SoftBank Group Corp.
will raise far less than anticipated for its next fund after investors, disillusioned by bad bets like WeWork and by the chaotic and unorthodox way the fund operates, refused to put up new cash, people familiar with the matter said.Hailed by SoftBank last summer as a $108 billion sequel to its $100 billion Vision Fund, the new pool could end up being less than half that size, with nearly all of its capital coming from SoftBank itself, the people said.A failure by SoftBank to raise a big new fund would reverberate across the tech startup world. Dozens of companies from ride-hailing giant Uber Technologies to food delivery company DoorDash Inc. got big boosts from the funds nearly $90 billion two-year spending spree.Less money to invest could mean cuts to SoftBanks 500-person investing staff. Already several senior executives have left and others are relocating from the funds headquarters in London to Abu Dhabi. With a big new fund less likely, the firm has discussed doing one-off deals with investors, which would give them a say in how their money would be spent, and it has started a hedge fund, according to people close to the fund.
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The possible shift away from a long-term focus based on big investment funds has contributed to disagreements between SoftBank Chief Executive
and Vision Fund head
people familiar with the matter said. Mr. Son, who sees himself as a tech visionary, is focused on raising a second fund while Mr. Misra is willing to do one-off deals and is also behind the hedge fund, run by a close associate, that buys and sells public stocks, people close to the fund said.
A Vision Fund spokesman, commenting following the publication of this article, denied that Messrs. Son and Misra disagree about one-off investments and the hedge fund.
Mr. Son now has another distraction. The Wall Street Journal reported that activist investor Elliott Management Corp. has built up a more than $2.5 billion stake in SoftBank and is pushing the company to make changes including more share buybacks to boost its share price, which trades well below the value of its assets. Any additional share buybacks could constrain Mr. Sons futuristic investment plans.
Funded by huge commitments from Abu Dhabi and Saudi Arabia, SoftBanks $100 billion Vision Fund was by far the biggest vehicle created to invest in young tech companies. Even before it had finished investing that money, SoftBank said in July it expected to raise more than $108 billion for Vision Fund 2.
Since then many of the companies in the first Vision Fund have struggled and Mr. Sons strategy of making big investments to boost growth has failed to create big winners. The funds biggest debacle was WeWork, which failed to pull off its initial public offering amid scrutiny over its business model and management. The Vision Fund wrote down its $4.4 billion stake in WeWork by $3.5 billion.
The fund was run unlike almost any other of its size. Billion-dollar investment decisions were made in minutes rather than by committees after months of research. The fund was beset by turf battles and described by an outside consultant as chaotic and personality driven.
SoftBank began pushing companies in its portfolio to cut costs and turn a profit quickly. A number of Vision Fund portfolio companies have recently laid off staff to limit losses, including WeWork, Oyo Hotels & Homes, Uber, food-delivery company Rappi, and car-leasing company Fair.
Stung by losses in WeWork and fearful that the Vision Fund portfolio is filled with more troubled companies, Saudi Arabias Public Investment Fund and Abu Dhabis state-owned fund Mubadala Investment Co. have told Vision Fund executives any cash they put into the new fund must come from profits generated by winning investments from the first fund, people familiar with the matter said. The fund generated roughly $10 billion in disclosed profits.
That is unlikely soon, Mubadala staff concluded in recent weeks, according to a person familiar with their thinking. Mubadala recently undertook a more thorough analysis of Vision Fund investments, including fast-growing Indian hotel chain Oyo, which has been cutting staff after its chief executive admitted the company grew too aggressively. The analysis suggested it was unlikely to see the high returns promised by Mr. Son, the person said.
Smaller investors that SoftBank had initially named, including Taiwanese and Japanese insurers and two banks,
arent likely to invest, people familiar with the matter said. SoftBank says it could still attract outside cash, and expects money from some corporations. Other investors continue to assess potential future commitments, a SoftBank spokesman said.
Mubadala doesnt want to abandon SoftBank and Mr. Son, said people familiar with its thinking, but also doesnt want to participate in another massive fund that spends tens of billions of dollars as quickly as the first one did.
Khaldoon Al Mubarak
told Mr. Son at a recent meeting that the Vision Funds first batch of investments need more time to develop and Mubadala wants to continue evaluating the technology landscape before it commits to the next fund, said a person familiar with the meeting, effectively stalling Mr. Sons fundraising efforts.
Officials at PIF are similarly skeptical, though no decision has been made, said a person familiar with their thinking. Saudi Crown Prince
Mohammed bin Salman,
who chairs PIF and has built a strong relationship with Mr. Son, had previously considered adding to his $45 billion investment in the first Vision Fund with a big commitment to the second, this person said.
But the prince has since become more focused on driving his domestic agenda and plans to use $29.4 billion raised from the December listing of Saudi Aramco to fund PIF projects aimed at diversifying the countrys economy, people familiar with the matter said. Saudi officials have privately complained that the promised economic benefits of investing with SoftBank havent materializedin particular that Vision Fund portfolio companies havent opened offices in the country or hired workers there, the people said.
A spokesman for PIF said it doesnt comment on specific discussions or investment activities.
Getting outside money is crucial not just to feed Mr. Sons investing appetite: Without independent capital in the fund, any future gains would be heavily taxed.
With outsiders dragging their feet, the company is looking at more creative ways to raise cash. It recently borrowed against some of its Alibaba shares and is currently seeking to raise as much as $5 billion from lenders, backed by its stake in chip designer Arm Holdings PLC, people familiar with the plans said.
There have been executive departures at the Vision Fund amid the disarray. One managing partner, Praveen Akkiraju, left in December and another,
is negotiating his exit, according to a person familiar with his plans. Mr. Akkiraju didnt respond to an inquiry and Mr. Ronen declined to comment. SoftBank had no comment on the departures.
The executives who have moved to Abu Dhabi from the funds base in London are Akshay Naheta, a managing partner, and Penny Bodle, head of investor relations in Europe. Mr. Naheta, who ran a London hedge fund before joining SoftBank in 2017, is running the investing effort focused on public companies. They made the moves in part to curry favor with the emirate, whose participation in the second fund is being watched by other investors, people close to them said.
—Rory Jones, Phred Dvorak and Jenny Strasburg contributed to this article.
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Corrections & Amplifications Akshay Naheta was incorrectly referred to on second reference as Mr. Akshay, rather than Mr. Naheta, in an earlier version of this article. (Feb. 7)
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