Softbank Cuts Staff Amid "IRL" Scandal

Softbank's (under)performance is finally catching up to its grandiose ambitions. After five straight quarters of losses in its Vision Fund investment arm, the multinational investment holding company could lay off as many as 30% of its staff.

The firm had a headcount of 349 at the end of March after shedding about 150 jobs through H2 2022. Meanwhile, Vision Fund posted a $32bn loss for its fiscal year ending March 31, surpassing the previous record losses of $13.3bn in FY 2021/22 and $8.95bn in FY 2019/20.

SoftBank's Vision Fund focuses on high-growth stocks, particularly vulnerable to rising interest rates.

Facing tightening monetary conditions, the firm has sold some of its mature stakes to finance fresh ventures, including an entire stake in Uber, online real estate firm Opendoor, health care company Guardant and Chinese real estate and brokerage firm Beike—still, the proceeds of approx. $5.6bn is minuscule compared to growing losses.

When questioned by a shareholder about how SoftBank plans to cope with continued losses at the Vision Fund, Son brushed off the concern.

“That’s a tough question. But a gain or loss of like ¥2 trillion, ¥3 trillion is within the margin of error,” Son said.

“I know this may not be the way to address this for shareholders, but that’s how I think of it at the bottom of my heart. So, I’m just being frank,” he added.

Rising interest rates unquestionably influence the current market environment, forcing venture capital companies to be more selective. As capital flows slow down, growth companies soon face diminished valuations. Companies such as Oyo Hotels and Klarna Bank AB have suffered valuation slashes, with the latter falling from a $60bn high to a $6.7bn low.

SoftBank has a high proportion of unlisted companies in its portfolio, reducing its ability to book investment gains under such conditions. But, calling SoftBank a victim of these circumstances would be an exaggeration.

After years of aggressive investing, the firm gained a reputation for making reckless bets, the most famous being WeWork. However, new examples keep emerging, showing that the due diligence process is not up to the level of such a magnitude of operations.

Just weeks ago, a messaging app IRL shut down. A highly touted messaging startup aimed to become WeChat for the rest of the world, reaching a $1.2bn valuation in 2021. SoftBank led its Series C funding round, raising $170m.

Yet it was almost all fake. The company claimed 20 million monthly active users, which was closer to 1 million. The rest were bots. Although The Securities and Exchange Commission started probing whether IRL violated securities law as early as the middle of 2022, whether its former executives might face prosecution is still unknown.

Looking forward, SoftBank hopes the next big thing will turn the tide around and end this losing streak. With the ongoing hype about artificial intelligence, relief might come from the UK-based chipmaker Arm.

Acquired for $32bn in 2016, the UK-based chip designer was another doubtful purchase. Yet, with the artificial intelligence (AI) hype in 2023, Arm is becoming a hot commodity as its power-efficient designs might play a key role in AI development.

So far, the company has been talking to Intel ($INTC) about becoming an anchor IPO investor while maintaining contact with the U.S. semiconductor designer Nvidia ($NVDA), whose earlier attempt to acquire the company failed to pass the competition regulators.

Yet, negotiations are all but a done deal. While SoftBank seeks a valuation close to $80bn, Nvidia is more inclined toward the $35bn price tag.