SoftBank's deal flow halved in Apr-June after portfolio takes heavy losses

The number of SoftBank Group Corp.’s Vision Fund investments halved in April-June after weak tech valuations sapped the risk appetite of the world’s biggest startup investor.

The Japanese backer of Uber Technologies Inc. and Didi Global Inc. put money into 35 startups and participated in financing rounds valued at $5.1 billion over the past three months, according to data compiled by Bloomberg. This compares with 70 deals worth a total $17.4 billion from a year ago. SoftBank led or co-led most of the rounds.

That’s a sharper slowdown than in venture capital activity worldwide. Global VC deal count fell by 6% in the last quarter compared with a year ago, to 7,651 deals worth $108.5 billion, according to research firm CB Insights. 

SoftBank, whose mammoth funds deployed $142 billion in the five years to March, is now a smaller presence among deal makers. Alibaba Group Holding Ltd.’s biggest shareholder invested in only two Chinese startups during the June quarter, down from six a year ago, for a total deal value of $220 million, Bloomberg’s data show.

A SoftBank spokeswoman declined to comment on Thursday.

Low tech valuations are draining SoftBank’s ability to turn public listings of its portfolio companies into liquidity to fuel its outsized bets. The prospect for a big return on SoftBank’s $32 billion purchase of chip designer unit Arm Ltd. through an initial public offering has dimmed amid a slump in chip-related stocks. SoftBank-backed ByteDance Ltd., whose planned IPO remains on hold, recently traded at valuations as low as $275 billion, down from its blended valuation of $460 billion a year ago, Bloomberg reported.

“The rest of the year will probably not look much different as less cash is coming in to fund new opportunities,” said Kirk Boodry of Redex Research who publishes on Smartkarma. “A sale of Fortress would help with that but the steady flow of IPOs that Vision Fund used to raise cash last year has largely dried up.”

Mubadala Investment Co. -- a backer of the first Vision Fund -- is in talks to acquire asset manager Fortress Investment Group from SoftBank, Bloomberg News reported earlier this month. The Abu Dhabi sovereign wealth fund is said to be discussing a deal that would value Fortress at more than $1 billion.

The value of new investments at SoftBank could shrink to as little as a quarter of what it was a year ago, its founder Masayoshi Son has said. The company reported an annual record loss of 2.64 trillion yen ($19 billion) at its Vision Fund unit in May on tumbling valuations. 

Venture capital worldwide has slowed to a trickle as investors become pickier and stingier, forcing companies to restructure or reassess valuations.

“We started talks for our latest funding round last summer, but by December, some of the investors who had initially shown interest had backed out,” said Akira Oki, an executive at Japanese startup LegalForce Inc., in which SoftBank led a 13.7 billion yen funding round last month. “There was a need to redo valuations based on what investors were thinking.”