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Masayoshi Son Lost His Credibility and $11.5 Billion Due to the WeWork Saga

In Bloomberg The bankruptcy filing of WeWork Inc. brings to an end a protracted legal battle that exposed startling weaknesses in Japanese billionaire Masayoshi Son's investing strategy, harming his standing in the business considerably more than the money he lost.

Overriding the protests of his lieutenants, Son gave WeWork founder Adam Neumann billions of dollars from the Vision Fund and SoftBank Group Corp., driving the co-working space's valuation to an astounding $47 billion in the first quarter of 2019. A few months later, WeWork's IPO papers exposed significant losses and conflicts of interest, which incensed investors.

SoftBank is suffering larger losses from WeWork's subsequent collapse than from the projected $11.5 billion in stock losses and the additional $2.2 billion in debt that is still owed. WeWork's highly publicized downfall, combined with the Vision Fund's record $32 billion loss the previous year, severely damaged Son's reputation as a cunning investor who made one of venture capital's most illustrious gains by placing an early wager on Alibaba Group Holding Ltd., the leader in Chinese e-commerce.

"It's possible to bounce back from errors, but what about the impression that you lack expertise?" stated Aswath Damodaran, a professor at the Stern School of Business at New York University. "What he does says, 'I'm conceited.'"

Son's judgment might have been tainted by his experience coming from the dot-com crisis with a few winners like Alibaba, according to Damodaran.

"People thought SoftBank was a very cautious, astute, and forward-thinking company led by Son before WeWork," he stated. But occasionally, I believe, success gets to people's heads. They may have become a little too convinced that they knew more than everyone else because of their accomplishment. And those are the seeds that will eventually cause the fall.

WeWork will keep running even though it is bankrupt in order to strengthen its finances. A restructuring agreement between SoftBank and its current creditors will reduce its debt by more than $3 billion.

An email from a representative of the Japanese investor stated, "We think that today's restructuring support agreement represents the appropriate action for WeWork to reorganize its business and emerge from Chapter 11 proceedings." "SoftBank is committed to acting in our investors' best long-term interests."

As the largest technology investor in the world, Son established SoftBank's Vision Fund in 2017 and has since invested over $140 billion in hundreds of firms. Rivals in Silicon Valley have accused him of bidding up valuations and giving founders more money than they requested.

Son himself attributed his decision-making to instinct, comparing inspiration to the Force in Star Wars or the sparkle in a founder's eyes. However, according to former representatives of SoftBank and WeWork, Son's faith in his own instincts may have prevented him from paying attention to warning signs, criticism from his advisors, and even concerns expressed by Neumann.

In June, Son told shareholders, "I fell in love with WeWork," adding that some members of his board had informed him his faith was misplaced. He said that Son had pushed Neumann to think more broadly. "I might have been more wrong than Adam in telling him to be more combative."

Even after WeWork was forced to postpone its 2019 initial public offering (IPO), SoftBank came through with a $9.5 billion rescue plan. In a presentation that included a "hypothetical" route to WeWork's profitability, Son defended his choice.

Because the Saudi and Abu Dhabi wealth groups contributed the first $60 billion to the Vision Fund, Son's obsession with WeWork and other companies had a greater effect. Son's resolve to create unicorns as quickly as possible by pressuring rivals like Tiger Global Management and Sequoia Capital to match the Vision Fund's large checks, and by pressuring firms to scale up inflated values globally. Such values quickly collapsed when spending did not result in sales, earnings, or initial public offerings (IPOs).

Astris Advisory analyst Kirk Boodry stated, "The story behind it is just as important as the investment losses." "The artificially high valuation and hubris that preceded the eventual crash were driven by the massive cash infusion."

Although performance is still subpar, SoftBank's Vision Fund section is predicted to have turned a profit in the September quarter. With bets on businesses like the Chinese ride-hailing service Didi Global Inc., SoftBank has lost billions of dollars; in the meantime, businesses like Zume Pizza Inc., OneWeb Ltd., and Katerra Inc. have declared bankruptcy or ceased operations.

Son essentially stopped making investments last year, fired employees of Vision Fund, and tightened due diligence due to the growing losses. Son ceased to lead earnings calls as well.

This restraint, coupled with Arm Holdings Plc's $4.9 billion Nasdaq IPO in September as a chip design business, now provides the early adopter of artificial intelligence with the capital to launch another onslaught.

The focus now is on what Son will invest in next, according to Astris Advisory's Boodry, who stated, "The bankruptcy just puts a cap on the downside for Vision Fund 1 and for Vision Fund 2." "People's concerns over the portfolio's losses have decreased."

Damodaran of NYU is not persuaded. At SoftBank, which the billionaire owns about 30% of the company, just one person makes all the decisions, and Son's approach to investing is not going to alter, he said.

SoftBank is rumored to approach late-stage investing with the perspective of a venture investor. However, venture money is meant to be used for small wagers, and Damodaran claimed that the Vision Fund was "SoftBank on steroids." It was supposed to be small, but he made it enormous.

"You make every overreach you do even bigger by having tens of billions, hundreds of billions of dollars behind you," he remarked. "That could help explain how you make errors as significant as WeWork."

Source Yahoo finance