Amid the tailspin at WeWork, Japanese conglomerate SoftBank just suffered the worst quarterly loss in its history. Its marquee investment fund, Vision Fund, wrote down its stakes in WeWork, Uber and more than a dozen other companies. The $3.5 billion writedown risks denting the support of Vision Fund investors, including Oracle founder Larry Ellison, Qualcomm and Apple.
Apple infused a reported $1 billion in Vision Fund in 2017, saying the stake would “speed the development of technologies.” And it did: Softbank invested tens of billions of dollars in companies breaking new ground in robotics, food delivery, artificial intelligence, genomics and more. Now some of those firms are worth far less than Softbank previously thought. The valuation of WeWork, for instance, which was once $47 billion, has reportedly plunged more than 80%.
Vision Fund’s high-tech investors could still be in the clear. As Axios notes, Vision Fund has a complicated capital structure, in which certain investors are guaranteed an annual return of 7%. The caveat: Some investors are effectively paying themselves the annual gain. Still, SoftBank’s latest quarterly report suggests that Vision Fund has increased in value overall, even when the writedowns are taken into account.
For Apple, the SoftBank relationship is more than just financial, and it stretches back to the firm’s late cofounder Steve Jobs. In 2005, two years before the iPhone launched, SoftBank chairman Masayoshi Son flew to meet Jobs in person. Armed with a crude drawing of a modified iPod, he implored Jobs to develop a smartphone that Son could sell in his native Japan.
Son recounted their meeting in a 2014 interview with Charlie Rose. “Don’t give me your drawing,” Jobs said, “I have my own.” Son pushed the Apple chief—whose intellect he likened to Leonardo da Vinci’s—to grant him exclusive rights to sell the iPhone when it was ready for market.
“You’re crazy,” Jobs said. But he relented. Son walked away with a deal.
That encounter may help explain Apple’s continued commitment to SoftBank. The Japanese conglomerate retains an extensive international telecommunications footprint—including ownership of a telecom carrier in Japan and a majority stake in Sprint—a vital source of distribution for Apple’s iPhones.
“Apple has a strong strategic relationship with SoftBank,” says Daniel Ives, a managing director at Wedbush Securities. “A lot of that is SoftBank’s tentacles in Asia across the wireless and telecommunications industry.” Ives adds that Apple “gets roughly 20% of its iPhone demand out of China alone.”
Indeed Apple, which declined to comment for this story, is expected to invest in Vision Fund II, according to SoftBank. The fund will focus on artificial intelligence.
It has been a year and a half of turbulence for SoftBank. Last October, the Saudi journalist Jamal Khashoggi was murdered in the Saudi consulate in Istanbul, prompting international condemnation of the Saudi government, one of Vision Fund’s principal backers.
WeWork is the most prominently troubled of SoftBank’s investments. The real estate firm had announced plans to go public this summer. Amid concerns about mismanagement and huge losses, it shelved those plans. SoftBank subsequently bailed out the firm at a fraction of its prior valuation, and founder Adam Neumann agreed to step down as CEO. Neumann nonetheless seems poised to walk away with more than $1 billion.
“I’m embarrassed and impatient,” Son said about the turmoil in an interview last month. “Looking at the growth of companies in the United States and China, there is a strong feeling that this is not enough.”
In a separate interview published in the Wall Street Journal on October 6, he said, “My own investment judgment was really bad. I regret it in many ways.”