co.jp/
I don't know much about them but from a brief look they look comparable to BNY Mellon.
After WW2 the US occupational forces were going to dismantle the giant corporate groups (Kerietsu) but decided to keep them in place to strengthen Japan as a counterbalance to North Korea.
Despite this, the links weakened over time. While there are cases like the ones with SoftBank, this isn’t a new phenomenon.
And before we judge the system too harshly, in 30 years Japan went from a post-nuclear dystopia to a first world economy. It’s managed to keep the economy moving despite an aging population and very low birth rates. There are lots of “But X...” though it’s still a fascinating economy.
Can you imagine if the SV bubble was held to the same expectations as real world companies? Half of the Bay Area would curl up and blow away overnight.
It looks to me as if companies that seem to have no credible business plan are already starting to be punished. I don't doubt that scrutiny will probably increase further and people should probably think harder about joining startups that don't seem to have a path to profitability.
But I expect something like a major downturn in ad tech would have a much greater impact than some will-never-be-profitable startups circling the drain.
They started with YzerProperty(2014 or so). Then YzerMotors (2016). Now YzerChat. These startups all involves billionaires from Dubai. Btw YzerProperty and Motors do not exist anymore.
Smart Slumlord™ junk rated deals in preparation for its Softbank Fire Sale: "SoftBank will utilize its technology deployment insights to introduce advanced technologies to shopping malls and other commercial facilities, hospitals, and the entire Lippo Village area," Hidebumi Kitahara, SoftBank's vice president and head of global business strategy, said at a signing ceremony. "Through this, we aim to develop Lippo Village as a smart city model case in Southeast Asia."[0]
[0] https://asia.nikkei.com/Business/Business-deals/SoftBank-and...
Additionally, corporate management theoretically exercise due diligence, along with the valuation committees and the board looking into the reasonableness of the models and associated inputs and outputs. It would be awkward to say that these valuations are wrong with so many people having their inputs.
Financial manipulation is the art of getting everybody confused between stocks and flows. As long as the flow continues, the employees of SoftBank get paid, and get bonuses, and everybody keeps dancing around the floor. (Granted the latest proposal there, which is to make them all take out loans of up to 15x their salary to provide the capital for Softbank 2.0 may interfere with that.)
and then, one day, the music stops, and there aren't any chairs to sit on, at all...
What would the signs be, sights seen or sounds heard just before the music stops?
The purpose of external consultant is to guess what client is expecting from you and deliver exactly that. Usually the management requires a stack of papers to cover their asses in case of risky deal, sometimes to get an argument in some internal struggle. They never expect objective truth or independent thinking.
There is no conspiracy here just the market forces at work. Imagine what happens to consultancies who do not deliver..
There isn’t a theoretical foundation for valuing lossmaking companies.
The best we can do is project forward to a cash-flow producing state, where there is good theory, and then discount that value to the present. The projection is essentially guesswork, making homework-checking by valuation consultants somewhat useless.
The only real check is other investors participating. That happened with some of Softbank’s investments, but not with others. (Adding fuel to the fire is Softbank’s habit of shutting down the secondary markets around companies it invests in.)
Valuation depends on estimates of the firm's future revenue growth, predictions about the business climate, etc. That's what investment analysts do, using the audited financial statements as a basis for developing scenarios for the future.
You managed to figure it out before even hitting the end of the sentence in which you posed the question.
Money works kind of like particle physics. Once you start to operate on a fundamentally different scale, basic laws of nature start to change.
You mean the way Big Five accounting firm Arthur Andersen signed off on Enron's shenanigans?
Combine that with the fact that those auditing/consulting firms are being paid by SoftBank and you can see a strong incentive for them to side with SoftBank's valuation strategy.
I'm sure the risk management people in the Big-4 are looking at this but I'd also guess there's quite a lot of pressure to let it ride, as I'm sure work from SoftBank + it's group companies is worth a lot of money.
It's been the case in many previous collapses, that the auditors signed off on the companies, sometimes quite close to the date they collapsed, and that wasn't even where there is a lot of ambiguity as there is here.
All this isn't to say that the valuations are necessarily otf, but that I can see the incentives that might lead to companies accepting them.
They are also drinking the same Kool-Aid as most other people in the industry, that all this is above board and fine. There's a lot of group-thinking, and not as much objective analysis as is needed.
The blindness extends to management and the board, who all want the company to be successful. Good financial numbers are questioned a lot less than bad ones.
Not if they accept the same culture of growth that enables this in the first place—it’s certainly still speculation, not a science. I would love to see the justification behind the $47B valuation.
It becomes tricky when he mixes Vision Fund business with SoftBank business.
The valuation range for that was comical with it being anywhere from slightly under $1 Trillion USD to $2 Trillion USD depending on who you ask. I mean you can use WeWorks as a scale for that sort of spread.
They raised 1.7 B, mostly from Softbank, and are now getting in the vacation rentals space in Europe.
Their approach is unclear. I spoke to their representatives and it seems unclear for them too.
Nothing seems to make sense in what they are doing in this vertical.
The only logical explanation seems that they are trying raise the valuation of the brand.
It could be the next WeWork.
Trying to invest the rest of the Vision Fund v1, so that he can raise Vision Fund v2.
[1] (from Wikipedia) Chamath Palihapitiya an is a venture capitalist and the founder and CEO of Social Capital. Palihapitiya was an early senior executive at Facebook, joining the company in 2007 and leaving in 2011. He is a minority stakeholder and board member of the Golden State Warriors.
The interesting point though is that this is basically all being done using money that private investors have given, so really there's no public accountability or outrage. The question is whether the investors in the vision fund start asking to open the books and check the valuations themselves. If they don't then this will just continue until Masayoshi finds a way of getting his hands on and even bigger pile of money in order to continue to cover up the dodgy valuations - because that's what you'd have to do right? You'd have to do another massive fund to have enough cash to continue driving up these valuations? You would want another massive fund raised quickly before the existing investments start fallling apart.
I wonder what Masayoshi is doing these days.