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Welcome back! SoftBank’s Vision Fund 2 has performed so terribly it seems like fiction. Yet SoftBank Group’s stock hit an all-time high on Tuesday. To followers of SoftBank founder Masayoshi Son, none of this is surprising. Once again, he’s pulling a rabbit out of a hat, finding a blockbuster investment that overpowers his string of losers. The investment is OpenAI, and its success is one reason SoftBank’s stock is soaring. The maker of ChatGPT is in talks with investors, including Thrive Capital, to lead an employee share sale at a $500 billion valuation—double the company’s most recent valuation. On paper, the new price tag would nearly double the value of the $9.7 billion that SoftBank has poured into OpenAI so far, helping erase a chunk of Vision Fund 2’s $22 billion investment losses. The fund took that stake using some financial gymnastics—and leverage—typical of SoftBank. The fund borrowed billions from SoftBank itself, which in turn borrowed billions from Japanese banks. SoftBank also borrowed billions from private lender Apollo for Vision Fund 2, which is in line to be repaid first. The bigger win for SoftBank would come from an additional $22.5 billion the company is expected to invest in OpenAI by the end of the year. SoftBank locked in that investment at a $260 billion valuation, pre-money, potentially making it profitable before SoftBank puts in money. (OpenAI needs to complete its conversion to a for-profit structure before receiving the full amount.) The OpenAI investment has raised questions about where SoftBank will hold that future $22.5 billion stake—in Vision Fund 2, whose shareholders are Son and SoftBank, or on the balance sheet of SoftBank itself, which has many shareholders. SoftBank executives say they haven’t decided. That matters because the answer affects the economics of the deal for SoftBank shareholders—and for Son himself. Vision Fund 2 has no outside investors, unlike the first Vision Fund, which raised tens of billions of dollars from sovereign wealth funds and tech giants. Vision Fund 1 has profited from huge wins like DoorDash and Coupang, despite high-profile losses like WeWork and Katerra. Instead, Son took a 17.25% stake in Vision Fund 2 for himself after the fund failed to raise outside money. Public filings in Japan show he also pledged about 9 million of his own in SoftBank shares to lenders—about 2% of his total SoftBank holdings—adding a layer of personal risk for a fund that’s deeply underwater. Son won’t get distributions from Vision Fund 2, which launched in 2019, until the fund’s realized and unrealized value exceeds the cost of investment by 30%. That is a long way to go, even with OpenAI’s gains. The fund’s $22 billion in losses amount to nearly one-third of the capital it invested across 280 different companies. Son’s stake in the fund adds to the exposure to his 30% stake in SoftBank itself, the conglomerate he’s run—through booms and busts—for more than four decades. Some analysts have started to ask questions about the arrangement and what Son’s 17% stake in the fund means for SoftBank’s shareholders, who have bid up SoftBank’s stock by about three-quarters this year. Today the shares hit an all-time high of 14,825 yen, giving the company a market cap of $146 billion. One equity analyst, David Gibson of MSFT Financial, told me the fund’s arrangement with Son reduces the potential returns that SoftBank shareholders could get from the OpenAI investment. “From a corporate governance perspective, it’s a disaster,” he said. SoftBank, for its part, has said Son’s investment deal got board approval. And it has said it invested in OpenAI through Vision Fund 2 because it is a minority stake where the firm doesn’t have control, unlike investments it holds on its balance sheet, like chip designer Arm, whose own stock-price gains have also helped power SoftBank’s valuation. SoftBank could own as much as 12% of OpenAI if it invests the additional $22 billion by the end of the year. SoftBank has a lot riding on its success. The OpenAI investment now could make up as much as 34% of the fund. The fund’s finance chief previously pledged to ensure the fund would not be “too concentrated,” after its multibillion-dollar bet on WeWork went belly up. It could still end in a similar tragedy. Right now, though, it’s starting to look like a triumph.
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