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SoftBank

SoftBank Vision Fund 2 cranks up investment to one company per day

Japan group's newer tech vehicle takes smaller stakes to mitigate risk

 Delivery trucks for e-commerce retailer Coupang leave a distribution centre in Seoul. Softbank's Vision 2 fund is a big investor in the company.   © Reuters

TOKYO -- SoftBank Group's second Vision Fund is going on an investment binge, adding on average one new startup target per day.

Vision Fund 2's investment plans cover a total of 129 companies as of June 18, the Japanese tech group's data shows, with 34 new targets added over the prior monthlong period.

Investments in 85 targets have been finalized, with another 44 companies approved by the investment committee. SoftBank's second Vision Fund looks set to surpass the 92 companies in the first fund's portfolio.

Vision Fund 2 doubled its investment allocation to $40 billion between the end of March and June 18, according to documents released during SoftBank's shareholders meeting June 23.

SoftBank sold off or cashed in roughly $50.6 billion worth of group assets over a year, exceeding the $41 billion target announced in March 2020. After share buybacks and debt payments, it appears the rest of the proceeds went back into fund investments.

The Vision Funds back unicorns engaging in artificial intelligence as well as other startups that could become worth $1 billion or more. The Japanese group scaled back investment activities in the wake of the coronavirus pandemic, but the company has gone back on the offensive.

The fast pace of recent acquisitions is driven partly by a recovery in the funds' earnings. The Vision Fund business booked more than 6.35 trillion yen ($57.4 billion) in net investment gains for the financial year ended in March. The listings of multiple targets, such as South Korean e-commerce giant Coupang, greatly added to the valuation profit.

Vision Fund 2 apparently takes to a different strategy than the first fund. The biggest change is the minimal size of the investments. As of the end of March, Vision Fund 1 spent an average of $931 million on each target. The Vision Fund 2, on the other hand, pumped $6.7 billion into 44 targets, for an average investment of just $152 million.

Vision Fund 1, launched in 2017, fell into financial difficulties primarily due to the implosion of WeWork, forcing SoftBank Group to bail out the shared-office startup. Afterward, the Japanese tech investor pledged to engage in no more rescue funding, even at the expense of business failures at a number of targets.

Early-stage funding in a startup always carries the risk that the target will go bankrupt. A smaller investment in a company will yield lower returns, but that approach mitigates the risk of losses.

SoftBank's wide name recognition has opened the doors to the speedy investing. During the first calendar quarter, the group boasted the second-longest list of unicorns in its holdings, according to U.S. analytics firm CB Insights.

Vision Fund 2 has conspicuously invested in health tech companies. Twelve of the fund's 44 portfolio companies at the end of March were in that field.

But the investment rush raises questions about whether SoftBank is too loose about risk management. Coupang's stock started to underperform about a month after its March float on the New York Stock Exchange. Other targets have suffered similar fates.

SoftBank looks to keep its foot on the gas pedal, but market conditions could push the group on to the defensive once again.

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