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Let’s check it out and unpack what it can tell us about the most famous investing entity in the world.

Vision Fund 1: Q2 2019

This morning we’ll extract the of the earnings report. If you want to read the full document regarding SoftBank’s performance, which we recommend, .

In sum, Vision Fund 1 had a good quarter. It saw a number of markups to the value of some of its investments, leading to strong, “unrealized valuation gain[s].” That said, the fund did see some liquidity in the period.

The headline figures are as follows:

Operating income from SoftBank Vision Fund and Delta Fund was ¥397.6 billion, mainly attributable to an unrealized valuation gain of ¥408.5 billion, reflecting an increase in the fair values of OYO and its affiliate, Slack, Doordash, and other investments.

Putting that into less-jargony prose, the Vision Fund and Delta Fund (where , ) saw the value of some of their prior investments go up as they were repriced in new, more richly-valued private investments.

Let’s explore those markups.

Markups

You knew this already, implicitly at least. Recall that recently went public in a direct listing that greatly expanded its valuation (the company is worth $15.4 billion this morning; its was just over $7 billion; the Vision Fund put capital into the company ).

Continuing, recently raised a raft of cash at . That was higher than the March 1, 2018 round that the Vision Fund led. Indeed, while SoftBank took part in the company’s most recent round (), it led the firm’s 2018 Series D which valued the firm at a after the $535 million investment.

And has been on a tear as well. In short, some of SoftBank’s biggest investments generated impressive paper returns in the second quarter. (Recalling the above-quoted operating income figure, SoftBank calculates income from the group as the “gain and loss on investments at SoftBank Vision Fund and Delta Fund [minus] operating expenses.”)

Viewed in aggregate, the first Vision Fund’s investment tallies are impressive in scale. According to the company, the capital vehicle:

[h]eld 81 investments as of the first quarter-end at cost totaling $66.3 billion, with fair value amounting to $82.2 billion (excluding exited investments).

On that theme, how do the SoftBank Vision Fund’s extant, un-exited segment investments stack up with each other in terms of performance? Observe the following chart from the Q2 earnings document:

So, enterprise investments appear to be the strongest in percentage terms (up 64 percent, give or take), while consumer investments have generated the largest paper gains. That fintech has generated the smallest positive paper income is a bit surprising, given that the category has been hot in recent quarters.

Markdowns

Before we stop this morning, let’s dredge up the bad news.

Regular Crunchbase News readers will recall that IPO was priced lower than its investors hoped, and shares in the company have since shed value. You can see those results inside the Vision Fund’s earnings.

Here’s SoftBank explaining how the Vision Fund’s figures were tabulated [Bolding: Crunchbase News]:

Segment income was ¥397,630 million, compared with income of ¥239,944 million in the same period of the previous fiscal year. This was mainly attributable to unrealized gain on valuation of investments of ¥408,514 million. Of this, unrealized gain on valuation of investments totaling ¥603,840 million was recognized due to the increase in the fair values of investments in OYO and its affiliate, Slack, Doordash, and others. Conversely, unrealized loss totaling ¥195,326 million was recorded for the decrease in the fair values of investments in Uber and others.

Recall that the Vision Fund poured money into primary, and secondary Uber shares at a blended valuation lower than the topline price the firm commanded at the time. And SoftBank was still forced to mark its investment down. It’s a reminder of the struggles of ride-hailing companies in recent years; Lyft and Uber and others have seen market hype about their businesses slip after their growth slowed and steep losses persisted.

Vision Fund 2

We bring all of this to you as the background context for the impending Vision Fund 2, which has $108 billion in committed capital and perhaps more on the way. Of course, the first Vision Fund has a lot of work ahead of it to turn the rest of its illiquid private investments into liquid returns, but SoftBank will get at least one more go.

So long as DoorDash et al manage to defend their new, higher valuation, the bet on building Vision Fund 2 looks good. If the above-listed markups slip, the entire project could look a bit misshapen in retrospect. We’ll see.

Illustration: .

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SoftBank’s first Vision Fund’s epic size, large checks, and rapid-fire investment strategy shook the private markets. Companies of all sorts accepted money from Vision Fund 1 including , , , , and a host of others that you have heard of, along with a number of companies that you haven’t.

