PHOTO: KIYOSHI OTA/BLOOMBERG
51inIndia.Andabout$40billionoftheVisionFundcon-
sistsofpreferredstockthatpaysoutsideinvestors7%in
guaranteedinterestannuallyontheircommittedcapital,
leavingSoftBankonthehookif thefund’sbetsdon’tpan
out.SoftBank’sown$28billioncommitmentis entirely
equity,givingit bothmorepotentialupsideandmore
potentialdownside.“Thefundwasdesignedformore
profitif everythinggoeswell,butif thingsgosouthit’s
horrible,”saysa formerexecutivewholeftaftergrow-
ingwaryofthecompany’sposition.
Anothersourceofconcernis OravelStaysPvt.Ltd.,bet-
terknownasOyo,anIndianstartupfoundedsixyearsago
byRiteshAgarwal,then19,tobringordertothecountry’s
anarchiclodgingsindustry.Oyoofferedsmall,regional
hoteliersstandardizedfurniture,bedding,andguaran-
teedroombookingsfora 25%cutofsales.TheVisionFund
invested$250millionin 2017 andanadditional$1billion
infusionin2018,pushingOyo’svaluationto$5billion.
Truetoform,SonpushedAgarwaltoexpand,movinginto
ChinaandtheU.S.,whichhaveentrenchedandless-frag-
mentedhospitalityindustries.Oyoevenboughta few
propertiesoutright,includingtheHootersCasinoHotel
inLasVegas,hangingitsredsignsinamarketwherethey
wereentirelyunfamiliartopotentialguests.
SoftBank’sinvestmentinOyoalsodemonstratesan
accountingpracticethatworriesinvestors.Whenthe
fundtakesa stakeina startup,theninvestsagainata
highervaluation,it oftenbooksa profitonitsoriginal
holding.Thisislegal,eventhoughnoactualcashhas
flowedintoitscoffers.MuchoftheVisionFund’sprofit
inthesecondquarterof2019,forexample,wasonpaper,
theresultofvaluationspikesforOyo,DoorDash,and
communicationsappmakerSlackTechnologies.“Itmay
passtheaccountingstandardstest,butit doesn’tpassthe
commonsensetest,”saysAswathDamodaran,a profes-
soroffinanceattheNewYorkUniversitySternSchoolof
Businessandauthoroffourbooksonvaluingbusinesses.
InOctober,AgarwalandtheVisionFundplowed
anadditional$1.5billionintoOyo,doublingthecom-
pany’svaluation,to$10billion,inthespanofa single
year.Agarwal,now26,financedhispurchasebybor-
rowingmoneyfromfinancialinstitutionsincluding
Japan’sMizuhoBank,andSonpersonallyguaranteed
the loans, according to people familiar with the deal.
Neither the loans nor the guarantee were disclosed to
SoftBank shareholders. Two other SoftBank compa-
nies, Grab and Didi, had also invested in Oyo. In other
words, SoftBank companies and founders were investing
in other SoftBank companies, at times with debt backedbySoftBank.Govil,theCFO,notesthatSoftBankdidn’t
marka profitfromWeWork’svaluationcommensurate
withits$47billionvaluation,andsimilarlydidn’tbook
a profitonOyotomatchitsvaluationrisingto$10bil-
lion.EricSchiffer,CEOofPatriarchOrganization,a pri-
vateequityfundinLosAngeles,deridesthesefinancial
maneuversas“unicornporn.”
SoftBankexecutivessaytheyhavea rigorousprocess
forsettingvaluationsandthatthevaluesaredetermined
inconjunctionwithothersophisticated,independent
investors,includingSequoiaCapitalandToyotaMotor
Corp.,andvettedbyauditorssuchasDeloitte& Touche.
Govilsays,“Ourvaluationshavebeenvalidatedbymore
than 120 sophisticatedinvestorswhohaveinvestedalong-
sideandafterus.Morebroadly,ourinvestinghashelped
createthousandsofjobsandspurglobalgrowth.”
Masahasbeenconveninghistoppeopletodiscussthe
company’smissteps.Onesuchmeeting,atSon’sWoodside
compound,featureda tastingsessionwithlettuceandkale
fromPlenty,a SoftBank-backedvertical farming startup.
The produce was judged on “flavor notes and mouthfeel
and finish,” says one managing partner who attended.
Misra seems more than ready for the fund to move on.
At SoftBank’s offices in San Carlos, Calif., he talks up the
$9.9 billion the Vision Fund has already returned to its
investors, as well as the billions of dollars of public stock
on its books. He points out that in two years, the Vision
Fund has had eight IPOs and two acquisitions of its port-
folio companies, and says it has $11.4 billion in cumula-
tive investment gains. And it’s not as if its deep-pocketed
investors—the Saudis, Apple, Foxconn, SoftBank itself—
need their funds repaid anytime soon. “All great news for
a fund that’s only 2½ years old,” Misra says between vapes.
There will be even better opportunities to invest in the
coming year, he predicts, what with the oceanic opportu-
nities for disruption being ushered in by AI. That’s why
his team is assembling Vision Fund 2. They hope the
Saudis are in again, along with the Mubadala Investment
Co. of Abu Dhabi. None of Son’s people will say exactly
how big 2 will be, but they’ve hinted it could be every
bit as big as 1. <BW> ——With Ian KingBloomberg Businessweek December 23, 2019“He didn’t listen to the people who were pushing back”