‘Masageddon’ and the Limits of the SoftBank Playbook

Well, 2020 is off to a busy start. One of the last OG Google executives—David Drummond—has left the Googleplex. (My thoughts here) Facebook’s new deep fake policy is facing the usual heat. And the trickle of layoffs at SoftBank-backed private tech companies has become a torrent. More on that later.

I’m off to New York next week to do some reporting, catch up with the team and meet with candidates for a number of open roles. We’re hiring an Apple reporter, a crypto reporter, a data scientist and a head of communications. Want to talk? You know how to find me.

But first, don’t forget to read Tom and Jessica’s inside look at how forthcoming mobile video service Quibi is really going for broke with its spending.

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The End of Vision?

Back in September, when Cory broke the story of WeWork’s impending layoffs, we wondered: Was this just the beginning? So, this week, when he got a tip that Getaround—the car rental service backed by SoftBank—was planning to cut a quarter of its staff, he whipped up a chart to keep track of the toll.

We published that chart—also below— with his scoop earlier this week. And then Friday, the tally shot up. Bloomberg reported that Oyo, the Indian hotel startup SoftBank investors have been hyping for years (and own nearly half of), is laying off 3,000 people.

That’s approximately 10,000 jobs lost from companies partly owned by SoftBank.

While SoftBank-backed companies have certainly created jobs too, the amount, combined with the losses, are a far cry from the 50,000 U.S. jobs that President Trump said SoftBank’s investments would add back in 2016. I am certain there are more layoffs to come.

It’s happening, of course, because SoftBank has been funneling money into companies at eye-popping valuations, stroking entrepreneur egos and making them rich, at least on paper. Then SoftBank encouraged those entrepreneurs to spend their way to growth as fast as possible, before competitors can catch up.

It’s an appealing playbook. Who doesn’t want to just spend their way to a business model? But it doesn’t work for most companies. Eventually the costs rise too high, and the growth doesn’t catch up. The team has to shrink. Or worse—the company collapses.

And despite the trickle of headlines, I wanted to call out the tally here because it hasn’t received enough attention.

You all probably recall the size of SoftBank’s first Vision Fund, one of the biggest investing vehicles of all-time. (It was $100 billion.) Many of us remember how much Uber was worth at its peak. ($72 billion.)

But the carnage is important to keep track of too.

There’s the equity value wiped off WeWork after investors balked at its corporate governance and losses ahead of its IPO: $35 billion. Since becoming a public company, Uber has dropped $14 billion from its highest private valuation.

There’s the collective amount of money that startups ranging from Airbnb to DoorDash and many others have burned through: hundreds of millions each.

And now there’s the jobs lost from companies that used the SoftBank playbook.

We can’t just blame SoftBank and its wildly ambitious founder Masayoshi Son. Entrepreneurs chose to work with SoftBank and are responsible for their businesses. Plain and simple.

But SoftBank deserves scrutiny as the promoter of a model that isn’t working and never really made much sense to begin with. Rival investors and entrepreneurs who didn’t take their money have been questioning the approach for years. But even some critics gave them the benefit of the doubt and added: “Masa is often right.”

I guess the issue now is, even if Masa is right about the potential of some of these businesses over the long term, what’s the cost? Billionaires like Masa or his investors can easily withstand big changes to their net worth. But there are other victims, employees among them.

It seems very unlikely that SoftBank will raise its second Vision Fund at the scale it hoped and promised: north of $100 billion. With steep losses on positions in Uber and across its portfolio, its largest investors are skeptical.

Entrepreneurs should be too. We’ve been writing about the strings attached to SoftBank’s big investments for years.

And the current landscape makes clear that when something seems too good to be true, it probably is.

Events 2020: We’re Heading Abroad!

By popular demand, in 2020, we’re planning more events outside the U.S., with stops planned in London, Hong Kong and Tokyo. For more information about speaking or sponsoring, email [email protected] 

This Week's The Information Articles. To read these articles, subscribe here. 

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