The ability for SoftBank, through its Vision Fund arm, to roll into high-growth private companies and hand them hundreds of millions — and in some cases, billions — of dollars reshaped the venture capital landscape. In response, some venture investors raised larger funds (see chart below) to compete.

While the Vision Fund 1 was world-impacting, whether it has proved sufficiently successful to warrant the creation of a successor was unclear until this week. While news had swirled that SoftBank was struggling to find the capital for Vision Fund 2, the Japanese conglomerate did find sufficient LPs to fund its new weapon.

It’s a long list. Indeed, per the , the list of investors goes as follows (condensed, edited):

SBG, Apple, Foxconn Technology Group, Microsoft Corp., Mizuho Bank, Sumitomo Mitsui Banking Corp., MUFG Bank, The Dai-ichi Life Insurance Co., Sumitomo Mitsui Trust Bank, SMBC Nikko Securities, Daiwa Securities Group, National Investment Corporation of National Bank of Kazakhstan, Standard Chartered Bank, and “major participants from Taiwan.” 

SoftBank won’t just deploy other peoples’ money, however. It will put about $38 billion of its own into the second Vision Fund, making it an anchor LP of the investment effort. SoftBank is, therefore, making a large, public double-down on its own strategy and vision for the future.

There is also a chance that there’s more capital coming in that has yet to be announced. Axios that Saudi Arabia and the UAE may contribute dollars on top of the $108 billion. If that works out, we’ll not only see the Vision Fund 2 swell in size, but we’ll also endure a repeat of the ethical issues that dogged Vision Fund 1; can you take money from theocratic monarchies with terrible human rights records if it is cycled through a multinational investment vehicle first? It’s mostly turning out that you can (more here).

Scale

While the Vision Fund 2 is happening, its exact final investing total and list of LPs aren’t fully baked. SoftBank itself notes in its release that its “total expected contribution of capital” is $108 billion based on various “Memoranda of Understandings.” That’s fine, but it’s not final final. Things could still shift about a little.

That aside, this is what the $108 billion sum looks like compared to some other 2019-announced venture funds of at least $1 billion:

Key LPs

Seeing Microsoft and Apple as listed LPs in Vision Fund 2 is perhaps unsurprising. The two American technology giants are cash-rich and likely ready to buy a piece of the future or invest in enough technology companies to get a feel for change underneath their vision. (This is the 500 Startups model, but a late-stage variant.)

I was skeptical of the idea of Microsoft as an LP in the Vision Fund because I made the mistake of grounding my views in the historical Microsoft, the same firm that was reticent to cut its own venture checks because it could only view those efforts through a balance-sheet focused lens. New Microsoft is out there buying GitHub and forking dollars into the Vision Fund. New Microsoft is more fun!

The existence of Apple and Microsoft and SoftBank on the same cap table helps make the case that there could be a Vision Fund 3. The trio could fund it themselves if they wanted. They won’t, but the fact means that if the Vision Fund 2 does well, a second sequel to the original isn’t impossible.

As I wrote this morning, there’s reason in the market to worry that today’s expansion and welcoming public markets will eventually change their tune. But it’s hard to not cast the Vision Fund 2’s existence as bullish and optimistic.

For the myriad unicorns hungry for capital but too immature for an IPO, the Vision Fund 2 could be a godsend. For one country in particular, the second Vision Fund has special importance. And no, we’re not talking about the domestic market. Let’s talk about China and its recent troubles.

China

As we’ve reported, China’s share of the global venture market has collapsed. Even more, its share of supergiant rounds (funding events of $100 million or more) has crashed. Those are the very sort of checks that the Vision Fund 2 will be able to write.

Which means that how the Vision Fund 2 approaches investing in China’s startup scene could set the tone for recovery of the China-based venture market (in supergiant terms, at least), or its continued disappointment. If the Vision Fund works aggressively in China, it could turn the tide and reverse the country’s current private capital slide. Or not.

That’s the power of a $100 billion vehicle. Or a $108 billion vehicle, but who’s counting.

Illustration: .