SoftBank Vision Fund CFO Cautions Many Recent Investments Are Going to Fail

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Navneet Govil talks about recent losses in China, crypto and technology investor

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Businesshala: You are hosting a summit for the CFOs of your portfolio companies. Why?

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Mr. Govil: For us, it is very simple. We have invested in these companies. We want them to be successful. there are all kinds of things [CFOs] Can talk about: What general ledger system are you using? What will the road show look like? What kind of controls should you have before going public? They can have such candid conversations.

Businesshala: Your portfolio companies are rapidly going public, many of them through traditional initial public offerings or through mergers with special purpose acquisition companies. Indian payments firm Paytm listed this week, with shares falling over 20% on the first day of trading. Is this the problem?

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Mr. Govil: Stock is down, but we’ve met long ago, at low valuations. We invested in them three or four years ago, so that’s fine. Evaluation [in the Indian market] are very creative.

Businesshala: Grab Holdings Inc., the ride-hailing, food-delivery and digital-wallet conglomerate still working on a $40 billion SPAC-merger, announced this spring that some financial documents were missing.

Mr. Govil: It is going to happen before the end of this calendar year. it’s a lot [Securities and Exchange Commission] Modifying stuff, financials, which is all good. Lots of SPAC [combinations] What used to happen before is happening now or will happen after a while.

Businesshala: Will the increased scrutiny of SEC warrants impact your investments?

Mr. Govil: We have three SPACs and two have no warrant. We are not here to make money through warrants. We’ve already capitalized on those SPACs and it’s going to close for a year or two. We are long term investors. The first fund is of 12 to 14 years. We have 15 years left in our second fund. If you look at any of our investments in companies that have gone public, we haven’t pulled out of them completely. We’ll let the company go public, you’ll have a lockup period and then we’ll monetize over time.

Businesshala: Is SoftBank a priority for how its portfolio companies go public?

Mr. Govil: We don’t care whether they want to do a SPAC, a direct listing or an IPO, whenever the time is ready.

Businesshala: You invested $14 billion in 67 companies last quarter. Do you see this momentum continuing?

Mr. Govil: For [Vision] Fund II, our average investment size is $100 million to $200 million. The idea is to arrive early when these companies have a proven business model. They have real revenue, are growing and they are either profitable or have a path to profitability. We think it’s a comfortable pace, maybe a little up and down. Instead of 67, maybe it’s 50 or 70 for a quarter and instead of $14 billion, it’s $8 billion to $10 billion.

Businesshala: How sure are you that these 67 investments will pay off?

Mr. Govil: All these companies are not going to become Doordarshan Inc.

[a food delivery company that surged in value when it went public], A lot of them are going to fail. That’s okay, because it wasn’t a multi-billion dollar investment that you lost. It gives us a chance to come early and [for] Those who do well, we can double again.

Businesshala: Valuations are high now. Do you see the risk of a market correction?

Mr. Govil: We are long term investors. Yes, we may be in a bubble. There could be a significant correction in the market.

Businesshala: How about China? Your Chinese investments have declined in the recent quarter. What does this mean for future investments?

Mr. Govil: We have to allow the regulatory environment to settle down. If you look at what’s happened recently, whether it’s edtech or didi, [there is] sensitivity [around] consumer data. So for now we are staying away from some such companies.

Businesshala: For how long?

Mr. Govil: It will take some time. We are not talking about decades and we are not talking about months. It is somewhere between one to two years.

Businesshala: Do you see increasing competition from Tiger Global and other foreign investors to invest in private companies?

Mr. Govil: It’s great to see these others coming now. We think this is a validation of our investment thesis.

Businesshala: Does competition from other investors affect your due diligence?

Mr. Govil: Today we have an organization of 400 people. We have our compliance team, we have our legal team, we have our financial due diligence team, we have our investment team. There are absolutely no shortcuts in the process.

Businesshala: You lost billions of dollars last quarter.

Mr. Govil: When you have $70 billion of public positions, there’s going to be volatility. Last quarter, we were down from $9 billion. In any given quarter, we could be from $5 billion to $10 billion or $5 billion to $10 billion. On a cumulative basis, we are doing well. We are continuing to return more and more capital. We are selling our public positions in a very disciplined manner.[With] Sister, we are currently in a lockup period, but we believe there is significant intrinsic value out there. We are not going to sell at these levels.

Businesshala: Some investors are worried about your performance.

Mr. Govil: Three years ago people used to criticize us. “We don’t know what’s going on at the Vision Fund. It’s a black box.” Today, if you look at our overall portfolio for Fund I, 54% is either public or has exited, and a year ago, only 28% of the portfolio was public or exited. So it is good for investors.

Businesshala: How do you view investing in crypto companies, given the uncertainty about what future regulation might look like?

We believe crypto is here to stay. We don’t know who the winners will be and whether [regulations] Will happen. It’s hard to value cryptocurrency. We have no financial model that says, this is the true value for crypto. But we believe that infrastructure is important. That’s why we are investing in companies that are providing the infrastructure for crypto.

Businesshala: You mentioned Vision Fund II, which is funded only by SoftBank. Do you expect outside investors to get involved over time?

Mr. Govil: Others have expressed interest, but at this point, SoftBank has substantial capital. There is no pressure to raise capital from outside. When you have two funds and so many companies going public, you reach a point where you can effectively recycle.

Businesshala: Coming back to regulation, what are your thoughts on the pending acquisition of the British chip-designer arm by Nvidia Corporation

, What if the deal doesn’t happen?

Mr. Govil: I refuse to comment.

Nina Trentmann at Nina [email protected]


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